It is almost three months old now, but I wanted to right a word or two about a really well-constructed ethics opinion issued in Colorado, not just because it is an opinion that deserves to be read, but also because it raises a not-quite-academic question about the phenomenon of captive law firms.
The opinion put out by the Colorado Bar Association Ethics Committee, Colorado Bar Formal Op. 129, is titled “Ethical Duties of Lawyer Paid by One Other Than the Client.”
Because questions of insurance defense representation raising similar issues were previously addressed by the Committee in Formal Opinion 91, this new opinion focuses on “ethical questions that can arise in third-party payer situations that do not involve insurance as a source of payment.” (My not-quite-academic question is importantly a variation on that theme and the different approach often allowed for the tripartite relationship….)
The opinion helpfully catalogs quite a few such scenarios, like
- friend or family paying for someone’s defense against criminal charges
- parents paying for representation of children
- corporations paying for attorney fees of an employee or officer
- contractual indemnitor paying legal fees of an indemnitee
Those last two are ones, I suspect, that lawyers don’t think about as often in terms of making sure they know what is necessary for compliance with all of the pertinent ethics rules in their jurisdictions, which if the jurisdiction tracks the approaches under the ABA Model Rules as Colorado mostly does are RPCs 1.0(e), RPC 1.6, 1.7, 1.8(f), and 5.4(c).
The opinion does a good job at addressing in detail the various ethical questions, particularly on the dynamics that can arise where, for example, the person that will be paying the freight for the representation also happens to be a client of the attorney in some other matter and how compliance with just RPC 1.8(f) and 5.4(c) alone may not be enough because of the conflict issues raised by RPC 1.7.
The opinion merits a full read, but, if you only have 1 or 2 minutes to spare, then the best part is — II. Practical Considerations – Discussions with the Third-Party Payer — which provides insightful, detailed, and potentially uncomfortable guidance about what really ought to happen in terms of communicating to the person who will be holding the checkbook who the client actually is and to whom the lawyer’s professional duties are owed, the limitations on the rights of the person making the payments, and the consequences of non-payment.
All of this then leads to my promised question, if these same principles are the ones that would have to be adhered to by a lawyer who represents insurance policyholders for an insurance company through a model in which the lawyer’s firm is a “captive” firm of that company, would there be any realistic way to comply? Wouldn’t the process of obtaining the informed consent of that client always require having to make crystal-clear the significant financial interest that the lawyer has in keeping his/her only source of business happy?
I say that my question along these lines is not-quite-academic, because it is actually answered in Colorado by that earlier opinion, Formal Opinion 91 which was issued in 1993 but was updated with an addendum in 2013. For readers in Colorado, I’m pretty sure the answer is that a lot of disclosure would have to be made, but that acquiring informed consent is feasible.
But, for readers not in Colorado, there may or may not be guidance quite as clear on the question.