OPINION 297
May 1965

NEGOTIATIONS WITH OPPOSITE PARTY—AIDING UNAUTHORIZED PRACTICE—CONFLICT OF INTERESTS—It is unethical for plaintiff's attorney to negotiate directly with insurance adjuster without defense attorney's consent.  In a compensation case, it is not unethical to give such consent.  In a negligence case, it is unethical to give such consent if the case involves an amount in excess of the policy limits.

Canons 69, 43.

Questions

(1)  In a workmen's Compensation suit in which an answer has been filed by defendant's attorney, is it unethical for plaintiff's attorney to negotiate directly with defendant's adjuster for settlement of the suit without first obtaining the consent of defendant's attorney?

(2)  In such a suit, is it unethical for defendant's attorney to give his consent?

(3)  In a negligence damage suit which is being defended by a liability insurance company and in which answer has be filed for defendant by an attorney employed by the insurance company, is it unethical for plaintiff's attorney to negotiate directly with the insurance company's adjuster for settlement of the suit without first obtaining the consent of such defense attorney?

(4)  In such suit, is it unethical for the defense attorney to give his consent?

Opinion

(1)Yes, plaintiff's attorney would violate Canon 9. (8-0.)

(2)No, assuming that defendant's management knows of and concurs in such procedure. (8-0.)

(3)Yes, plaintiff's attorney would violate Canon 9. (8-0.)

(4)This question cannot be answered categorically.  It raises the issue of whether settlement negotiations by an adjuster (who is not an attorney) would constitute unauthorized practice of law, which is beyond the scope of this committee's functions. See Southern Traffic Bureau v. Thompson, 232 S.W. 2d 742 (Tex. Civ. App. 1950); Grievance Committee v. Coryell, 190 S.W. 2d 130 (Tex. Civ. App. 1945); State Bar Act, Article 320a-1, Vernon's Tex. Civ. Stats. That issue might hinge on whether or not the amount involved exceeds the insurance policy limits.

If the adjuster negotiations constitute unauthorized practice of law, the defense attorney's consent thereto would violate Canon 43.

If no unauthorized practice is involved, the question nevertheless presents a possible conflict of interests.  See Canon 6.  In the damage suit (as distinguished from the compensation case), the defense attorney represents two clients, the insured and the insurer, to whom he owes equal duties.  Opinion 179 (June 1958).  Here again, whether the particular case involves an amount in excess of the policy limits could be decisive.  Assuming that the insurance contract gives the insurer the legal right to settle within the policy limits without the consent of the insured, such a settlement would not involve a conflict with the defense attorney's duty to the insured; but failure to settle within such limits, when an amount in excess of such limits is sought by the plaintiff, could involve a conflict of interests.

The committee is unanimous in the opinion that, in a case involving possible excess liability, the defense attorney violates his duty to the insured defendant by permitting an insurance adjuster to negotiate for settlement with the plaintiff. (8-0.)

Although two members of the committee are of the opinion that it is unethical for the defense attorney to consent to such negotiations regardless of the amount involved, the majority of the committee are of the opinion that consent to such negotiations is not unethical if the amount sought by the plaintiff is within the policy limits. (6-2.)