AN ATTORNEY MAY NOT ETHICALLY ENGAGE IN THE GENERAL PRACTICE OF LAW
AND AT THE SAME TIME OWN AND OPERATE AN INSURANCE INVESTIGATION AND
ADJUSTMENT BUSINESS IN THE GENERAL AREA; AND THE ETHICAL OBJECTIONS
ARE NOT REMOVED BY INCORPORATING THE ADJUSTING BUSINESS AND THE LAWYER
WITHDRAWING AS AN OFFICER OR DIRECTOR OF THE CORPORATION.
CANONS INTERPRETED:
Canon 27 (Canons of Professional
Ethics relating to advertising.)
Canon 33 (relating to partnerships
between lawyers and non-professional persons.)
Canon 35 (relating to intermediaries.)
FACTUAL SITUATION
An insurance claims service organization owned
by a lawyer as a sole proprietorship is engaged in the business
of investigating and adjusting claims. The business involved four
full-time adjusters and two secretaries and one bookkeeper. The
business operation is franchised by a national organization that
solicits business from various insurance companies.
The owner lawyer of this business proposes to incorporate
it and withdraw thereafter as an officer, and possibly withdraw
as a director. He desires to join a law firm in the practice of
law.
QUESTION
The question presented is whether the lawyer owner
of an insurance claims adjustment business may enter into a general
practice of law under the above circumstances.
DISCUSSION
From the facts submitted, it is assumed that the
lawyer owner of the adjusting business upon entry into the general
practice of law will continue to either be an owner of the business
as a sole proprietorship or will be the owner of its capital stock
if the business is incorporated. It is also assumed that he will
not remain an officer or director of the business.
The combination of general law practice and insurance
adjusting was the subject of consideration in Formal Opinion No.
47 (1932) of the American Bar Association, where the Committee states:
"It
is not necessarily improper for an attorney to engage in a business;
but impropriety arises when the business is of such a nature or
is conducted in such a manner as to be inconsistent with the lawyer's
duties as a member of the Bar. Such an inconsistency arises when
the business is one that will readily lend itself as a means for
procuring professional employment for him, is such that it can be
used as a cloak for indirect solicitation on his behalf, or is of
a nature that, if handled by a lawyer, would be regarded as the
practice of law. To avoid such inconsistencies it is always desirable
and usually necessary that the lawyer keep any business in which
he is engaged entirely separate and apart from his practice of the
law and he must, in any event, conduct it with due observance of
the standards of conduct required of him as a lawyer.
"Some
businesses in which laymen engage are so closely associated with
the practice of law that their solicitation of business may readily
become a means of indirect solicitation of business for any lawyer
that is associated with them. Opinions 31 and 35. The adjustment
of claims, the incorporating of companies, and the handling of matters
before governmental commissions and boards and in government offices
fall within such classifications. It is difficult to conceive how
a lawyer could conduct a claim adjustment bureau, a company for
the organization of corporations, or a bureau for securing income
tax refunds, without practicing law. In performing the services
which he would ordinarily render in connection with any of these
activities, his professional skill and responsibility as a lawyer
would be engaged. The fact that a layman can lawfully render certain
service does not necessarily mean that it would not be professional
service when rendered by a lawyer. On the contrary, lawyers are
frequently called upon to render such service for the very reason
that it can be better rendered by a lawyer.
"The
adjustment of insurance claims by a lawyer is professional employment.
In performing such a service his professional skill and responsibility
are engaged. He cannot properly render legal services to a lay intermediary
for the benefit of its patrons. Opinions 8, 31, 35, 41 and 56. Furthermore
the investigation and adjustment of insurance claims must frequently
lead to some litigation, so that the solicitation of business by
a bureau handling them must readily lend itself as a means of procuring
professional employment for any lawyer in general practice who may
be interested in or connected with it."
In the
foregoing opinion, the Committee states that the objections expressed
apply whether the adjusting business is operated in the lawyer's
office or not.
The
ethical problems involved in the joint venture above described are
somewhat comparable to the ethical problems involved in law-accounting
activities. In Formal Opinion No. 269 (1945), the Committee stated:
".
. . if a lawyer goes into a partnership conducting an accounting
or a collection business, he can no longer with propriety continue
to hold himself out as a lawyer or continue to practice law. The
accounting and collection business are fields open to laymen, and
this so even if these activities involve necessarily a limited degree
of legal knowledge.
"We
desire to emphasize that the lawyer in the instant case and in like
lay partnerships must completely disassociate himself from any practice
or holding out that would indicate that he is a member of the bar
or in any way engaged in practice as a lawyer. If, for example,
he prepared a tax claim, his employer must understand that he is
not acting as a member of the bar, but solely as an accountant."
Likewise
in Formal Opinion No. 297 (1961), the opinion concludes:
"The person who is qualified as both a lawyer and an accountant
must choose between holding himself out as a lawyer and holding
himself out as an accountant. As stated in the answer to Question
3, dual holding out is self-touting and a violation of Canon 27.
In Informal
Opinion No. 427, the Committee had under consideration a situation
where a lawyer working for an adjusting firm but maintaining no
general law practice desired to participate in certain litigation
with another attorney. The opinion indicates that he desired to
participate in the handling of certain personal injury litigation
that might result from his work for the adjusting company. The Committee
felt that this activity would be improper and that there would be
an "inference of solicitation" in any such litigation
which was handled.
The
objective of the ethical canons in this area are directed to avoiding
situations which, as stated in Informal Opinion No. 608 (1962) "might
lead" to the use of insurance adjusting agency as a "feeder
for his law practice."
For
a further discussion of this matter see Drinker, Legal Ethics, page
221.
The
incorporation of the adjusting business in the instant case would
still leave the attorney as the owner of the business. As such owner
or as the owner of its capital stock, he would remain subject to
the undesirable consequence expressed in the foregoing opinions.
A review
of the Code of Professional Responsibility which is under consideration
and may be adopted by our Supreme Court does not suggest that any
change would occur in this connection by reason of the substitution
of that Code. The disciplinary rules therein contained, particularly
those in DR 2-101 and DR 3-103 are quite comparable to the requirements
of the present canons.
CONCLUSION
It is
the conclusion of this Committee that a lawyer cannot engage in
the general practice of law and at the same time be the owner of
an insurance adjusting business in the same general area or the
owner of the capital stock of such a business.
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