Ethics Opinions

Print opinion

Back to ethics opinions search

2009 Formal Ethics Opinion 14

October 29, 2010

Placing Client’s Title Insurance in Agency in Which Lawyer’s Spouse Has an Ownership Interest


Opinion rules that a lawyer participating in a real estate transaction may not in such transaction place his client’s title insurance in a title insurance agency in which the lawyer’s spouse has any ownership interest.


Inquiry:


May Lawyer participating in a real estate transaction place his client’s title insurance with a title insurance agency in which Lawyer’s spouse has an ownership interest?


Opinion:


No. Rule 1.7 provides that a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if the representation of one or more clients may be materially limited by a personal interest of the lawyer. Rule 1.7(a)(2).


The Ethics Committee has previously examined personal conflicts of interest between title insurance agencies and real estate closing lawyers. In CPR 101 (1977), the Ethics Committee concluded that it is unethical for a lawyer who owns a substantial interest, directly or indirectly, in a title insurance agency, and who acts as a lawyer in a real estate transaction insured by the title insurance agency, to receive any compensation or benefit from the title insurance agency regardless of whether the ownership interest is disclosed to the client.


In RPC 185 (1994), the Ethics Committee determined that even an insubstantial interest in a title insurance agency could materially impair the judgment of the closing lawyer. The opinion provides that if a title agency, and, therefore, indirectly a closing lawyer who owns an interest in the title agency, will receive compensation from the client as a result of the closing of the transaction, the lawyer's personal interest in having the title insurance agency receive its compensation could conflict with the lawyer's duty to close the transaction only if it is in the client's best interest. The opinion held that the conflict of interest is too great to be allowed even if the client wishes to consent.


In an unpublished ethics decision, ED 97-6 (1998), the Ethics Committee examined a fact scenario substantially similar to the one currently presented and determined that it is a conflict of interest for a lawyer to perform title work and place the title insurance with a title insurance agency operated by the lawyer’s spouse.


The instant scenario presents a personal conflict of interest. The lawyer’s personal interest in having his spouse’s title insurance agency receive its compensation may conflict with the lawyer's duty to close the transaction only if it is in the client's best interest. In addition, the lawyer’s personal relationship with the owner of the title insurance company will influence the lawyer’s choice of the spouse’s company as the insurer, as well as the vigorousness of the lawyer’s negotiations with the title company on his client’s behalf. Issues of title insurance coverage may have to be negotiated between the closing lawyer and the insurer. The lawyer’s client and the insurer will necessarily have competing interests as to the extent of the coverage and the amount of the premium.


The conflict of interest is too great to be allowed, even with the client’s informed consent. A closing lawyer must be able to make an independent recommendation of a title insurance company to his client, unbiased by any personal interest. In addition, a lawyer opining on title to property should be independent from the title insurance agency issuing the title insurance in reliance upon that opinion. This is consistent with the emphasis that the North Carolina legislature has placed on the professional and financial independence of the closing lawyer from the title insurance agency. See, e.g. N.C.G.S. § 58-26-1(a)(title insurance company may not issue insurance as to North Carolina real property unless the company has obtained the opinion of a North Carolina licensed attorney who is not an employee or agent of the company) and N.C.G.S. § 58-27-5(a) (lawyer who performs legal services incident to a real estate sale may not receive any payment, directly or indirectly, in connection with the issuance of title insurance for any real property which is a part of such sale).


This scenario differs from RPC 188, in which the Ethics Committee concluded that a lawyer may represent the buyer and/or lender in a real estate transaction brokered by the lawyer’s spouse. RPC 188 provides that, although there is a conflict, clients may consent to the representation. RPC 188 can be distinguished because the lawyer did not choose the real estate broker for his client and was not involved in negotiations with the real estate broker as to the terms of the real estate sales contract.

Back to ethics opinions search

THE NORTH CAROLINA STATE BAR
217 E. Edenton Street (27601) • PO Box 25908 • Raleigh, NC 27611-5908 • 919.828.4620
Copyright North Carolina State Bar. All rights reserved.