ETHICS OPINION 286
NUMBER 286 1931
Question. A lawyer has the opportunity of receiving a number of insurance subrogation cases from an independent adjuster for several insurance companies. The adjuster is not employed by any of the companies. He receives a fixed compensation from them for adjusting losses. The companies, after the adjustment of such losses, then leave the losses in his charge for collection against the person causing the loss, and to which claims, arising from the losses, the insurance companies are subrogated. The adjuster proposes to furnish the preliminary details of the claims to the lawyer who, if the facts warrant, will make claim or commence action. The adjuster has an arrangement with the companies whereby he receives a percentage of a recovery in such claims in each case from the companies contingent on recovery. He in turn will retain the lawyer to prosecute cases and to make the claims under an arrangement whereby the lawyer’s compensation is contingent on recovery and is based on a percentage approximately 8 percent lower than that which the adjuster is allowed by the companies. It is proposed that the lawyer remit to the adjuster the recovery less his percentage for fee and the adjuster shall remit to the company the amount received from the lawyer after deducting from the amount received approximately 8 percent.
Is such an arrangement by an attorney with an adjuster, as described, a proper one?
Answer. In the opinion of the Committee the question seems to imply that the actual arrangement is, in substance, one whereby the lay adjuster, as an independent contractor, undertakes as a regular business to furnish the services of a lawyer where such services seem to the adjuster necessary or desirable, and to pay the lawyer’s fee out of the adjuster’s gross percentage.
Such arrangement is disapproved by the Committee, because, in the opinion of the Committee, it involves the control and exploitation of the lawyer’s professional services by a lay intermediary, in contravention of Canon 35 of the Canons of Professional Ethics of the American Bar Association (see also Opinions 47, II; 125; 220).
The Committee is not unaware that the convenience or necessities of the insurance business require or justify the employment of independent adjusters, but it is of the opinion that a lawyer should be employed in behalf of the insurers and not in behalf of the adjuster, and he should consider and recognize that his clients are the insurers, and he should not permit the adjuster to control his professional activities.
The arrangement outlined in the question seriously weakens the relationship which should exist between a lawyer and his client, especially since the lawyer does not receive his compensation from the client directly, but from the adjuster out of the percentage of recovery which the latter is to receive. This fact alone, from the standpoint of the lawyer, enhances the importance of the adjuster in the situation and might lead to embarrassment, if, for example, the interests of the independent adjuster and those of the companies should become opposed.