NEW YORK COUNTY LAWYERS’ ASSOCIATION
Committee on Professional Ethics
QUESTION NO. 693
TOPIC: SOLICITATION OF BUSINESS; REFERRALS FROM INSURANCE COMPANY.
DIGEST: A lawyer may be the owner of an insurance agency, but may not accept referrals of business from the agency and must not refer insurance business to the agency.
CODE: DR 2-103(C), DR 2-103(D), DR 5-104(A), DR 5- 105(C), EC 5-2.
May a lawyer be a co-owner with a chiropractor of an insurance brokerage issuing automobile and home owner policies, which would be staffed by a licensed insurance broker and would serve as the basis of referrals to both the chiropractor and the lawyer?
The Code of Professional Responsibility does not prohibit a lawyer from simultaneously engaging in another profession. Moreover, it is clear that lawyers also own insurance brokerages or work m similar businesses. See, e.g. N.Y. State 493 (real estate brokerage), N.Y. State 516 (life insurance), N.Y. State536 (financial planning), N.Y. State 576 (agent for title abstract company), N.Y. State 595 (title abstract company), 621 (title abstract company), N.Y. State 619 (1991)(insurance products). However, when a lawyer owns a non-legal business, that business must be operated in a manner that does not violate the Code. In particular, the lawyer must be careful not to violate the ethical or legal restrictions against in-person solicitation of business. Moreover, the Code’s proscriptions on conflicts of interest also limit the ability of the lawyer to refer business to the insurance agency.
Referral of Legal Business
DR 2-103(C) states that a lawyer may not request a person or organization to recommend or promote the use of the lawyer’s services other than by (l) advertising not proscribed by DR 2-101, or (2) cooperating with the legal service activities of an office or organization enumerated in DR 2-103(D). The latter provision includes referrals by a legal aid office, public defender office, military legal assistance office, bar-sponsored or -approved lawyer referral service, and any other bona fide organization which recommends, furnishes or pays for legal services to its members or beneficiaries and, which, among other requirements, is not operated for the purpose of procuring legal work for the lawyer.
These provisions generally prohibit a lawyer from using a non-legal business to solicit law business in violation of any statute or the disciplinary rules. See, e.g. N.Y. State 536 (1981), N.Y. State 556 (1984).
While our Committee does not give opinions on matters of law, we note that DR 2-103(A) provides that a lawyer may not seek professional employment in violation of any statute, and that Judiciary Law § 479 provides as follows:
It shall be unlawful for any person or his agent, employee or any person acting on his behalf, to solicit or procure through solicitation either directly or indirectly legal business . . . .
Case law in New York has attempted to distinguish between permissible forms of advertising and impermissible solicitation. See, e.g., Matter of Koffler, 51 N.Y.2d 140, 412 N.E.2d 927, 432 N.Y.S.2d 873 (1980), cert. denied 450 U.S. 1026 (198l)(direct mail solicitation of potential clients does not violate § 479 of the Judiciary Law); Matter of Greene, 54 N.Y.2d 118, 429 N.E.2d 390, 444 N.Y.S.2d 883 (1981), cert, denied, 455 U.S. 1035 (1982) (letter to real estate brokers requesting brokers to refer clients for legal work violated § 479); Matter of Alessi, 60 N.Y.2d 229, 457 N.E.2d 682, 469 N.Y.S.2d 577 (1983)(same). In Greene, the Court of Appeals held that a letter to real estate brokers setting forth a lawyer’s qualifications and fees was tantamount to an invitation to the brokers to solicit clients on behalf of the lawyer, and thus constituted indirect in-person solicitation of legal business by the lawyer in violation of § 479 of the Judiciary Law. The Court identified an inherent conflict of interest that might affect the broker’s recommendation: the broker had an incentive to steer cases to lawyers who would ensure that a closing occurred and the broker would be entitled to receive a brokerage commission. In Alessi, the Court of Appeals further explained the ban on third party mailings: it prohibits third-party mailings by attorneys to recipients whose interests are more closely intertwined with that of the lawyer than that of the client.
We believe that the conflict of interest identified in Greene and Alessi are present where the brokerage agency that would make the recommendation is owned by the lawyer.
Referral of Insurance Business
DR 5-104(A) provides that a lawyer may not enter into a business transaction with a client if they have differing interests in the transaction and the client expects the lawyer to exercise professional judgment in the transaction on behalf of the client, unless the client consents after full disclosure of the effects of the conflict. The New York State Bar Association has concluded that “where a lawyer has a financial interest or affiliation with a particular . . . insurance agency or company, the lawyer’s independent professional judgment would unavoidably be affected in considering the appropriateness of or recommending . . .insurance products for a particular client.” See N.Y. State 619 (1991), citing N.Y. State 516 (1980). Moreover, that association concluded that client consent would not cure the conflict. They read into DR 5-104 the requirement of DR 5-105(C) that it must be “obvious” that the lawyer can adequately represent the interests of the client, and the requirement of EC 5-2 that the lawyer should decline proffered employment if there is a “reasonable probability” that the lawyer’s personal interests will adversely affect the advice to be given.
We agree that client consent should not cure such an inherent conflict of interest.
A lawyer may be the owner of an insurance agency, but may not accept referrals of business from the agency and must not refer insurance business to the agency.
July 8, 1992