Texas Court Approves Insurer use of Staff Counsel

Texas Court Approves Insurer use of Staff Counsel

Kirk Hansen, director of claims for the Alliance of American Insurers, based in Downers Grove, Ill., made his comments after a Nov. 6 decision by the Texas 11th Court of Appeals.

The ruling came in a case brought by American Home Assurance Company Inc. and The Travelers Indemnity Company, which sought a declaratory judgment against a staff counsel ban by the Texas Legislature's Unauthorized Practice of Law Committee, whose members are appointed by the State Supreme Court.

The UPLC countered by seeking a judgment to prevent the insurers from continuing to use staff attorneys to represent their insureds.

Besides reversing a finding that the companies were engaged in unauthorized practice of law, the Circuit Court directed the lower court to determine the insurers' legal fees, which it said the UPLC should pay.

The court found the practice of using staff attorneys to be legal and ethical. In addition, the court held that this practice is essentially the same as utilizing outside counsel.

In Washington, D.C., the American Insurance Association hailed the decision as a reaffirmation of the status of insurers and insureds as "co-clients" of defense counsel, clearly recognizing that a tripartite relationship exists among the three parties.

Mr. Hansen called the case a "major victory" for the insurance industry.

The court found that using staff counsel does not amount to the unauthorized practice of law and does not violate attorneys' rules of professional conduct. Its decision also found that staff counsel is no different from outside counsel, and therefore, its use is not the unauthorized practice of law,

Both the Alliance and AIA filed amicus friend of court briefs in the case

"This significant decision will help preserve insurers' freedom to efficiently manage their policyholder litigation," said J. Stephen Zielezienski, AIA assistant general counsel. "The Travelers victory removes a cloud of uncertainty and will allow insurers to initiate or expand staff counsel operations in one of the country's largest insurance markets, saving both insurers and their customers tens of millions of dollars annually."

Several legal challenges to the use of staff counsel have been mounted in Texas since 1998. The Circuit Court's latest decision is consistent with the nationwide trend of courts and bar association ethics committees upholding the use of staff counsel, the AIA pointed out.

"The decision means that Texas joins the majority of states that recognize that the use of staff counsel is permissible," the Alliance's Mr. Hansen said. He indicated that only three states?Kentucky and North Carolina ?still restrict the use of insurer staff attorneys.