Ethical Issues in Third Party Payment: Beyond the Insurance Defense Paradigm

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In recent years, the subject of conflicts of interest has grown exponentially in importance to both practicing lawyers and academics.' It is now one of the most litigated areas of professional responsibility, with impermissible conflicts being raised as a basis for such diverse remedies as civil damages, disqualification, and fee forfeiture, as well as for the more traditional remedy of professional discipline.2 Not surprisingly, with this increased judicial attention, an enormous body of secondary literature has evolved, describing and grappling with various aspects of complex conflicts doctrine.3

Until very recently, however, very little attention has been paid to the conflicts raised by third-party representation, that is, representation in which the lawyer is paid or otherwise furnished by someone other than the client. An important exception is insurance defense representation, where there are numerous decisions and scholarly articles attempting to delineate the rights and responsibilities involved in the so-called "tripartite relationship" between the insurer, the insured, and the lawyer retained by the insurer to defend an action brought against the insured.4 Even here, most lawyers and law professors have tended to view the problems of insurance defense representation as marginal to the central problems of professional responsibility. Thus, the casebooks in the field devote very little attention to third-party representation, except perhaps for a case or two on insurance defense, with little or no attention to the implications of these cases for other, more common instances of third-party representation. These more common instances include cases involving lawyers hired by an employer to represent an employee6 and lawyers hired by parents to represent their children,7 as well as public interest lawyers paid for by the government or by nonprofit organizations to represent individuals in both civil and criminal cases.8

This situation changed in May 1996, when a section on thirdparty conflicts, Section 215, was one of only two sections of the proposed Restatement (Third) of the Law Governing Lawyers to fail to be approved by the membership of the American Law Institute.9 Admittedly, the failure to obtain approval was a direct result of unhappiness with the Section among the insurance defense bar,10 which takes a strong position on questions that have been debated in the literature for a considerable period of time." However, what is striking about the debate surrounding Section 215 of the Restatement is that the debate encompasses not only statements in the Comment directed explicitly to the situation of insurance defense lawyers, 12 but also the text of the rule itself, which appears to significantly modify provisions regulating third-party conflicts under modem ethics codes, particularly the Model Rules of Professional Responsibility.3 And of course, any such changes in the blackletter rule itself are going to affect both insurance defense representation and other types of third-party representation. Indeed, one of the parting comments by an ALI member before the Section was recommitted to the Reporters was an observation concerning the implications of the Section for those lawyers representing indigent clients and the extent to which those lawyers were facing cost containment pressures similar to those experienced by the insurance defense bar; the ALI member reminded the Reporters that the issues raised in this Section are not just about lawyers who happen to be paid by insurance companies.1 4

It is the contention of this Article that the legal doctrine concerning the ethics of third-party representation is very much in its infancy and that neither the judiciary nor the profession itself has seriously confronted some of the important dilemmas commonly presented when a lawyer is paid or otherwise provided by a nonclient third party.15 These dilemmas include the sharing of otherwise confidential information, the ability of the third-party payer to direct at least some aspects of the representation, and questions concerning the "non-consentability"16 of some instances of third-party representation. Despite the paucity of authority, the Restatement Reporters have recognized and attempted to address some of these problems. To a large extent, the suggested changes are directed toward the problems inherent in insurance defense representation, and it is unclear that the chosen solutions will work well in other contexts. It is the primary purpose of this Article to address some of the issues involving third-party representation that have received insufficient attention to date, with particular attention to the ongoing work of the proposed Restatement. Part II will introduce the issues through a quick summary of the insurance defense paradigm and the controversy surrounding Section 215 of the Restatement. Part III will then look at three additional forms of third-party representation-employers providing lawyers for their employees, parents providing lawyers for their children, and public interest lawyers paid for by governmental entities or nonprofit corporations-to determine whether solutions devised in the insurance defense context are adequate to address problems raised in these other contexts.

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