Court Opinion

ID: 9759149
Source: CourtListenerOpinion
Date Created: 2023-08-29 00:07:10.312972+00
Date Added: 2024-06-11T07:28:59.810597
License: Public Domain

RENDLEN, Judge,
dissenting.
Flying in the face of settled case law the principal opinion today allows a corporation to engage in the practice of the law and by judicial fiat emasculates the statute which mandates that “[no] corporation, except a professional corporation organized pursuant to the provisions of chapter 356, RSMo, [shall] engage in the practice of the law or do law business as defined in section 484.-010, or both.” Section 484.020.1, RSMo Cum.Supp.1984; see also State ex rel. McKittrick v. C.S. Dudley & Co., 340 Mo. 852, 102 S.W.2d 895, 898, cert. denied, 302 U.S. 693, 58 S.Ct. 12, 82 L.Ed. 535 (1937); State ex inf. Miller v. St. Louis Union Trust Co., 335 Mo. 845, 74 S.W.2d 348 (banc 1934); Automobile Club v. Hoffmeister, 338 S.W.2d 348, 354 (Mo.App.1960). Unless the majority means to discriminato-rily bestow a privilege upon insurance companies not granted other corporations, such prohibition is now obliterated and any corporation may legally represent parties through its employees because, so saith the majority, such activity is not the practice of law by a corporation. How can it be said that a corporation does not engage in the practice of law when it sends its full-time employees into court (employees who are paid by and acting solely under the orders of the corporation) to represent a litigant embroiled in a lawsuit when that litigant is not the corporation but instead is a person not connected to nor in any way a part of the corporation but happens only to have purchased an insurance policy from such corporation?
Until today it had long been held that a corporation may not practice law either directly or indirectly by employing attorneys to practice for it. State ex rel. McKittrick v. C.S. Dudley & Co., 102 S.W.2d at 900. The acts of its employees are necessarily acts of a corporation as “[corporations are artificial beings which can only act by agents and are responsible for the acts of their agents when done in *954the exercise of their agency.” Standard Meat Co. v. Taco Kid, Inc., 554 S.W.2d 592, 595 (Mo.App.1977); see also Fowler v. Park Corp., 673 S.W.2d 749, 754 (Mo. banc 1984). Hence, when a corporation’s employees, in the course of their employment, perform legal services for the corporation, their acts are the acts of the corporation, so that in law the corporation itself is performing the acts. Gardner v. North Carolina State Bar, 316 N.C. 285, 341 S.E.2d 517, 520 (1986).
It defies logic to suggest that by representing litigants, in the manner described by the record, staff counsel for such insurance companies are not engaged in the practice of law during the course of such employment. Their acts are the acts of the insurance company, which therefore is engaged in the practice of law. Because corporations, other than “professional corporations,” are prohibited from engaging in the practice of law, § 484.020.1, respondent’s practice of law is necessarily unauthorized.
There is however an important and valid distinction between a corporation employing “house counsel” as opposed to “outside independent counsel” to represent a third party. Where an insurance company provides its policyholders outside counsel, who is effectively an independent contractor, such is not prohibited so long as the attorney complies with relevant ethical standards. Surely the majority would agree that a layman may hire an attorney to represent a third party even though the layman may not himself represent the third party. Why, then, does the majority fail to see the same distinction between a corporation (which like the layman is prohibited from practicing law) hiring outside independent counsel to represent a third party and the insurance company itself representing the third party through its full-time salaried employee?
While a layman may represent himself in court, Liberty Mut. Ins. Co. v. Jones, 344 Mo. 932, 130 S.W.2d 945, 955 (banc 1939); Klingensmith v. Thurman, 339 S.W.2d 300, 300-301 (Mo.App.1960), a corporation is not prohibited from representing itself through house counsel. However, when an insurance company, such as respondent here, undertakes to represent its policyholder in legal actions, it is not representing itself, instead it represents the insured for it is the insured that is the party in name and fact and it is the insured who is represented. The Supreme Court of North Carolina, in Gardner, 341 S.E.2d at 520-21, has aptly stated:
We recognize that insurance companies have an interest in the outcome of litigation when the damages sought are covered by their policies....
