Case Name: In re ALLSTATE INSURANCE COMPANY, an Illinois insurance corporation, Respondent.
Court: Supreme Court of Missouri
Jurisdiction: Missouri
Decision Date: 1987-01-13
Citations: 722 S.W.2d 947
Docket Number: No. 63975
Parties: In re ALLSTATE INSURANCE COMPANY, an Illinois insurance corporation, Respondent.
Judges: HIGGINS, C.J., and WELLIVER and ROBERTSON, JJ., concur.
Reporter: South Western Reporter Second Series
Volume: 722
Pages: 947–959

Head Matter:
In re ALLSTATE INSURANCE COMPANY, an Illinois insurance corporation, Respondent.
No. 63975.
Supreme Court of Missouri, En Banc.
Jan. 13, 1987.
Ernest H. Fremont, Jr., Bert S. Braud, Kansas City, for informant.
Darrell L. Havener, Kansas City, Alex Bartlett, Jefferson City, Jeffrey Lennard, Chicago, Ill., for respondent.
Robert O. Hetlage, P. Terence Crebs, Matthew D. Menghini, St. Louis, for ami-cus curiae Nat’l Assn, of Independent Insurers, et al.

Opinion:
ORIGINAL PROCEEDING ON INFORMATION
BLACKMAR, Judge.
The respondent, Allstate Insurance Company, is a liability insurer which sometimes assigns attorneys in its full-time employ to defend its insured in civil litigation. The Advisory Committee brought an action in this Court charging (1) that the use of employee attorneys in this manner violates § 484.020(1), RSMo Supp.1984, in that it constitutes the practice of law (§ 484.-010(1), RSMo 1978) and the doing of law business (§ 484.010(2), RSMo 1978) by a corporation; and (2) that there are impermissible conflicts of interest between the insurer and the insured, in violation of various Rules of Professional Conduct, if an employee of the insurer represents the insured in litigation. We conclude that neither of these contentions has merit, and so dismiss the information.
The case was heard before Judge Ronald M. Belt as Master. He recommended dismissal but, of course, the ultimate decision is ours. We have jurisdiction to determine questions relating to unauthorized practice of law. In re Thompson, 574 S.W.2d 365 (Mo. banc 1978).
The essential facts are stipulated, as follows:
5.Allstate is contractually obligated under its automobile liability insurance policies issued in the State of Missouri to provide a defense for its insureds when bodily injury and property damage liability lawsuits are brought against Allstate's insureds in any court, state or federal.
6. Allstate employs attorneys licensed to practice law in Missouri on a full-time salaried basis to defend its insureds in certain lawsuits brought in the federal and state courts of Missouri involving claims against said insureds for personal injuries and property damage when such alleged injuries or damages are covered by the policy of insurance issued by Allstate to its insured.
7. All salaried trial counsel employed in Missouri by Allstate are full-time employees of Allstate who are duly licensed to practice law in Missouri and are in good standing to practice law under Missouri Rules. (Emphasis supplied).
Both parties agree that no contested factual issues remain and that the decision is purely legal.
I. Practice of Law by Corporation
Section 484.010(1), RSMo 1978, defines the "practice of law" as follows:
1. The "practice of law" is hereby defined to be and is the appearance as an advocate in a representative capacity or the drawing of papers, pleadings or documents or the performance of any act in such capacity in connection with proceedings pending or prospective before any court of record, commissioner, referee or any body, board, committee or commission constituted by law or having authority to settle controversies.
Section 484.010(2) likewise defines "law business"
2. The "law business" is hereby defined to be and is the advising or counseling for a valuable consideration of any person, firm, association, or corporation as to any secular law or the drawing or the procuring of or assisting in the drawing for a valuable consideration of any paper, document or instrument affecting or relating to secular rights or the doing of any act for a valuable consideration in a representative capacity, obtaining or tending to obtain or securing or tending to secure for any person, firm, association or corporation any property or property rights whatsoever.
Section 484.020(1), RSMo Supp.1984, reads as follows:
No person shall engage in the practice of law or do law business, as defined in section 484.010, or both, unless he shall have been duly licensed therefor and while his license therefor is in full force and effect, nor shall any association or corporation, except a professional corporation organized pursuant to the provisions of chapter 356, RSMo, engage in the practice of the law or do law business as defined in section 484.010, or both.
