State Bar of Arizona Ethics Opinions
97-01: Insurance Representation; Corporate Representation; Firm Name
Lawyers employed full-time as salaried in-house insurance company lawyers should not hold themselves out as a separate law firm under one or more of their surnames because to do so misrepresents their insurance company affiliation in violation of ER 7.5, as well as presenting other possible ethical problems. [ERs 1.7, 1.8, 2.1, 7.5)
The inquiring attorney requested an opinion regarding the ethical propriety of "captive law firms" practicing in Arizona.
These law firms are comprised of salaried insurance company lawyers participating in an "in-house law firm" established by the insurance company and using a "firm name" consisting of one or more of the names of the attorneys involved. The lawyers in the "firm" are employees of the insurance company only. As such, the "firm" is limited to representation only of insureds, at the direction of the insurer.
May salaried insurance company lawyers participate in an "in-house law firm" established by the insurance company and use a "firm name" consisting of one or more of the names of the attorney?
RELEVANT ETHICAL RULES
ER 1.7 Conflict of Interest
(a) A lawyer shall not represent a client if the representation of that client will be directlyadverse to another client, unless:
(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and
(2) each client consents after consultation.
(b) A lawyer shall not represent a client if the representation of that client may be
materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:
(1) the lawyer reasonably believes the representation will not be adversely
(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of
the implications of the common representation and the advantages and risks involved.
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ER 2.1 Advisor
In representing a client, a lawyer shall exercise independent professional judgment and render candid advice.
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ER 7.5 Firm Names and Letterheads
(a) A lawyer shall not use a firm name, letterhead or other professional designation thatviolates ER 7.1. A trade name may not be used by a lawyer in private practice.
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(d) Lawyers may state or imply that they practice in a partnership or other organization only when that is the fact.
A lawyer who is a salaried employee of an insurance company may not hold himself out with other lawyers similarly situated as a law firm if such would imply that the lawyers practice as a partnership when no partnership in fact exists. See, ER 7.5(d). The Arizona Supreme Court in In Re The Matter of Neville addressed an unintended violation of then DR 2-102(C), which rule did not substantially differ from ER 7.5. See, In Re The Matter of Neville, 147 Ariz. 106, 708 P.2d 1297 (1985). In Neville, Respondent used letterhead which contained the name of a law partnership, Ferrin & Neville, which although it was intended to exist, never came into existence. The Court found this to be a violation of the Code but found that it did not rise to the level of a serious ethical violation, apparently because there was no record of any third party reliance. Id. at 115, 1306. Under the present factual situation, however, it would appear that the sole purpose of the "captive law firm" members holding themselves out as a firm is to have third parties rely upon the perceived independence of the "firm's" lawyers. Thus, the violation of ER 7.5 would under these facts appear to be very serious as the violation suggests intentionally misleading the public.
Several other states' ethics committees have addressed the issue of the ethical propriety of insurance company attorney employees holding themselves out as a firm under their own names. Most recently, the Ohio Supreme Court Board of Commissioners on Grievances and Discipline, in Opinion 95-14, found the practice to be violative of their Code because holding oneself out as such would be false and misleading. See, Ohio Supreme Court Board of Commissioners of Grievances and Disciplinary Opinions, 95-14 (12-01-95) (law firm that consists only of insurance company employees is false and misleading). The New Jersey Superior Court Advisory Committee on Professional Ethics also held that attorney employees of an insurance carrier may not combine and hold themselves out under their names as a partnership. See, New Jersey Superior Court Advisory Committee on Professional Ethics, Opinion No. 593 (1986). Similarly, the Virginia State Bar in its Opinion No. 775, also issued in 1986, found it improper to fail to disclose the insurance employees status on cards, letterhead, etc.
There appears to be only one opinion to the contrary, namely, that of the Bar Association of Nassau County, Florida, wherein it was found that such employees need not identify themselves as insurance employees. See, Bar Association of Nassau County, Florida Opinion No. 95-5. Interestingly, this same body in an earlier opinion, Opinion No. 89-41 (1989) held that attorneys could not represent themselves as "outside" counsel when in fact they were "in-house."
In the most recent Supreme Court case in the area of attorney advertising, Peel v. Attorney Registration and Disciplinary Commission of Illinois, the Supreme Court, consistent with its prior holdings that lawyer advertising was protected commercial speech under the First Amendment, set aside a disciplinary action against a lawyer who held himself out as a specialist in a particular area of law notwithstanding he was not specialized by the State Bar because he was certified as a "specialist" by a particular association and he disclosed such so the statement was not misleading. 496 U.S. 91, 110 S.Ct. 2281, 110 L.Ed.2d 83 (1990). Under the current factual situation, since the "firm" is not truly a "firm," it would appear that the ruling in Peel and the other protections afforded commercial speech still should not limit a finding that the subject conduct is prohibited by the present professional rules of responsibility, as holding oneself out as a firm s firm, when not a firm, is clearly misleading.
In addition to violating ER 7.5, there may be additional ethical concerns with the proposed firm arrangement. Most significantly, the lawyers of the firm may have conflicts of interest, under ER 1.7, in representing the insureds at the direction of their employer - the insurance company. The lawyers' independent professional judgment could be materially limited by their employment arrangement. This Committee previously addressed these conflict issues in Arizona Opinion No. 94-03 (March 1, 1994). See, also, Am. Insurance Assn. v. Kentucky Bar Assn., 917 S.W.2d 568 (1996) (conflicts of interest for lawyer paid by insurer to represent insured).
Moreover, depending upon the facts, the following additional rules may have application and limit a lawyer's ability to be a member of such a "captive law firm":
ER 1.2(a) Scope of Representation
ER 1.4(b) Communication
ER 1.6(a) Confidentiality of Information
ER 1.8(f) Conflict of Interest, Prohibited Transactions
ER 4.3 Dealing With Unrepresented Person
ER 5.4 Professional Independence of a Lawyer
ER 7.1(a) Communications and Advertising Concerning a Lawyer's Services
For the foregoing reasons, lawyers employed as salaried in-house insurance company attorneys should not hold themselves out as a separate law firm under one or more of their surnames. Such "firms" misrepresent their insurance company affiliations, in violation of ER 7.5, and may present other ethical problems in view of the conflicts of interest created by the employment arrangement.
Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings. © State Bar of Arizona 1997