Inquiry is made concerning the ethical propriety of an attorney becoming an in-house employeeattorney to represent and defend the insureds of the employer-insurer.
ABA Informal Opinions 728 (1963) 822 (1965) and 783 (1965) provides that when an insurer retains an attorney to represent an insured, the insured is the attorney's client.
Tennessee Formal Ethics Opinion 83-F-52 states that the attorney should devote his complete loyalty to the client and not allow the person or entity who pays his fee, or anyone else, to regulate, direct, control or interfere with his professional judgment.
Canon 5 of the Code requires an attorney to exercise independent professional judgment on behalf of a client. It provides 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 possess 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 interest 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.
Disciplinary Rule 5-107(B) of the Code provides:
DR 5-107(B). 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 instances where 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. The attorney is bound by Disciplinary Rule 7-101(A) to represent client-insured zealously, and by DR 4-101 to preserve the confidences and secrets of the client-insured. There should be a full and complete disclosure of the possible effect of his representation on the exercise of independent professional judgment and the client-insured should be given an opportunity to evaluate the need for representation free of any potential conflict and all doubts should be resolved against the propriety of representation.
The attorney's continuing ethical obligations to the client-insured following the termination of the attorney-client relationship are (i) to continue to preserve the confidences and secrets of the former client; (ii) to abstain from attacking the resolution of the legal matter accomplished on behalf of the former client; and (iii) to abstain from representing another in an action involving the former client in a matter arising out of or closely related to the previous matter.
In the practice of law dealing with insurance defense it is difficult at times for the practitioner to forget about loyalty to the insurance carrier client who employs him/her on a regular basis as opposed to the loyalty to be devoted to the individual insured who may never be seen again during his/her entire practice. However, independent counsel means just that and in a general practice the independent counsel has other clients and is not solely dependent upon one client to provide his/her livelihood. The independent practitioner, therefore, would not be subject to the same pressure that an employee attorney would feel from the employer.
There are few cases where some question does not arise during the confidential conferences between the attorney and the clientinsured that might provide a conflict between the insured and the insurance carrier. Those situations can involve things such as the use of the vehicle or questions unrelated to the particular case at hand but which might affect whether or not the carrier would want to continue to carry that particular insured on its policy.
Such an arrangement is close to a lay corporation practicing law. The insurance industry collects premiums from insureds and in return provides various services including providing an attorney to protect the insureds interest. The premium dollar charged factors in the cost of doing business. For a lay corporation to charge a premium based upon legal services but to then turn around and use company employees on a salary to provide these services is close if not akin to fee splitting between professional and layman. If this were permitted, the other side of the coin would permit a lay corporation to hold itself out as a tort recovery clinic and then hire employee attorneys to do the work, pocketing the attorney fees and paying the lawyers a salary.
The three issues submitted for consideration are answered as follows:
This 10th day of September, 1993.
Thomas H. Rainey
Herman Morris, Jr.
Walker T. Tipton
APPROVED AND ADOPTED BY THE BOARD