Texas High Court: Insurers Can Use Defense Staff Attorneys in Some Cases

In a long awaited ruling, the Texas Supreme Court on March 28 handed down a 7-2 decision in Unauthorized Practice of Law Committee v. American Home Assurance Company Inc. and The Travelers Indemnity Company, approving the use of insurer defense staff attorneys to defend most matters, the American Insurance Association reported. The case was argued in 2005.

James Whittle, AIA assistant general counsel and chief claims counsel hailed the decision as “not merely a victory for insurers but also their consumers who derive great value from being defended by quality staff counsel.”

In delivering the opinion of the Court, Justice Hecht explained that the Committee had argued that the insurer’s control of defense counsel “always impinges on counsel’s professional judgment and loyalty to the insured.” The Committee further maintained that, “when the defense is conducted by a staff attorney who owes the insurer allegiance as both a client and boss,” the problem is magnified.

Hecht said the Court recognized the “difficulties” raised by the Committee and added, “we are especially concerned that the use of staff attorneys not diminish professionalism in insurance defense or harm the public.”

The Court ultimately found that “an insurer may use staff attorneys to defend a claim against an insured if the insurer’s interest and the insured’s interest are congruent, but not otherwise. Their interests are congruent when they are aligned in defeating the claim and there is no conflict of interest between the insurer and the insured.”

Not all justices agreed with the majority opinion. Justice Johnson was joined by Justice Green in the dissent, in which Johnson wrote:

“[I]t seems to me that the issue before the Court narrows down to statutory construction: Is an insurance corporation’s defense of its insureds by the use of staff attorneys the practice of law as defined in the State Bar Act. … The Court holds that under certain circumstances it is not. I disagree. …

“[T]he Act does not preclude insurers from representing their own interests in lawsuits if they choose to do so. But under the State Bar Act, a corporate insurer cannot represent a client in a lawsuit. Because acts of staff attorneys are acts of the insurer, when staff attorneys defend insureds in lawsuits the insurer violates the Act, is practicing law without a license, and is engaging in the unauthorized practice of law.”

Whittle said the “decision confirms what insurers have always said, that staff counsel are perfectly capable of representing policyholders in most situations.”

Topics Carriers Texas