Cincinnati Ins. Co. v. Wills

• Citation: 717 N.E.2d 151
• Decision Date: 06 October 1999
• Docket Number: No. 79S00-9808-CV-458.,79S00-9808-CV-458.
• Parties: CINCINNATI INSURANCE COMPANY (Intervenor Below), Celina Insurance Group (Defendants Suters' Insurer Below), Keith L. Faber (Defendants Suters' Counsel Below), Robert Suter and Betty Suter (Defendants Below), Appellants, v. David J. WILLS and Marcia Wills (Plaintiffs Below), and Elaine Mellinger (Defendant Below), Appellees.
• Court: Indiana Supreme Court

717 N.E.2d 151

CINCINNATI INSURANCE COMPANY (Intervenor Below), Celina Insurance Group (Defendants Suters' Insurer Below), Keith L. Faber (Defendants Suters' Counsel Below), Robert Suter and Betty Suter (Defendants Below), Appellants, v. David J. WILLS and Marcia Wills (Plaintiffs Below), and Elaine Mellinger (Defendant Below), Appellees.

No. 79S00-9808-CV-458.

Supreme Court of Indiana.

October 6, 1999.

Judy L. Woods, Indianapolis, Indiana, Joseph T. Bumbleburg, Michael J. Stapleton, Lafayette, Indiana, Norman T. Funk, Keith A. Kinney, Indianapolis, Indiana, Attorneys for Appellants.

Norman P. Metzger, Legal Services Organization of Indiana, Kenneth J. Falk, Indiana Civil Liberties Union, Timothy J. O'Connell, UAW Legal Services Plan, Ronald E. Elberger, George T. Patton, Jr., American International Group, Inc., American Insurance Association, National Association of Indiana Insurers, Scott Newton, Child Advocates, Inc., John A. Floreancig, Indianapolis Legal Aid Society, Indianapolis, Indiana, Attorneys for Amici Curiae.

William W. Hurst, Todd R. Ryden, Jon D. Krahulik, Indianapolis, Indiana, Jeffrey A. Cooke, Lafayette, Indiana, Attorneys for Appellees.

James D. Johnson, Defense Trial Counsel of Indiana, Evansville, Indiana, Leonard E. Eilbacher, James P. Fenton, Indiana State Bar Association, Fort Wayne, Indiana, Gregory H. Miller, Indiana Trial Lawyers Association, The Ass'n of Trial Lawyers of America, Crawfordsville, Indiana, William F. Harvey, Steven C. Shockley, Maggie L. Smith, In-House Insurance Counsel, Stephen J. Peters, Richard Winegardner, Marjorie H. Lawyer-Smith, Indiana Chamber of Commerce, Indiana Legal Education Foundation, Inc., American Corporate Counsel Association, Cinergy Services, Inc., Indiana Manufacturers Association, Insurance Institute of Indiana, Inc., Association of Life Insurance Companies, Ronald Gifford, Elizabeth Cierzniak, State Farm Mutual Automobile Ins. Co., Indianapolis, Indiana, Attorneys for Amici Curiae.

ON PETITION FOR EMERGENCY TRANSFER

BOEHM, Justice.

This case deals with the increasingly common practice of defense of claims litigation by insurance company house counsel. We hold that an insurance company does not necessarily engage in the unauthorized practice of law when it employs house counsel to represent its insureds and that attorneys who are employees of an insurance company do not assist the insurer in the unauthorized practice of law when they represent the insureds. We also find no inherent conflict in such an arrangement but agree that conflicts may arise. For that reason, among others, accurate disclosure of the arrangement is required. Finally, we hold that the use of a law-firm-like name, specifically "Berlon & Timmel," to describe employee-attorneys is prohibited by Professional Conduct Rule 7.2 because it misleadingly suggests that they are outside counsel.

Factual and Procedural Background

David and Marcia Wills (the "Wills") asserted personal injury claims against Elaine Mellinger and Betty Suter.¹ Suter was insured by Celina Insurance Group, who selected its house counsel, Keith Faber, to defend Suter. Suter was advised that although Faber was employed and paid by Celina, his ethical obligations were owed to Suter alone. After consultation with another attorney, Suter agreed to the representation.

The Wills moved to disqualify Faber as Suter's counsel on the ground that his representation of Suter resulted in Celina's unauthorized practice of law. Cincinnati Insurance Company then moved to intervene, claiming an interest in the Wills' motion to disqualify Faber based on Cincinnati's practice of providing Indiana counsel for its insureds through Berlon & Timmel, which it described as a "captive law firm." The trial court granted Cincinnati's motion to intervene, and the subsequent record established that Berlon & Timmel is staffed exclusively by employees of Cincinnati who represent only Cincinnati's insureds and Cincinnati itself.