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If an insurance company, through its employees, appears for an insured, it would be appearing as an attorney for someone else. The company itself is not the party to the action. The insured is the one who is named. Any judgments rendered are rendered against the insured, not against the company. The insured’s property becomes subject to attachment to pay such judgment, and he may be called upon to do so if the company fails. Nor are the interests of the insurance company and the insured identical. The insured is solely responsible for any damages in excess of his insurance coverage, and he alone feels the effect of any collateral penalties that result from the litigation.
The Gardner court held that an insurer’s proposed practice of allowing house counsel, in the course of their employment, to represent its insureds would constitute the unauthorized practice of law. Id. at 523. The North Carolina court quite properly concluded that corporations are prohibited from practicing law, that when a corporation’s employees perform legal services for the corporation in the course of their employment the corporation is performing the acts and if an insurer through its employees appears for an insured it appears as an attorney for someone else. Id. at 520-21.
Respondent and amici curiae direct us to authority from other jurisdictions, as well as several bar opinions, supportive of its use of house counsel. E.g., Joplin v. Den*955ver-Ckicago Trucking Co., 329 F.2d 396, 396-97 (8th Cir.1964); In re Proposed Addition to the Additional Rules Governing the Conduct of Attorneys, 220 So.2d 6 (Fla.1969); Coscia v. Cunningham, 250 Ga. 521, 299 S.E.2d 880 (1983); Kittay v. Allstate Ins. Co., 78 Ill.App.3d 335, 33 Ill. Dec. 867, 879, 397 N.E.2d 200, 202 (1979); Strother v. Ohio Casualty Ins. Co., 5 Ohio Supp. 362, 14 Ohio Op. 139 (Common Pleas Ct.1939); Utilities Ins. Co. v. Montgomery, 134 Tex. 640,138 S.W.2d 1062,1064-65 (1940); ABA Comm, on Professional Ethics and Grievances, Formal Op. 282 (1950). Though the cited authority would seem to excuse and permit certain practices not permitted by Missouri statutes nor condoned by our prior decisions, these cases in large part are distinguishable and in some instances stem from statutes dissimilar from § 484.020.1; indeed, some involve statutory exceptions not found in Missouri. E.g., Coscia v. Cunningham, 299 S.E.2d at 882 (corporations are not prohibited from employing attorneys “in and about their own immediate affairs”); Kittay v. Allstate Ins. Co., 33 Ill.Dec. 869, 397 N.E.2d at 202 (a corporation is not prohibited from employing attorneys “in and about its own immediate affairs ...or in any litigation in which any corporation may be interested by reason of the issuance of any policy or undertaking of insurance, guarantee or indemnity ”); Utilities Ins. Co. v. Montgomery, 138 S.W.2d at 1064 (an insurance company is not prohibited “from causing to be defended, or prosecuted, or from offering to cause to be defended, through lawyers of its own selection, the insureds or assureds in policies issued or to be issued by it, in accordance with the terms of such policies”). We must decide the issue under the law of Missouri and in so deciding I find none of the analyses in those authorities relied on by respondent and amici curiae to be as persuasive as the analysis in Gardner.
