Civil claim settlement talks involving third parties and insurance company adjusters: When should lawyer conduct standards apply?

St. John's Law Review, Summer 2003 by Parness, Jeffrey A

III. PRE-LAWSUIT SETTLEMENT TALKS

The court in Jones found that pre-lawsuit settlement talks between insurance company adjusters and third parties implicated certain professional services standards that involved "an attorney" and "an unrepresented third party," including standards on corrections of misunderstandings,54 conflicts of interest,55 and informed decision making.56 The extension of lawyer-like responsibilities to adjusters only occurred in Jones after the court assumed, without challenge, that at least some professional legal services in furtherance of pre-lawsuit settlements may be similarly undertaken by lawyers and nonlawyers alike.57 That is, the court assumed that the acts done by Christy Klein did not involve the unauthorized practice of law.58 Should all pre-lawsuit third-party settlement initiatives by nonlawyer insurance company adjusters be barred as unauthorized if properly challenged, or should only certain pre-lawsuit professional legal services be barred? Assuming there are certain pre-lawsuit settlement acts that may be undertaken by insurance company adjusters in third-party settings without any unauthorized legal practice, should professional legal services standards always apply, or should applicable standards at times originate in other legal sources, such as state insurance department regulations?

A Unauthorized Practice of Law

Where the practice of law is defined, professional legal services standards typically encompass pre-lawsuit civil claim settlement initiatives undertaken on behalf of others. For example, in Washington, where Jones was decided, the supreme court has expressly defined the practice of law as embodying, inter alia, "[g]iving advice or counsel to others as to their legal rights or the legal rights or responsibilities of others for fees or other consideration," as well as negotiating "legal rights or responsibilities on behalf of others.59 This rule is not limited to litigation settings,60 yet all settlement initiatives that involve advice or negotiation advanced by insurance company adjusters representing the civil claim interests of insureds are seemingly not unauthorized, as evidenced by the implicit ruling in Jones.61 Are there, however, certain pre-lawsuit settlement acts involving third-party adjusting that should be unauthorized?

Seemingly, acts by insurance company adjusters involving the drafting of legal documents to initiate pre-lawsuit settlements with third parties, such as the Joneses, should be unauthorized. A Washington Court Rule defines the practice of law, in part, as drafting legal documents or agreements affecting legal rights.62 Pre-lawsuit settlements between insurers and third parties will not be deterred much, or made unduly burdensome or costly, if only the drafting is left exclusively to lawyers. Interestingly, in Jones there was no significant judicial inquiry into how Klein helped the Joneses secure payment from Farmers or how she helped them obtain "subrogation waivers."63

B. Application of Professional Legal Services Standards