To the informants, the issue is very simple. They argue that the defendant is a corporation which is not a professional corporation, and that its employees practice law by preparing pleadings and appearing in court on behalf of insured. It follows, they say, that the respondent itself is practicing law, because the acts of its employees are the corporation's acts.
This Court considered the nature of the liability insurance business many years ago, in Liberty Mutual Insurance Co. v. Jones, 344 Mo. 392, 130 S.W.2d 945 (banc 1939). That case dealt with the adjustment stage, before suit was filed, and held that employees of the insurer, in negotiating settlements of claims against its insured, did not engage in the practice of law or in the doing of law business. We concluded as follows:
1. The Court declares the law to be that the relationship existing between an appellant company and the person to whom it issues any of its forms of casualty insurance policies is that of insurer and insured, and it is not that of attorney and client.
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10. The court declares the law to be that the issuance by an appellant company of a policy of liability insurance, and the act of such company, in accordance with the terms of such policy, in interceding by an attorney at law and maintaining a defense in behalf of the insured when a claim is made or a suit is brought against the insured, do not constitute the practice of law or the doing of law business, though the amount sued for exceeds the amount of insurance coverage.
130 S.W.2d at 961-62.
It is argued that Liberty Mutual did not deal with the filing of pleadings or with appearances in cases in court, and so does not answer the question now before us. Its reasoning nonetheless applies. An insurer has a very substantial interest in litigation involving its insured, and is entitled to retain counsel of its own choosing to protect its interest. The opinion recognized that the relationship between insurer and insured is of relatively recent origin and of a special nature which may not fit readily into traditional conceptualization.
The weak point in the informants' argument is that they quite agree that the services in question may properly be rendered by outside counsel hired and paid by the insurance company. They indeed seek to obtain the business for private practitioners, by denying it to employed attorneys. If, however, the respondent practices law by assigning employee attorneys to the defense of claims, it would just as logically be said to practice law by retaining independent contractors as counsel for its insured. This is shown by State ex rel. McKittrick v. C.S. Dudley & Co., 340 Mo. 852, 102 S.W.2d 895 (1937), in which a collection agency retained attorneys to bring suit on debts in which chasing had not been successful. The attorneys were not employees of the corporation, but rather private practitioners. We found that the corporation was practicing law, because it received a percentage of the fees charged by the attorneys. The primary purpose of § 484.020(1) is to preclude a corporation with non-professional shareholders from having a proprietary interest in or sharing in the emoluments of a law practice. In this respect it makes no difference whether the legal services are rendered by employed lawyers or by independent contractors.
Counsel for the informants could not cite us to a single instance in the law in which a person may lawfully do something through an independent contractor which could not be done through an employee. By the standard definition, one retains an independent contractor to obtain a desired result. Responsibility for the result sought necessarily follows.
The problem now before us has been considered in numerous judicial and professional opinions. With the exception of Gardner v. North Carolina State Bar, 316 N.C. 285, 341 S.E.2d 517 (1986), these authorities hold that an insurance company which defends cases through its employees does not engage in the practice of law.
The informants commend Gardner to us, but we are not persuaded. The North Carolina court, for one thing, would apparently. reject the rationale of Liberty Mutual. The case also assumes that classic conflict of interest situations would arise which, as Part II of this opinion demonstrates, are not present here. We prefer to follow the great weight of authority, which is consistent with our earlier holding.
The informants append to their brief statistics compiled by the respondent and tending to show that defense of claims through employed attorneys is more economical than retention of private practitioners. From this showing they make the astonishing argument that the respondent derives financial advantage by employing lawyers and therefore is engaged in the "law business" for valuable consideration. The legislature, in enacting the governing statutes, surely had no purpose of dissuading insurance companies from pursuing economies in the defense of claims.
The statutes in issue were enacted in 1915, when automobiles were relatively few and the liability insurance industry was in its infancy. The only change has been to allow lawyers to form professional corporations. We conclude that the legislature, in enacting these statutes, did not intend to limit or restrict liability insurers in the selection of attorneys to defend claims against their insured, and that the actions described in the stipulation constitute neither the practice of law nor the doing of law business.
