Ethics Opinions

Editor's Note: This opinion was originally published as RPC 151 (Revised).

 

Representation of Insured and Insurer

 

Opinion discusses when an attorney who is a full-time employee of an insurance company may represent the insurance company, the insured, or others respecting various matters of interest to the insurance company.

 

Note: The following inquiries were submitted to seek a clarification of CPR 326 (adopted January 14, 1983) which reconsidered opinion 682 (1969) and CPR 19 (1974).

 

Inquiry #1:

 

May an attorney who is a full-time salaried employee of insurance company A appear as attorney of record on behalf of insurance company A in a declaratory judgment action brought by insurance company A?

 

Opinion #1:

 

CPR 326 (1983) was reviewed by the North Carolina Supreme Court in Gardner v. N.C. State Bar, 316 N.C. 285, 341 S.E.2d 517 (1986). The North Carolina Supreme Court held that a licensed attorney who is a full-time employee of an insurance company may not ethically represent one of the company's insureds as counsel of record in an action brought by a third party for a claim covered by the insurance policy. 316 N.C. at 286. The court also held that the attorney could not properly appear as counsel of record for the insured in the prosecution of a subrogation claim for property damage. Id. The insurance company is not a named party in either the third party action or the subrogation claim and in both cases, the insured is the real party in interest. Thus, an insurance company attorney who appears under these circumstances is acting for the insured not the company, in violation G.S. §84-5, which forbids corporations to engage in the practice of law or to represent a person in court. 316 N.C. at 291.

 

Where an insurance company brings a declaratory judgment action, the company is a named party to the action. A staff attorney for the company may appear as attorney of record for the insurance company in such a situation without running afoul of G.S. §84-5.

 

Inquiry #2:

 

May a staff attorney employed full time by an insurance company appear as attorney of record on behalf of the insurance company in a declaratory judgment action filed against it by its insured or another insurance carrier?

 

Opinion #2:

 

Yes, so long as the staff attorney represents the insurance company and not its insured. See answer to Inquiry #1.

 

Inquiry #3:

 

In a declaratory judgment action which names both insurance company A and the policyholder, may a staff attorney who is a full-time salaried employee of insurance company A represent both insurance company A and the policyholder if the interests of the policyholder and the insurance carrier are identical?

 

Opinion #3:

 

No. CPR 326 noted that the attorney's paramount responsibility is to the court and client which he serves before the court. This responsibility should not be influenced by any other entity. When an attorney, who is employed by a corporation, is directed by his employer in the representation of other individual litigants, he is subject to the direct control of his employer, which is not itself the litigant and which is not itself subject to professional discipline as an officer of the court. This diluted responsibility to the court and the client must be avoided.

 

The conflict perceived by the ethics committee is thus as much a function of the relationship of the insurance company, in-house counsel and the insured as the actual difference in their interests in the particular litigation. Even where, as in this inquiry, the insurance company and the insured have similar interests in the lawsuit, the problem of the "diluted responsibility" to the client created by the introduction of a corporate entity into the legal relationship will continue to exist.

 

Inquiry #4:

 

May a staff attorney who is a full-time salaried employee of insurance company A appear as attorney of record before the North Carolina Industrial Commission on behalf of insurance company A and its insured, the employer?

 

Opinion #4:

 

No. The interests of the insurance company and its insured in such an action conflict, in violation of Rule 5.1 of the Rules of Professional Conduct. See also answer to Inquiry #3.

 

Inquiry #5:

 

A claim has been submitted to insurance company A. The claimant's attorney and insurance company A's representative have agreed to refer the claim to voluntary binding arbitration.

 

There is a high/low agreement which prescribes the perimeters of possible arbitration awards, and the high is within the insured's policy limits. In this situation may an attorney who is a full-time salaried employee of insurance company A appear at a live hearing of the arbitration to represent the insurance company's interest in this claim which has been made against its insured's policy and to argue the matter before the arbitrator?

 

Opinion #5:

 

No. The insured, not the insurance company, is the real party in interest in such an arbitration proceeding. "If an insurance company, through its employees, appears for an insured, it would be appearing as an attorney for someone else. The company itself is not the party to the action. The insured is the one who is named." Gardner v. N.C. State Bar, 316 N.C. 285, 291 (1986). Consequently, the insurance company would violate G.S. §84-5 by appearing through its in-house counsel at the proceeding. Independent outside counsel should be hired to appear for the insured. The fact that the arbitration award will be within the insured's policy limits does not completely negate the intrusion on the attorney's professional independent judgment created by the in-house attorney's relationship with the employer/insurance company.

