Academic journal article Defense Counsel Journal

Defense by Salaried Counsel: A Bane or a Blessing?

Academic journal article Defense Counsel Journal

Defense by Salaried Counsel: A Bane or a Blessing?

Article excerpt

WITHIN recent years, there has been a noticeable increase by insurance companies in the use of salaried counsel to defend their insureds.(1) The insurers' objective is to save money over the cost of outside counsel and to achieve more efficient claims handling. The initial saving is the elimination of the profit margin of outside counsel. Insurers also believe that the quality of representation can be enhanced. By training staff counsel in the particular liability lines written by the insurer, significant expertise and efficiency can be developed, as augmented by the repeated handling of such cases.

But there is another perspective. Not everyone perceives the development of staff counsel operations to be beneficial. Most critics are other lawyers--usually defense lawyers. Some people believe that salaried counsel are neither as competent nor as loyal to clients as outside counsel, and they assert that the cost savings of using salaried counsel are achieved by providing less able and less loyal representation.

Some of these remarks proceed from a distrust that insurers' motivations place their own economic interests above that of their insureds. That distrust taints salaried attorneys. Some critics are sincere; others may be reacting to an actual or threatened loss of business in a recessionary legal economy, Tension already exists for defense lawyers concerning insurers' billing and case handling policies.(2)

The legality and ethical propriety of salaried counsel operations have been challenged.(3) The attacks have been on two grounds. First is the claim that the use of salaried counsel to defend insureds engages the insurance corporation in the unauthorized practice of law. Second is the contention that the insurance company's use of employee-lawyers creates an environment of actual or potential conflicting interests. Political action has been one consequence. In Tennessee, for example, the state supreme court's Board of Professional Responsibility adopted a formal opinion prohibiting the use of staff counsel, but the court stayed the effectiveness of that position pending hearings. As of September 1994, no decision had been issued.(4)

Ironically, the recessionary forces and increased development of staff counsel operations have accelerated their use. More lawyers are looking toward staff counsel operations as a career. The salaries offered have become more competitive because many insurers recognize the importance of hiring better qualified lawyers. One consequence is a heightened professionalism on the part of salaried counsel, who insist that their employers assure working environments that comport to high ethical standards.

These developments, coupled with the increased ethical responsibilities imposed on defense counsel generally, require that insurers structure their staff counsel operations comparable to law firms. In fact, the larger staff counsel operations resemble the large, interstate law firms both in management and in dealing with ethical and professional problems that need to be anticipated and solved.

This article examines these issues. One goal is to evaluate the validity of the various perceptions. Another is to discuss both the differences and commonality between outside counsel and staff counsel. The issues peculiar to staff counsel operations are discussed and suggestions are offered. Underlying this examination is the author's belief that staff counsel operations are not a mere economic fad, but a permanent reality. Insurers, as other corporations, have found the establishment of inhouse law firms to be prudent for certain legal needs.


A. Unauthorized Practice of Law

The most common challenge to house counsel operations is the claim that the use of salaried lawyers to defend insureds by insurance corporations is the unauthorized practice of law. The courts usually have rejected this contention. …

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