Practicing Law While Simultaneously Selling Insurance
(The May 2002 "Talking of Ethics" column discussed Opinion 306. Opinion 306 addresses the instance of an attorney’s intention to sell insurance, including to her clients. The Opinion also addresses the broader question of business transactions between attorneys and clients. Rules of Professional Conduct 1.6 (Confidentiality of Information), 1.7(Conflict of Interest: General Rule), 1.8 (Conflict of Interest: Prohibited Transactions),and 8.4 (Misconduct) are listed as applicable.)
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This Committee previously has opined that “[t]he Rules of Professional Conduct erect no bar to a lawyer engaging in another business, separate from his or her law practice, so long as the lawyer’s engagement in that business does not result in violations of applicable provisions of the Rules.” D.C. Bar Op. No. 226 (1992) … We also have noted that a lawyer performing multiple professional roles (i.e., lawyer and broker) with respect to a single transaction should comply with applicable provisions of the Rules of Professional Conduct regardless of which “hat” she is wearing in particular aspects of that transaction. See D.C. Bar Op. No. 226.
. . . . (T)he inquirer must ensure the client understands that she is acting exclusively as an insurance broker and not as a lawyer in the insurance transaction. As a member of the Bar, however, the inquirer must still comply with certain Rules of Professional Conduct even though she is selling insurance instead of practicing law. The relevant Rules of Professional Conduct would be those that apply to lawyers acting in non-lawyer capacities. See, e.g., Rule 8.4 (lawyer may not “[e]ngage in conduct involving dishonesty, fraud, deceit, or misrepresentation”).
. . . .(W)hen selling insurance products to non-clients, the inquirer should ensure that an attorney-client relationship is not inadvertently created… (T)he inquirer should inform the prospective purchaser that she is not functioning as a lawyer and will not be exercising professional judgment as a lawyer on behalf of the purchaser.
If the inquirer sells insurance products to her client, she is entering into a business transaction with the client. Rule 1.8(a) provides:
(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client unless:. . . .The inquirer … should advise the client of the client’s right to seek independent counsel. Next, the inquirer must give the client an opportunity to seek the advice of an independent attorney concerning the terms of the insurance transaction. The matter in which the client is given an opportunity to seek the advice of independent counsel may vary depending on such factors as the sophistication of the client, the magnitude of the transaction, and the client’s certitude with respect to the need to consult with independent counsel. Cf. Comments  &  to Rule 1.7. The inquirer then must get the client’s written consent to the transaction.
(1) The transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which can be reasonably understood by the client;
(2) The client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and
(3) The client consents in writing thereto.
. . . .(T)he inquirer also must comply with Rule 1.7(b)(4) when selling insurance products to her clients. Rule 1.7(b) provides that “a lawyer shall not represent a client with respect to a matter if: . . . (4) [t]he lawyer’s professional judgment on behalf of the client will be or reasonably may be adversely affected by the lawyer’s responsibilities to or interests in a third party or the lawyer’s own financial, business, property, or personal interests.” However, Rule 1.7(c) allows a lawyer to represent a client despite a conflicting financial or business interest “if each potentially affected client provides consent to such representation after full disclosure of the existence and nature of the possible conflict and the possible adverse consequences of such representation.”
In order to comply with Rule 1.7(b), the inquirer should not recommend or enter into a business transaction with a client unless she concludes that her professional judgment on behalf of the client will not be adversely affected by the transaction. See Comment  to Rule 1.7. The inquirer must be careful that her ability to make a profit on the sale of insurance does not cloud her professional judgment as to whether insurance is really needed by the client. See N.H. Bar Op. No. 1998-99/14 (2000)...
Even when the inquirer concludes that her professional judgment on behalf of the client will not be adversely affected by the transaction, the inquirer should not recommend or enter into the business agreement without full disclosure to the client of the inquirer’s own interest in the transaction so that the client can make a fully informed choice. Such disclosure should include the nature and substance of the inquirer’s interest in the insurance product offered … alternative sources for insurance services, possible adverse consequences of the inquirer’s representation, and sufficient information so that the client understands that the provision of insurance services is not a legal service. See Comment  to Rule 1.7. This disclosure does not have to be in writing or take any particular form. See Comment  to Rule 1.7. However, …the form of disclosure sufficient for more sophisticated business clients may not be sufficient to permit less sophisticated clients to provide fully informed consent.” Id.
In the event that the inquirer’s obligation to the insurance underwriter or another party precludes full disclosure to her client, the inquirer cannot proceed with the insurance transaction. See Comment  to Rule 1.7. The inquirer also must obtain the client’s consent to proceed with the transaction notwithstanding the inquirer’s conflicting interests.
. . . .(T)he inquirer has, among other obligations, a duty to preserve the client’s secrets and confidences. See Rule 1.6. To the extent that the inquirer knows about the client’s secrets or confidences that are inconsistent with the provision of insurance services, the inquirer cannot reveal that information without the client’s consent unless otherwise authorized by law. However, the inquirer cannot “engage in conduct involving dishonesty, fraud, deceit, or misrepresentation.” See Rule 8.4. There may well be situations in which the inquirer is obligated to disclose certain information to the insurance company that underwrites the policies she sells. In such circumstances, it may not be possible for the inquirer to sell insurance to the client.
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