 

Inquiry #6:

 

Under the same fact situation as Inquiry #5, if the arbitration were conducted through documents procedure only without a live hearing, may the staff attorney for the insurance company appear as attorney of record in the name of its insured to protect the insurance company's interest?

 

Opinion #6:

 

No. See response to Inquiry #5. The insurance company would still be practicing law for another, in violation of G.S. §84-5, even though its activities would be restricted to the preparation and submission of documents.

 

Inquiry #7:

 

May a staff attorney employed full time by an insurance company take an examination under oath of its insured who is pursuing a first party claim under the insured's insurance policy?

 

Opinion #7:

 

Yes, so long as the in-house attorney is acting only for the insurance company in the proceeding.

 

Inquiry #8:

 

May a staff attorney employed full time by an insurance company appear as attorney of record on behalf of and in the name of the company and pursue a claim against its insured?

 

Opinion #8:

 

Yes. There is no conflict of interest or infringement of the staff attorney's professional judgment while the company is pursuing a claim against the insured for the company. The company has a primary interest in the claim and may represent itself respecting such claim without running afoul of G.S. §84-5.

 

Inquiry #9:

 

May a staff attorney employed full time by an insurance company appear as attorney of record on behalf of the company and pursue a subrogation claim on behalf of the company joining with its insured as a coplaintiff against a third party who is liable for damages to the insured?

 

Opinion #9:

 

No. In pursuing the subrogation claim on behalf of the company with the insured as coplaintiff, the insurance company attorney would be required to make decisions respecting the rights of the insured, in violation of G.S. §84-5. Such a situation also creates a potential conflict of interest in violation of Rule 5.1.

 

Inquiry #10:

 

May a staff attorney employed full time by an insurance company appear as attorney of record for the company in a hit-and-run suit brought against the name of the insurance company or brought against an unknown defendant designated as "John Doe"?

 

Opinion #10:

 

Yes. In this case, it appears that the insurance company is the real party in interest and may be subject to liability apart from the insured's liability. Consequently, the insurance company may represent itself without violating G.S. §84-5.

 

Inquiry #11:

 

May a staff attorney employed full time by an insurance company appear as attorney of record for the company, but making that appearance in the name of an uninsured tort-feasor if the company's insured is pursuing an uninsured motorist claim? Assume for the sake of this inquiry that the insurance company has waived its subrogation rights.

 

Opinion #11:

 

No. Although G.S. §20-279.21(b)(3) in the uninsured motorist setting and G.S. §20-279.21(b)(4) in the underinsured motorist setting permit the insurance carrier to appear in defense of the claim although not named in the caption or named as a party, "anonymously" defending the lawsuit brought against the tort-feasor logically requires defense counsel to seem to be appearing on behalf of the tort-feasor. To do so constitutes practicing law, as that term is defined in G.S. §84-2.1, on behalf of another. The corporate insurer through its employees cannot practice law and appear on behalf of others under G.S. §84-5 as interpreted by the court in Gardner v. N.C. State Bar, supra.

 

Inquiry #11(a):

 

Same facts as Inquiry #11 except in this situation assume that the insurance company does not waive its subrogation rights.

 

Opinion #11(a):

 

No. See response to Inquiry #11.

 

Inquiry #12:

 

Same facts as Inquiry #11 except in this situation the staff attorney is representing the insurance company's interest in the name of an underinsured tort-feasor instead of in the name of an uninsured tort-feasor.

 

Opinion #12:

 

No. See response to Inquiry #11.

 

Inquiry #13:

 

Same inquiry as Inquiry #12 above; however, assume the insurance carrier is not willing to waive its subrogation rights.

 

Opinion #13:

 

No. See response to Inquiry #11.

 

Inquiry #14:

 

May a full-time salaried staff attorney of an insurance company appear for the company and file an interpleader action seeking court's approval for the allocation of settlement proceeds in a liability claim situation?

 

Opinion #14:

 

Yes, provided that the insurance company is a real party in interest and has rights which would be affected by the allocation of the settlement proceeds. The attorney could not properly represent the insured in this situation, however.