The principal opinion cites Liberty Mut. Ins. Co. v. Jones, 130 S.W.2d 945, as supportive of its position, but that case simply did not consider or decide the issue now before the Court. In Liberty, the Court explicitly stated, id. at 951, that, aside from a pleading issue, it was confining itself to the point whether certain acts performed by the insurance companies through lay employees (claims adjusters) constituted “law business” or the “practice of law,” and held that: a claims adjuster may investigate the facts and circumstances relating to a casualty or claim and report to his insurance company employer the facts ascertained; that such claims adjuster may fill in, on a prepared form, the release to be executed by a claimant; a claims adjuster may repeat to a claimant what his company’s attorney has advised as to liability, but that he shall not state or act upon his own opinion as to legal rights of the company, insured or claimant; a claims adjuster may in a report to his employer express an opinion as to the monetary extent of the liability of his employer or the insured, but shall not pass on any question of law or legal liability; a claims adjuster or investigator may in a report to his employer state the opinion given by the company’s counsel on any question of liability upon any claim; a claims adjuster or investigator may participate in “informal conferences” before the Workmen’s Compensation Commission so long as he does not act upon his own opinion as to legal rights; a lay adjuster or claims manager may determine for his insurance company employer the pecuniary limit which his employer will be willing to offer in settlement so long as he does not determine the legal liability of his employer or its insured; and a lay employee may decide which prepared release form to use in settlement. Id. at 961-62; see also Hoffmeister v. Tod, 349 S.W.2d 5, 11-12 (Mo. banc 1961). The Liberty Court’s dictum, 130 S.W.2d at 962, which gratuitously suggests that an insurer may intercede by an attorney to defend an insured in a suit brought against the insured cannot fairly be construed as permitting an insurer to represent its insured by its employees. Instead a more proper interpretation would be that this dictum suggests a liability insurer may provide independent counsel to defend its insured. Today we squarely confront the question of the insurer’s prac*956tice of sending its company employees into court to represent a policyholder. Such conduct is contrary to the fixed policies of our state as expressed by the legislature in the statute and to the settled case law prohibiting such practice and should be enjoined.
The injunction should issue for the additional reason that respondent’s actions place house counsel in a position of inherent conflict of interest. As observed by the Advisory Committee, while independent outside counsel, hired by another to represent a third party, faces the possibility of conflicting interests, this risk is immeasurably heightened in the case of house counsel, who is confronted not only with the appearance of conflict and professional impropriety, but with certain and unavoidable conflicts. An attorney attempting to serve two masters with conflicting interests can provide neither the loyalty they deserve. State v. Crockett, 419 S.W.2d 22, 29 (Mo.1967).
Here house counsel is simply an insurance company employee on the regular payroll and paid solely by respondent corporation. He is compensated for his services exclusively by the corporation whether those services are performed directly to the corporation or for services rendered by the corporation for an insured. House counsel must answer to supervisors within the company who are not necessarily attorneys. Within the corporate framework house counsel will in due course necessarily face the unenviable choice of exercising the required independent, professional judgment or risk losing his job; manifestly, the insurance company is the sole “boss” of its employees.
The independence required on the part of the attorney, the insurance company House Counsel does not and cannot have. Should an outside lawyer refuse to perform an act which he believes he cannot ethically do for his client, he will possibly lose on[l]y one client of many in the case of a disagreement; on the contrary the temptation would be much greater to override his conscience if he would lose his only client, i.e., his only livelihood.
Spencer, Home Counsel and the Unauthorized Practice of Law, 1967, 39 Pa.B. A.Q. 64, 70 (1967).
From the relationship between insurer, insured and insurance defense counsel, a host of “conflict” situations can arise. See generally Alsobrook, Conflicts Between the Insurer and Insured, 48 Ins.CounsJ. 165 (1981); Dondanville, Defense Counsel Beware: The Perils of Conflicts of Interest Revisited, 1985 Trial Law.Guide 249; Mallen, A New Definition of Insurance Defense Counsel, 53 Ins.CounsJ. 108 (1986); Ryan, Confidentiality, Disclosure and Discoverability in the Representar tion of Insurer and Insured, 48 Ins. Couns J. 163 (1981); Schwartz, Ethical Responsibilities of Defeme Counsel in Defending Imureds, 64 Mich.B J. 290 (1985). The many readily apparent conflicts include issues of coverage, settlement, trial conduct, and confidentiality.