II. Conflicts of Interest
The informants also argue that a liability insurer cannot assign its own employed attorneys to defend claims against its insured without introducing impermissible conflicts of interest. If this is so we would have a duty to act under our inherent power to regulate the practice of law and to prohibit conduct which is inconsistent with ethical practice, even though we find no statutory violation. It is not necessary for purposes of this opinion to determine the precise overlap of the authority of the legislature and that of this Court.
The information was filed when the Code of Professional Responsibility was in force. Since that time the new Rules of Professional Conduct have been adopted as a part of our Rule 4. The new rules do not alter the underlying principle that an attorney owes undivided loyalty to the client. The material provisions of the present rules are as follows:
Rule 1.7. Conflict of Interest: General Rule
(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:
(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and
(2) each client consents after consultation.
(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:
(1) the lawyer reasonably believes the representation will not be adversely affected;
(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.
Rule 5.4. Professional Independence of a Lawyer
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(c) A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services.
The master expressly found that the respondent makes use of employed lawyers in defending its insured only when there is no question of coverage, and when the claim is within the policy limits. It thereby eliminates situations in which conflict of interest is inherent. This limitation is established by stipulation, and we have no authority to proceed against the respondent for conduct it does not engage in. If the respondent should go beyond the activities described in the stipulation its actions could be challenged in appropriate proceedings.
Even though the insured is the only named defendant, the insurer has a vital interest. When coverage is admitted and adequate the interests of the insurer and the insured are congruent. Both are interested in disposing of the case on the best possible terms. Only the insurer's money is involved. Even though the insured may be interested in minimizing liability and damages, perhaps because of apprehension about insurance coverage and rates, this concern introduces no conflict and there is no reason why the same lawyer may not represent both interests. See Helm v. Inter-Insurance Exchange, 354 Mo. 935, 192 S.W.2d 417 (banc 1946), which recognizes that defense counsel retained by an insurance company actually represent both insurer and insured.
The insurer has the contract right to direct the litigation against its insured. It may evaluate claims and decide whether to settle or try. It may make economic decisions without the assent of the insured. The insured may want a quick settlement to eliminate further demands on time and energy, but the insurer does not have to settle unless a satisfactory offer is forthcoming. Or the insurer may accept a settlement offer even though the insured wants to go to trial to establish freedom from fault. The insurer may decide what to spend in defense, what discovery is to be had, and what experts to hire. It also has the right to select counsel to defend its interests.
The informants tender a hypothetical case in which the insurer has information in its files favorable to the insured which it is unwilling to reveal. They suggest that a private practitioner would be able to subpoena this material whereas an employed lawyer would be unable or unwilling to exert any pressure or use legal process. The example is so nebulous as to be of no practical value. The insurer would have no motive to withhold anything which might aid the insured's case and help in reducing its exposure. Informants' brief and argument fail to demonstrate any substantial possibility of a conflict. Nor does the extensive literature show how the insured might sustain prejudice.
The informants, citing Gardner, point out that any judgment is against the insured personally, that process of execution and garnishment may be used, at least until the insurer makes payment, and that the insured must bear the liability personally if the insurance company becomes insolvent. They do not show why this situation would be different if outside counsel, rather than employee attorneys, were retained for the defense.
Informants argue that the insurer has much more control over its employees than it does over retained lawyers in private practice. This circumstance, even if true, is of no significance in a situation in which there is no temptation to favor the insurer's interest over that of the insured.
Employed lawyers are bound by the same rules of professional conduct as are independent practitioners. If a conflict appears, the lawyer, employed or retained, must immediately resolve it by terminating representation of one or both parties. Helm v. Inter-Insurance Exchange, supra. If a client suffers damage because his attorney represents conflicting interests, a civil action is available. If the attorney is an employee, the employer is undoubtedly liable jointly and severally, which would not be the case if an independent contractor were retained. The lawyers involved are also subject to professional discipline. There is no basis for a conclusion that employed lawyers have less regard for the Rules of Professional Conduct than private practitioners do.
