Insurance Law: In-House Counsel To Defend Insureds

Defense of an Insured by Insurer’s In-House Counsel

A trend toward the use of in-house counsel to defend insureds has emerged. Insurers benefit because in-house attorneys become specialists not only in general insurance law, but also in the particular workings of their employer.  Additionally, the insurer recognizes savings through not paying outside counsel bills.

When an in-house attorney represents an insured, unique ethical issues may arise, including whether the attorney is assisting the insurer in the unauthorized practice of law. 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” as doing so would constitute aiding the insurer in the unauthorized practice of law. There is little doubt that the use of in-house attorneys should intensify attention on the tripartite relationship.  However, the majority of jurisdictions – including Georgia – hold that an in-house attorney may defend an insured without engaging the insurer in the unauthorized practice of law.

The ABA has also endorsed this view, holding that the ethics rules do not prevent insurance staff counsel from defending policyholders. Staff counsel for the insurer may provide legal representation to both the insured and insurer in an insurance defense claim, so long as he or she:

• informs the insured of their status
•  exercises independent professional judgment.  However, insurance staff counsel must disclose his or her employment status and affiliation with the insurance company to all insureds-clients. Such disclosure should occur at the earliest opportunity, such as during the initial meeting with the client or through appropriate language in the initial letter to the client.

Ethical Situations: The Insured And In-House Attorney

Unique ethical situations arise when an in-house attorney represents an insured. A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents. The in-house attorney must ensure that he or she does not develop an attorney-client relationship with an employee of the company who is not a “duly authorized constituent.”

An in-house attorney for an insurer must also beware of ethical duties in attorney-client relationships with the insurer’s agents as the actions of an agent may have an important (and possibly determinative) impact on an insurer’s liability. For example, an in-house attorney may interview an insurance agent in order to defend a case.  If, during that interview, the agent reveals confidential information to the attorney, the attorney may be obligated to maintain the confidentiality of that information.  Additionally, if the attorney provides legal advice to the agent, an attorney-client relationship may develop.