Counsel who is a salaried employee of an insurance company has added relationships which enhance the prospects of a subjective bias in favor of the insurer. Unlike outside counsel, staff counsel is financially dependent upon one client. Advancement in salary and position requires satisfying that client. Control ultimately lies with the attorney’s superiors, presenting a risk if the supervisor has corporate responsibilities other than for the insured’s representation. The employed attorney may be concerned that the insurer will not be pleased if he engages in a course of action detrimental to its economic interests because of perceived ethical obligations. These forces may combine to unduly influence the employee’s loyalties in favor of the employer.
Mallen, supra, at 110-11. On the other hand, while independent defense counsel is not unaware that the insurer pays his bills and it is the insurer that has tendered him the insured as his client, Dondanville, supra, at 253, the hazard of choosing between conflicting interests is sufficiently reduced in the case of independent counsel so that no blanket prohibition against such *957representation is required. However, the relationship between insurer and house counsel differs qualitatively and it is unfair to the public, whom the ethical standards are designed to protect, to proceed on a case-by-case basis, hoping that house counsel, when the omnipresent hazard of conflict comes into play, will struggle free of his employer’s influence and ethically perform his duty to the insured. Accordingly house counsel should not be permitted to represent the insured, Rule 1.7(b) of Rule 4, for not only is there a stark appearance of impropriety but the danger is too great that the insurer will regulate or influence his professional judgment. Rule 5.4(c) of Rule 4.
In sum, I would decline to follow the suggested authority which does not distinguish between an insurer’s use of staff counsel and outside independent counsel. It is not sufficient, as the insurance company argues, that it can satisfy the inherent “conflict of interest problem” or the obvious “ethical consideration” by adopting its in-house policy which provides inter alia that it will not use house counsel in actions in excess of policy limitations or where a reservation of rights is asserted by respondent. The principal opinion ignores the conflict and confidentiality problems that are certain to arise in a wide variety of situations not contemplated by the insurance company’s in-house policy statements and, further, the majority seems not to understand that nothing precludes any insurance company (as respondent here) from changing in-house policy when it chooses. It goes without saying that respondent is not bound by our rules of professional conduct and the majority opinion by this sweeping change wipes away the protection for the citizens of Missouri which has been carefully developed over the years by statute, case law and court rule.
The principal opinion, in choosing not to apply the legal prohibition against corporations practicing law on the ground that such prohibition is one of long standing in the law, abruptly turns the hallowed principle of stare decisis upon its head. The principal opinion unduly fixes upon the proposition that “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.” In its groping for a rationale to justify its conclusion, the majority misses the mark. The question is not whether house counsel can lawfully do the work or perform the service (as posed by the majority) but instead the real question, which the majority blithely skips around, is whether an insurance company is practicing law when it sends its staff employee into court to represent a policyholder who has been sued. The majority brushes aside the standing prohibition against insurance companies practicing law and does not give adequate consideration to the profound conflict of interest and ethical problems inherent in the double representation of an insurance company staff employee who is sent to represent a policyholder in litigation involving that policyholder. The majority by its above-mentioned assertion also immediately comes face to face with the inevitable appearance of impropriety which rises to cloud the result the majority imposes on the practice of the legal profession and, as Judge Greene suggests in his well-reasoned dissenting opinion, if there is something palpably unfair about this then the legislature might be the better forum in which to address the issue. The prohibition against corporations practicing law is designed to protect the public against divided loyalties and improper influence upon professional judgment, and the public should not be stripped of this protection on an unsubstantiated belief that to keep this safeguard might in the end lead to higher premiums. First, there is absolutely no evidence in the record that, in the competitive market place, respondent will lower its rates if permitted to practice law in Missouri, and, furthermore, ineffective, unethical representation cannot be justified even if less expensive than effective representation.
*958Respondent’s practice of sending house counsel to represent its insureds should be enjoined because by so doing it engages in the unauthorized practice of law. For these reasons I must respectfully dissent.