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Abstract

Under most standard insurance policies, an insurer has a duty to defend its policyholder in the event a third party brings a claim against that policyholder.  To fulfill this duty, an insurer may either retain a private attorney or use its own staff attorney to represent the policyholder.  Choosing the latter option has become common practice throughout the country, and with that decision comes certain challenges.  First, critics argue that the use of staff counsel by an insurance company constitutes the unauthorized practice of law by the insurer.  Second, opponents of the representation claim that the use of staff counsel creates an inherent conflict of interest for the attorney.  Challenges aside, the use of insurance staff counsel is thriving in modern-day America, as courts and ethics committees across the country have approved the practice.

With its holding prohibiting the use of staff counsel by insurance companies in Brown v. Kelton, Arkansas joined only two other state jurisdictions with similar results.  The decision disrupted over fifteen years of sound, consistent legal opinions from other jurisdictions that support the use of insurance staff counsel to represent policyholders.

This Note will argue that the Arkansas Supreme Court erred in its ruling because a more practical, well-reasoned outcome was available.  Specifically, this Note will contend that:  (1) the insurance company in Brown should have fallen into the exception to the Arkansas statute that prohibits corporations from practicing law because litigation involves an insurance company’s “immediate affairs”; (2) there is nothing unique about the relationship between staff attorneys and insurers that creates an inherent conflict of interest and this representation arrangement is beneficial to policyholders; and (3) the Brown opinion was short-sighted, as it failed to consider the potential impact on the citizens of Arkansas that may result from prohibiting the use of insurance staff counsel.

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