Legal opinion

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  • | 12:00 p.m. December 12, 2005
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The question

Can an attorney accept a set fee per case from an insurance company to defend all of the insurer’s third party insurance defense work unless the attorney concludes that her independent professional judgment will be affected by the arrangement?

The situation

A member of The Florida Bar inquired whether it is proper to accept a set fee per case from an insurance company to defend all of the insurer’s third party insurance defense work.

The inquiring attorney was concerned that such a fee arrangement was impermissible because the inquirer’s own interest in keeping costs of the defense low would affect the representation of the insured or that the fee arrangement might otherwise affect the independent professional judgment of the inquirer.

The set fee arrangement clashes with Rule 1.7(b) in that it creates a situation whereby the attorney has an interest in the outcome of the action which conflicts with the duties owed to the client: quite simply, in easy cases, counsel will take a financial windfall; in difficult cases, counsel will take a financial loss.

Nothing in the Rules Regulating the Florida Bar specifically prohibits a flat fee arrangement. The Committee concluded that a conflict of interest argument does not bar representation on a flat fee basis.

Other states which have examined this question have responded that a flat fee arrangement is not prohibited, in light of the fact that the attorney’s obligations to the client are not limited.

Such obligations include disclosure to the insured of the fee arrangement between the insurer and the attorney, competence and diligence in the representation of the insured, prompt communication about the progress of the representation, and confidentiality of information regarding the representation.

However, such compensation does implicate rules regarding conflicts of interest. Recognizing that a flat fee could be so inadequate as to affect an attorney’s independent professional judgment, the Ohio Ethics Opinion 97-7 concluded that an attorney or law firm may enter into a contract with a liability insurer in which the attorney or law firm agrees to do all or a portion of the insurer’s defense work for a fixed flat fee. However, the fee agreement must provide reasonable and adequate compensation; it must not be excessive or so inadequate that it compromises the attorney’s professional obligations as a competent and zealous advocate. The fee agreement must not adversely affect the attorney’s independent professional judgment; the attorney’s representation must be competent, zealous, and diligent; and the expenses of litigation, in addition to the flat fee, must ultimately be borne by the insurer.

The ruling

The Committee agreed and concluded that a set fee arrangement for third party defense was not per se prohibited. The inquirer, regardless of her fee arrangement, owes her client, the insured, all attendant obligations and responsibilities under the Rules of Professional Conduct.

These obligations include full disclosure to the client, the insured, of the set fee arrangement between the attorney and the insurer. The inquirer may not enter into a set fee agreement in which the set fee is so low as to impair her independent professional judgment or cause her to limit the representation of the insured.

Additionally, if the inquirer feels that her independent professional judgment is affected by the fee arrangement or that she has a conflict with her client because of her own interest in reducing the costs of defense, the inquirer is free to decline to enter into such an arrangement.