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114 N.J.L.J. 421
October 25, 1984
COMMITTEE ON THE UNAUTHORIZED PRACTICE OF LAW
Appointed by the New Jersey Supreme Court
Use of House Counsel by Insurance
Companies to Defend Insureds
The Committee has been asked to issue an Advisory Opinion
based upon hypothetical facts concerning the use of full-time,
salaried attorney employees of an insurance company ("house
counsel") to defend insureds in litigated matters. The inquirer
raises the question of whether such a practice is violative of R.
1:21-1(c) and thereby constitutes the unauthorized practice of law.
We are mindful of the fact that every case in which an insured
is represented by counsel selected by the insurance company may
potentially present an issue of conflict between the interests of
the company and those of the insureds. Further, the inquirer
presents this issue in the light of ethical concerns arising out of
the failure of the employer to provide working conditions which
allow for efficient and effective representation of the litigant.
Such conflict and ethical issues are dealt with by an existing body
of case law and ethics opinions and are not the subject of this
opinion. See, e.g., Burd v. Sussex Mutual Insurance Co., 56 N.J.
383 (1970). We deal solely with the question of the status of the
attorney as a full-time salaried employee as distinguished from
outside counsel retained by the company.
This opinion is based upon the assumed facts that an insurance
company operating in New Jersey defends its insureds in litigated
matters by utilizing full-time attorney-employees. While we
recognize that the actual corporate structure in practice may
differ from company to company, we deal here with the general
question of the propriety of the use of house counsel and not with
the extent, greater or lesser, to which that attorney might be
subject to administrative controls imposed by non-lawyer members of
the corporate hierarchy. We reject the suggestion that an
evidential hearing is appropriate in this regard since, as noted,
the facts may well differ from company to company and the subject
inquiry is purely hypothetical in nature. To the extent that the
actual practice in a specific situation may project certain of the
ethical issues raised by the inquirer, such questions should be
submitted to the Advisory Committee on Professional Ethics.
R. 1:21-1(c) proscribes the "practice of law" by a corporation
other than a professional corporation organized pursuant to
N.J.S.A. 14A:17-1 et. seq. The nature of the activity performed is
the key to determining what conduct constitutes the practice of
law. Our Supreme Court has drawn a distinction in this regard
between a corporation acting for itself and that same corporation
performing activities for others. New Jersey State Bar Ass'n v.
Northern N.J. Mortgage Ass'n., 22 N.J. 184 (1956). Where the
attorney-employee advises and protects the corporate interest
rather than the sole interest of third party clients, the use of
the employee has been held not to constitute the practice of law.
While the case at hand involves a hybrid of the two functions, the
furnishing of legal services to an insured by a liability insurance
company involves such a community or identity of financial interest
so as to define the service involved as in the insurer's own
interest. See ABA Committee on Ethics and Professional
Responsibility Informal Opinions No. 282 (1950) and 1402 (1977).
This Committee thus finds that insurance companies conducting the
defense of litigation in which they owe indemnification to their
insureds through house counsel does not constitute the practice of
There is ample authority in other jurisdictions for the
position adopted by this Committee; indeed, every jurisdiction
which has considered the issue has held the questioned conduct
allowable. See, e.g., Liberty Mut. Ins. Co. v. Jones, 130 S.W. 2d
945 (Mo. Sup. 1939); The United States Automobile Ass'n v. Zeller,
135 S.W. 2d 161 (Tex. App. 1939); Kittay v. Allstate Ins. Co., 78
Ill. App. 3rd 335, 33 Ill. Dec. 867, 397 N.E. 2d 200 (1979); Coscia
v. Cunningham, 250 Ga. 521, 299 S.E. 2d 880 (Ga. 1983); In re Rules
Governing the Conduct of Attorneys in Florida, 220 So. 2d 6 (Fla.
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