Academic journal article Journal of the International Academy for Case Studies

Use of Staff Attorneys in Defending Insurance Cases: Can an Attorney Serve Two Masters?

Academic journal article Journal of the International Academy for Case Studies

Use of Staff Attorneys in Defending Insurance Cases: Can an Attorney Serve Two Masters?

Article excerpt

CASE DESCRIPTION

This case deals with the issue of whether or not staff attorneys, employed by an insurance corporation, can legally or effectively represent an insured client in an insurance defense case. This case study will examine the practical and ethical issues involved in the case: Unauthorized Practice of Law Committee v. American Home Assur. Co., Inc., 261 S.W.3d 24 Tex.Sup. Ct. J. 590 (Tex. Mar 28, 2008) (American Home). The primary area of concern for this case is whether or not the interest of the insurance company and their insured are ever truly the same. Secondary issues in this case study will include an examination of whether or not the acts of a staff attorney constitute the acts of a corporation itself, and if they do - is this an unauthorized practice of law. An additional secondary issue is the idea that by the nature of his employment, a staff attorney's legal judgment may be influenced in that his employer controls the scope and depth of investigations, fees made available for discovery, expert testimony, and general guidelines the attorney must follow in pursuing the defense in trial.

This case is designed for use in an undergraduate business law/business ethics course, or graduate level course in management law. The various legal aspects emphasized in this case could be taught in one fifty-minute class. The assignment is expected to require approximately 1 to 2 hours of outside preparation time by the student.

CASE SYNOPSIS

Like many states, Texas has long struggled with the question of how many clients does an attorney, who has been hired by an insurer to defend an insured, have. Courts have tended to rule that these attorneys have two clients in the insurer and the insured, yet they owe an unqualified loyalty to the insured who has been sued. The Unauthorized Practice of Law Committee has sought to end or limit this practice based on concerns that a staff attorney, whose actions can be strictly controlled by his employer, will have an irreconcilable conflict of interest and be unable to give full allegiance to the insured.

In 2008 the Supreme Court of Texas reviewed a prior decision of the Court of Appeals for the Eleventh District of Texas. In American Home, the court was asked to determine if an insurance company's use of staff attorneys to defend cases filed against their insured resulted in the insurance company practicing law. If this did constitute the practice of law it would be a violation of Texas law. The Court ruled in part that the use of staff attorneys did not constitute unauthorized practice of law on the part of the insurance corporations. This case study will discuss that decision and attempt to determine if a staff attorney can avoid being improperly influenced by their nonattorney supervisors and those supervisors' duties of maximizing profit.

INTRODUCTION

In examining the tripartite relationship between an insurer, counsel provided by that insurer, and the insured to whom counsel is provided, it has long been accepted that insurers can provide legal counsel for their customers to aid in defending suits covered by the contractual agreement between the insured and the insurance company. Since the insurer has the duty to indemnify their insureds from losses covered by these insurance contracts, the insurance company is allowed to exert some level of control over retained defense attorneys. Much less settled is the idea that an insurance company can use staff attorneys, actual employees of the insurance firm, to defend these cases.

Currently only two states, Kentucky and North Carolina, prohibit staff attorneys from defending insures, while many other states do allow the practice. The concern of critics of this practice is primarily that through the control exerted by nonattorney officers and shareholders of the insurance company, the company itself is practicing law. In 2008 through their decision in the case of Unauthorized Practice of Law Committee v. …

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