80-F-2 - Agents for Title Insurance Companies

 

BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

FORMAL ETHICS OPINION 80-F-2


Under date of September 5, 1980, the Disciplinary Board received a request from an attorney in Hamilton County for a formal ethics opinion pursuant to Rule 42 Section 26(1), regarding attorneys serving as agents for title insurance companies and potential conflict of interests in this regard.

This inquiry appears to have been fully covered by the American Bar Association's Committee on Ethics and Professional Responsibility Formal Opinion 331 dated December 15, 1972, which by reference is adopted and incorporated herein as the formal ethics opinion of the Disciplinary Board of the Supreme Court of Tennessee.

Questions have been raised as to ethical problems that may arise out of the relationship between lawyers and title insurance companies and title guaranty funds under the Code of Professional Responsibility. The protection of a client's title has historically been the business of his lawyer through the issuance of a title opinion. However, title insurance companies and title guaranty funds (herein together called "title companies") have, in most states, been created by private industry as well as by bar associations in a number of states, and title companies frequently retain attorneys to write title insurance or to act as their agents. In addition, in many states, lawyers who are engaged by clients to examine titles are also closely involved in the operation of title insurance companies and in many instances have financial interests in these title insurance companies.

Under the Old Canons of Ethics

This Committee has considered this question in a number of opinions under the old Canons of Ethics. The old Canons of Ethics contained no prohibition against an attorney acting as agent for a title company or securing title insurance so long as there was full disclosure to the client and so long as the attorney complied with the Canons of Ethics, particularly Canons 27 and 38. (See Informal Opinions 501, 563, 716 and 883.)

The Committee, in Informal Opinion Nos. 726 and 731, stated that it was appropriate for a bar association to own and conduct a title insurance business and to write title insurance through attorneys so long as there was no violation of the Canons of Ethics with reference to advertising and so long as a full disclosure was made by the attorney of his interests in the title company.

As the Committee stated in Informal Opinion No. 726:

The business of examining records and preparing abstracts of title has historically been lawyer business. At an early stage in our history, lawyers waited on the court officers to examine their records in order to pass upon abstracts. Thereafter, lawyers began to keep their own records for the purpose of making it easier for them to prepare abstracts and examine records. About this same time, lay agencies also got into the business of preparing abstracts and certifying as to their correctness. This historical background is stated for the purpose of showing that the business of preparing abstracts is different from the operation of collection agencies or insurance agencies, which havebeen condemned by Ethics Opinions when conducted by lawyers in their offices.

In some instances where an attorney makes a title examination and writes a title insurance policy, there is no true attorney-client relationship with the insured. One such case is where the attorney is representing the lending institution and he examines the title for the lending institution and issues a title insurance policy; he is acting in that case as the attorney for the lending institution and not for the borrower, even though the borrower does pay the cost of title examination and title insurance as part of the loan costs. The fact that the borrower may ultimately pay for the title insurance by reason of the terms of the loan agreement still does not create the relationship of attorney and client between the attorney and the borrower. In that instance, if the attorney makes full disclosure to the lending institution of his interests, if any, in the title insurance company and of the fact that he may receive some financial compensation from it, and if the institution consents, there is nothing unethical in the attorney's conduct. (See Informal Opinion No. 563.)

Where the attorney represents both the buyer and seller or the lender and borrower, he should make full disclosure of the fact that he will receive a commission or dividend from the title company and obtain his client's consent to such arrangement. (See Informal Opinion No. 883.)

In Informal Opinion 1038, this Committee found no violation of ethics where attorneys and laymen organized and operated a title company so long as the company did not directly or indirectly advertise the lawyers who were stockholders.

The whole subject was discussed in the Committee's Formal Opinion No. 304, in which the question of possible violation of Canons No. 27 and 38 was discussed and the Committee concluded that there was nothing unethical in an attorney recommending title insurance or providing title insurance for clients so long as there was full disclosure to the client and there was no advertising of the attorney.

In summary, there was nothing in the old Canons of Ethics that prohibited attorneys from acting as agents for title companies or issuing title insurance policies and receiving compensation therefor so long as they made full disclosure and complied with the Canons of Ethics with reference to advertising.


Under the Code

An examination of the Code of Professional Responsibility reveals that there is no express disciplinary rule or prohibition against lawyers issuing title insurance policies, acting as agents for title companies, or receiving compensation from such title companies. However, Canon 5 ("A Lawyer should exercise Independent Professional Judgment on Behalf of a Client") is the Canon in the Code which must be considered, together with the Ethical Considerations ("EC") and Disciplinary Rules ("DR") thereunder.

EC 5-19 provides:

A lawyer may represent several clients whose interests are not actually or potentially differing. Nevertheless, he should explain any circumstances that might cause a client to question his undivided loyalty. Regardless of the belief of a lawyer that he may properly represent multiple clients, he must defer to a client who holds the contrary belief and withdraw from representation of that client.

DR 5-101(A) provides:

Except with the consent of his client after full disclosure, a lawyer shall not accept employment if the exercise of his professional judgment on behalf of his client will be or reasonably may be affected by his own financial, business, property, or personal interests.

DR 5-105(A), (B) and (C) provide:

(A) A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, except to the extent permitted under DR 5-105(C).
(B) A lawyer shall not continue multiple employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client, except to the extent permitted under DR 5-105(C).
(C) In the situations covered by DR 5-105(A) and (B), a lawyer may represent multiple clients if it is obvious that he can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each.

DR 5-107(A)(1) and (2) provide:

(A) Except with the consent of his client after full disclosure, a lawyer shall not:
(1) Accept compensation for his legal services from one other than his client.
(2) Accept from one other than his client anything of value related to his representation of or his employment by his client.

It is apparent that if the lawyer is financially interested in a title company which will supply title insurance to his client, he must obtain consent of his client after making full disclosure to the client of the circumstances. If, however, the lawyer is performing legal services for both the title company and the client, the lawyer may represent both only if, first, it is obvious that he can adequately represent the interest of each, and, secondly, both the title company and the client consent to the representation after the lawyer has fully disclosed the possible effect of such dual representation on the exercise of his independent professional judgment on behalf of each. He must not, of course, violate any other Code provision in his handling of the transaction.

The Committee therefore holds that it is not a violation of the Code of Professional Responsibility, per se, for an attorney to act as agent for a title company and to be compensated therefor if such conditions are met.

This 28th day of October, 1980.

ETHICS COMMITTEE:

Joe Cummings
John R. Rucker
F. Evans Harvill


APPROVED AND ADOPTED BY THE BOARD