Inquiry is made concerning the propriety of accepting employment by an insurer on behalf of an insured with conditions limiting or directing the scope and extent of pre-trial discovery.
It is well settled that when an insurer retains an attorney to represent an insured the insured is the attorney's client. The relationship between the insured-client and the attorney should be direct. The attorney should devote his complete loyalty to the insured-client and not allow the insurer, or anyone else, to regulate, direct, control or interfere with his professional judgment. See Tennessee Formal Ethics Opinions 85-F-100 and 83-F-52; and ABA Informal Opinions 728 (1963), 822 (1965) and 783 (1965). See also ABA Formal Opinion 87-355 (1987).1
The standards of professional conduct expected of lawyers are expressed in general terms in the Canons of the Code of Professional Responsibility. Canon 5 of the Code states that a lawyer should exercise independent professional judgment on behalf of a client. This is a basic and elementary element of the client-attorney relationship. The aspirational objectives toward which lawyers should strive are stated in the Ethical Considerations of the Code. These provide a body of principles upon which lawyers may rely for guidance. The Ethical Considerations material to the issue addressed in this opinion are as follows:
EC 5-1. The professional judgment of a lawyer should be exercised---solely for the benefit of his client and free of compromising influences and loyalties. Neither his personal interests, the interests of other clients, nor the desires of third persons should be permitted to dilute his loyalty to his client.
EC 5-21. The obligation of a lawyer to exercise professional judgment solely on behalf of his client requires that he disregard the desires of others that might impair his free judgment. The desires of a third person will seldom adversely affect a lawyer unless that person is in a position to exert strong economic, political or social pressures upon the lawyer. These influences are often subtle, and a lawyer must be alert to their existence ---
EC 5-22. Economic, political, or social pressures by third persons are less likely to impinge upon the independent judgment of a lawyer in a matter in which he is compensated directly by his client and his professional work is exclusively with his client. On the other hand, if a lawyer is compensated from a source other than his client, he may feel a sense of responsibility to someone other than his client.
EC 5-23. A person or organization that pays or furnishes lawyers to represent others possesses a potential power to exert strong pressures against the independent judgment of those lawyers. Some employers may be interested in furthering their own economic, political or social goals without regard to the professional responsibility of the lawyer to his individual client. --- an employer may seek, consciously or unconsciously, to further its own economic interests through the action of the lawyers employed by it. Since a lawyer must always be free to exercise his professional judgment without regard to the interests or motives of a third person, the lawyer who is employed by one to represent another must constantly guard against erosion of his professional freedom.
The aspirational objectives of the Ethical Considerations cited hereinabove become mandatory in character in Disciplinary Rule 5-107(B) of the Code, to-wit:
A lawyer shall not permit a person who recommends, employs, or pays him to render legal services for another to direct or regulate his professional judgment in rendering such legal services.
In addition, Disciplinary Rules 5-105(A) and (B) of the Code prohibit employment by a lawyer in instances wherein the exercise of his independent professional judgment in behalf of a client will be adversely affected or if it is likely to involve the lawyer in representing differing interests. The term "differing interests" is defined by the Code as:
---every interest that will adversely affect either the judgment or the loyalty of a lawyer to a client, whether it be a conflicting, inconsistent, diverse, or other interest.
Tennessee Formal Ethics Opinion 85-F-100 cites certain instances wherein the insured and insurer may have differing interests. One that is readily apparent and material to the issue herein is when the insured has been sued in excess of the coverage provided by the insurer. Opinion 85-F-100 states, in part;
In instances wherein an attorney is employed by an insurer to represent an insured the attorney is in the precarious position of having a potential, if not actual, conflict of interest. He is bound --- to represent the client-insured zealously ---.
An attorney may not accept employment by an insurer on behalf of an insured with conditionslimiting or directing the scope and extent off his representation of the insured in any manner, including pre-trial discovery.
This 2nd day of August, 1988.
Henry H. Hancock
Kitty G. Grubb
Thomas H. Rainey
APPROVED AND ADOPTED BY THE BOARD
1 ABA Formal Opinion 87-355 (1987) permits lawyers participating in for-profit prepaid legal service plans if the plan inter alia allows the lawyer to exercise independent professional judgment.