Justice Nathan Hecht

AUSTIN -- Insurance companies in Texas may use their staff attorneys to defend claims against their insured parties but only when there is no conflict of interest between the two sides, the Texas SC ruled this week.

In Unauthorized Practice of Law Committee v. American Home Assurance Co. and Travelers Indemnity Co. (04-0138), the top bench, in a 7-2 ruling, modified a ruling by the state's 11th District Court of Appeals.

The state petitioner argued that employing staff attorneys in such cases represents unauthorized practice of law. Two states - North Carolina and Kentucky - prohibit such representation.

The SC ruled that insurers may do so but only "if the insurer's interest and the insured's interest are congruent" and "there is no conflict of interest between the insurer and the insured," wrote Justice Nathan Hecht for the majority. Attorneys "must fully disclose to an insured his or her affiliation with the insurer."

In dissent, Justice Phil Johnson disagreed with the majority's assertion that using staff attorneys to defend insureds is not "the practice of law as defined in the State Bar Act." Under that Act, he wrote, "a corporate insurer cannot represent a client in a lawsuit."

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