Texas Supreme Court: Use of Defense Staff Attorneys OK in Some Cases

In a long awaited ruling, the Texas Supreme Court, in a 7-2 decision in Unauthorized Practice of Law Committee v. American Home Assurance Company, Inc and The Travelers Indemnity Company, approved the use of insurer defense staff attorneys to defend most matters, the American Insurance Association (AIA) reported. The case was argued in September 2005.

“Today’s decision is not merely a victory for insurers but also their consumers who derive great value from being defended by quality staff counsel,” said James Whittle, AIA Assistant General Counsel & Chief Claims Counsel.

The court stated that, “an insurer may use staff attorneys to defend a claim against an insured if the insurer’s interest and the insured’s interest are congruent, but not otherwise. Their interests are congruent when they are aligned in defeating the claim and there is no conflict of interest between the insurer and the insured.”

As indicated by the 7-2 decision, not all justices agreed with the majority opinion. Justice Johnson was joined by Justice Green in the dissent, in which Johnson wrote:

“[I]t seems to me that the issue before the Court narrows down to statutory construction: Is an insurance corporation’s defense of its insureds by the use of staff attorneys the practice of law as defined in the State Bar Act. … The Court holds that under certain circumstances it is not. I disagree. ….

“[T]he Act does not preclude insurers from representing their own interests in lawsuits if they choose to do so. But under the State Bar Act, a corporate insurer cannot represent a client in a lawsuit. Because acts of staff attorneys are acts of the insurer, when staff attorneys defend insureds in lawsuits the insurer violates the Act, is practicing law without a license, and is engaging in the unauthorized practice of law. I would reverse the judgment of the court of appeals and affirm the judgment of the trial court.”

The AIA’s Whittle said the Court’s favorable “decision confirms what insurers have always said, that staff counsel are perfectly capable of representing policyholders in most situations in which they need a defense under their insurance policies.”

Source: American Insurance Association, www.aiadc.org, Texas Supreme Court