In-House Counsel

You want to know the status of Connecticut insurance carriers' use of in-house attorneys to represent insureds in liability cases, in light of concerns about the unauthorized practice of law and potential conflicts of interests.

Connecticut insurance carriers use in-house attorneys to represent insureds in liability cases. They also retain outside counsel, especially where there are questions about coverage or where the claim may exceed policy limits.

A 1993 Superior Court ruling rejected objections raised by a former salaried supervising attorney for a major carrier based on allegations of the unauthorized practice of law and conflict of interests.

The increasing use of salaried or in-house attorneys rather than retained or outside attorneys by insurance companies to represent insureds when they are sued has raised ethical and legal questions.

One criticism of the use of in-house attorneys is that the insurer is engaged in the unauthorized and unlicensed practice of law.

Another criticism is that this practice brings with it a potential conflict of interest that stems from the tripartite relationship between insurer, insured, and the attorney hired to defend the insured. Some people believe that the use of in-house attorneys brings into question their ability to maintain the professional balance necessary in a relationship that requires them to represent both the insured and the insurer. This relationship is seen as a conflict for an attorney whose primary loyalty must be with the client rather than his employer. These issues were addressed in a 1993 Connecticut Superior Court ruling.

In King v. Guiliani, 9 Conn. L. Rptr. No. 17, the major issue was whether a "captive" law firm (a law firm in which all attorneys and staff are employees of an insurance company, the company pays all office expenses and salaries, and the attorneys are assigned to represent insureds against whom claims have been made) may properly represent insureds in liability cases.

Thompson, Robertson and Fusco (T, R & F) were full-time, salaried attorney employees of United States Fidelity and Guaranty Company (USF & G) who practiced as a law firm representing USF & G's insureds in lawsuits brought against them. USF & G fired Thompson. Thompson sued USF & G and asked the court to oust Robertson and Fusco from 172 cases in which T, R & F had appeared and allow him to continue representing the insureds.

After USF & G terminated Thompson, the other lawyers filed appearances under the name "Robertson & Fusco" (R & F). Thompson objected to those appearances claiming that USF & G could not terminate his representation of the insureds by terminating his employment. He claimed that USF & G engaged in the unauthorized practice of law by:

1. creating and maintaining a law office staffed by attorney employees,

2. directing R & F to file superseding appearances when USF & G had no right to designate counsel, and

3. improperly interfering with his attorney-client relationship by termination of his employment.

Thompson further claimed that R & F should not be allowed to represent the insureds because:

1. they were assisting USF & G in the unauthorized practice of law in violation of the Rules of Professional Conduct; and

2. they, in concert with USF & G, prevented him from fulfilling his ethical responsibilities to the insureds and his supervisory responsibilities under the Rules of Professional Conduct.

Thompson's claims were raised under specific sections of the Rules of Professional Conduct.

1. Connecticut General Statute § 51-88, which prohibits the practice of law by anyone not admitted to the bar, does not automatically prohibit the practice of law by attorneys employed by a corporation. Attorneys employed by an insurance company may represent parties insured by that company provided there is no conflict of interest between the insurer and the insureds.

2. Representation of defendants by "captive" law firms does not violate the Rules of Professional Conduct: Rule 1.8(f)(2) (accepting compensation from someone other than the client); Rule 5.4(c) (permitting a third party to regulate an attorney's professional judgment); and Rule 5.5(b) (assisting in the unauthorized practice of law).

3. An insurer has the right to select and to change counsel representing an insured.

4. Based on the facts of this case, the dismissal of the supervising attorney of an insurance company's "captive" law firm did not violate any of the Rules of Professional Conduct.

5. And, a claim for wrongful termination may be brought by an attorney dismissed for failure to follow directions of an employer that would constitute a violation of the Rules of Professional Conduct.

The court dealt with the conflict of interest issue in the context of the prohibition against corporations practicing law. The court states:

Another basis for the prohibition against corporations practicing law is that the agents, servants, directors, and employees of a corporation owe their primary loyalty to the corporation. This has been deemed to be an inherent conflict for an attorney whose primary loyalty must be to the client.

The court noted that there was no evidence in the case that either Robertson or Fusco was in a conflict situation as to any insured or that they violated any of the conflict of interest provisions of the Rules of Professional Conduct. It further observed that attorneys who depend on an insurance carrier's referrals for a significant portion of their income could be said to be at risk of favoring the company over the client in a conflict situation in order to keep the carrier's business. Yet, there is no "presumption" that such attorneys will violate the rules. The court states further:

To a great extent the courts rely on attorneys to police themselves in conflict of interest situations....There is no evidence in this record that this type of salaried counsel representation is so fraught with potential conflicts that it should never be allowed.

According to the court, the evidence was very clear that the employee attorneys of USF & G owed their ethical duties and responsibilities solely to the insured clients where there is a conflict and that the clients' interests are paramount.

According to the Insurance Association of Connecticut, most major insurers have in-house attorneys to represent insureds in liability cases. But they also use out-side attorneys, particularly where (1) there is a question about coverage or (2) the case may exceed policy limits and there is multi-party involvement.