The trial court concluded that Celina engaged in the unauthorized practice of law by providing representation of its insureds through house counsel, and that Faber violated Professional Conduct Rule 5.5(b) by assisting Celina in the unauthorized practice of law. Accordingly, the trial court issued an order on June 11, 1998, granting the Wills' motion to disqualify Faber "so long as he continues to be an employee or agent of Celina Insurance Group such that his participation aids and abets the unauthorized practice of law by Celina." The trial court also addressed the "captive law firm" issue raised by Cincinnati's intervention and concluded that Cincinnati, in addition to the unauthorized practice of law, also engaged in deceptive practices by using the name "Berlon & Timmel." Finally, the trial court found that the attorneys employed by Cincinnati were participating in deceptive practices and aiding the unauthorized practice of law. The trial court ordered both Celina and Cincinnati to stop "any and all practices and activities that could, under the findings of this order, be considered to constitute the unauthorized practice of law...," and found that Cincinnati "should close" its Indianapolis office operated as Berlon & Timmel.

After the Court of Appeals stayed the trial court's orders, but before any decision on the appeal, Celina and Faber petitioned for immediate transfer to this Court under Appellate Rule 4(A)(9), and transfer was granted.

I. Jurisdiction of the Trial Court

A trial court may disqualify an attorney for a violation of the Rules of Professional Conduct that arises from the attorney's representation before the court. State v. Romero, 578 N.E.2d 673, 676-77 (Ind.1991) (disqualifying former prosecutor who attempted to represent a defendant in a matter substantially related to a prior prosecution without the State's consent in violation of Professional Conduct Rule 1.11's duty to maintain confidences of the State, his former client). The trial court's authority has been described as necessary to prevent "insult and gross violations of decorum," and that authority is limited to attorneys appearing before the court. McQueen v. State, 272 Ind. 229, 231, 396 N.E.2d 903, 904 (1979). More precisely, the authority of the trial court is limited to disqualification in the case before the court. Disqualification of Faber in the suit by the Wills against Suter was within the trial court's jurisdiction in this case.

The trial court's order was not limited to Faber's representation of Suter, however. The order also directed Celina and Cincinnati to cease their representation of all other Indiana insureds by employee-attorneys based on perceived violations of the Rules of Professional Conduct. This sweeping remedy is available only through exercise of this Court's original jurisdiction over all matters with reference to the unauthorized practice of law. IND CONST. Art. VII, ? 4; Ind. Admission and Discipline Rule 24; Ind. Appellate Rule 4(A)(3). Available procedural routes to raise this general issue include reference to the Disciplinary Commission and an original action in this Court pursuant to Admission and Discipline Rule 24, but not a proceeding in a trial court. Moreover, the trial court's order as to Faber's disqualification is moot because Suter's interest in this case has been resolved through settlement. Despite these jurisdictional defects, the issue is within the original jurisdiction of this Court, and is fully developed by the parties and amici curiae. Because the issue is of importance to many members of the Bar and their clients and affects a number of pending cases, we granted transfer under Appellate Rule 4(A)(9) to resolve the issue on its merits.²

II. House Counsel's Ability to Represent Policyholders

Three distinct issues are presented by the use of house counsel to defend liability claims against policyholders. First, some courts have seen the issue, as the trial court did here, as whether use of house counsel constitutes the unauthorized practice of law by the employer-insurer. See, e.g., Gardner v. North Carolina State Bar, 316 N.C. 285, 341 S.E.2d 517 (1986)

. Second, other courts have viewed this problem as turning on whether there is an inherent conflict in the representation such that it is a violation of the Rules of Professional Conduct for the house lawyer to proceed. See, e.g., In re Rules Governing the Conduct of Attorneys, 220 So.2d 6 (Fla.1969). Finally, even if such an arrangement may be consistent with the Admission and Discipline Rules, the Rules of Professional Conduct and any applicable statutes, there remains the question whether the representation was properly entered into in the specific case.

Whether an insurance company may properly employ salaried attorneys to represent insureds in claims litigation has been addressed by ten states through court decisions and by the American Bar Association³ and ten other jurisdictions in ethics opinions.⁴ Eight of the ten state courts and one federal circuit have concluded that it is permissible for an attorney employed by an insurance company to represent the company's insureds, but have reached that result through a variety of paths.⁵ Two states have disapproved of the arrangement, one focusing on the potential conflict in interest between the insurer and the insured and the second on a statutory bar against the practice of law by a corporation. American Ins. Ass'n v. Kentucky Bar Ass'n. 917 S.W.2d 568 (Ky. 1996); Gardner, 341 S.E.2d at 517.

For the reasons stated below, we now hold, consistent with the majority of state courts that have addressed the issue, that (1) insurance companies do not necessarily engage in the unauthorized practice of law when house counsel represent their insureds in claims litigation and (2) attorneys who are employees of insurance companies do not necessarily trigger an impermissible conflict in violation of the Rules of Professional Conduct when they appear as counsel to defend...