The informants simply fail to demonstrate any conflict of interest which would justify our interfering with the respondent's choice of counsel to protect its proper concerns in the legal representation of its insured in damage suits. The information is dismissed.
HIGGINS, C.J., and WELLIVER and ROBERTSON, JJ., concur.
RENDLEN, J., dissents in separate opinion filed.
DOUGLAS W. GREENE, Special Judge, dissents in separate opinion filed.
BILLINGS, J., dissents and concurs in separate dissenting opinion of RENDLEN, J.
DONNELLY, J., not sitting.
. See Barnes v. Real Silk Hosiery Mills, 341 Mo. 563, 108 S.W.2d 58, 61 (1937).
. See Joplin v. Denver-Chicago Trucking Co., 329 F.2d 396 (8th Cir.1964); In re Proposed Addition to the Additional Rules Governing the Conduct of Attorneys in Florida, 220 So.2d 6 (Fla.1969); Strother v. Ohio Casualty Ins. Co., 5 Ohio Supp. 362, 14 Ohio Op. 139 (Common Pleas Ct. 1939); ABA Comm, on Professional Ethics and Grievances, Formal Op. 282 (1950); Alabama State Bar, Ethics Op. RO-81-533 (1981); Arizona State Bar Ass'n Ethics Comm., Op. 75-4 (1975); New York State Bar Ass'n Professional Ethics Comm., Op. 109 (1969); State Bar of Texas Comm, on Interpretation of Canons of Ethics, Op. 167 (1958); Virginia State Bar Standing Comm, on Legal Ethics, Op. 598 (1985) (Approved by Va.Sup.Ct. 1985). See also Coscia v. Cunningham, 250 Ga. 521, 299 S.E.2d 880 (1983); Kittay v. Allstate Ins. Co., 78 IllApp. 335, 33 Ill.Dec. 867, 397 N.E.2d 200 (1979); Utilities Ins. Co. v. Montgomery, 134 Tex. 640, 138 S.W.2d 1062 (Comm'n App. 1940); United Services Automobile Ass'n v. Zeller, 135 S.W.2d 161 (Tex.Civ.App.1939); State Bar of Michigan Comm, on Unauthorized Practice of Law, Op. (Sept. 22, 1959); New York State Bar Ass'n Unlawful Practice of Law Comm., Op. 13 (1970). These latter authorities reach the same conclusion, but do so by relying in part on statutes which define the unauthorized practice of law in a less restrictive way than our statute does.
. Section 303.190.6, RSMo Supp. 1984 provides: "Every motor vehicle liability policy shall be subject to the following provisions which need not be contained therein:
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(3) The insurance carrier shall have the right to settle any claim covered by the> policy,....
. See Alsobrook, Conflicts Between the Insurer and Insured, 48 Ins.CounsJ. 165 (1981); Don-danville, Defense Counsel Beware: The Perils of Conflicts of Interest Revisited, 29 Trial Law. Guide 249 (1985); Mallen, A New Definition of Insurance Defense Counsel, 53 Ins.CounsJ. 108 (1986); Ryan, Confidentiality, Disclosure and Discoverability in the Representation of Insurer and Insured, 48 Ins.CounsJ. 163 (1981); Schwartz, Ethical Responsibilities of Defense Counsel in Defending Insureds, 64 Mich. B J. 290 (1985); Spencer, House Counsel and the Unauthorized Practice of Law, 39 Pa.B.A.Q. 64 (1967). While these authors warn that there is a possibility of conflicts of interest between insurer and insured, their commentaries do not provide any examples of conflicts which might arise in the situations shown by this record.
. Helm shows that a lawyer in private practice is not always required to prefer the insured's interest when a conflict appears. There the insured's son was sued. He told the attorney retained for him by the insurance company that he was 16 years old when the accident happened, and the attorney prepared the case for trial. Questions on voir dire indicated that the defendant was 15 at the time of the accident and therefore not covered by the policy. The lawyer verified the defendant's age through the public records and then reported to the insurance company, which instructed him not to proceed with the defense unless a reservation of rights were forthcoming. This Court held that the lawyer and the insurance company acted with entire propriety.