Virginia State Bar
Legal Ethics Opinion #l564
Attorney Relationships With Title Insurance Agencies
BACKGROUND:
The Committee is cognizant that a number of Virginia attorneys
are associated with or have a relationship with a title insurance
agency in some capacity. Since l972 the Committee has issued a
number of Opinions relative to that association or relationship.
Upon its own initiative, the Committee has reviewed those
Opinions to determine whether they should remain in effect, be
overruled, or clarified.
This Opinion sets forth the ethical requirements in situations
where an attorney is associated with or has a relationship with
the title insurance agency and receives compensation from the
title insurance agency, but also wishes to represent a party to a
real estate transaction where title insurance or related products
or services are to be provided by that title insurance agency.
This is a compendium Opinion in the sense that it incorporates in
one opinion those existing Legal Ethics Opinions which deal with
the subject described above. To the extent that prior Opinions
hold to the contrary or are inconsistent with this Opinion, they
are hereby overruled.
INQUIRY:
The issues which the Committee addresses in this Opinion relate
to an attorney's association with a title insurance agency,
company, or other entity [herein referred to collectively as
"agency"] in an ownership or other financial or business
relationship. Specifically, those issues include: (l) the
propriety of an attorney having an ownership or other financial
interest in a title insurance agency; (2) allowable methods of
compensation paid to an attorney having an ownership or other
financial or business relationship in a title insurance agency;
(3) attorney representation of parties to a real estate
transaction involving a title insurance agency in which the
attorney has an ownership or other financial or business interest
relationship; and (4) disclosure requirements an attorney must
make and consent an attorney must obtain prior to using a title
interest.
APPLICABLE DISCIPLINARY RULES:
The appropriate and controlling disciplinary rules relevant to
the questions raised are:
DR 5-l0l(A) which prohibits an attorney from accepting
employment if the exercise of his professional judgment on
behalf of his client may be affected by his own financial,
business, property, or personal interests, except with the
consent of his client after full and adequate disclosure
under the circumstances [emphasis added];
DR 5-104(A) which prohibits an attorney from entering into a
business transaction with a client if they have differing
interests therein and if the client expects the attorney to
exercise his professional judgment therein for the
protection of the client, unless the client has consented
after full and adequate disclosure under the circumstances
and provided that the transaction was not unconscionable,
unfair or inequitable when made;
DR 5-l05(A, B and C) which preclude an attorney from
accepting or continuing employment by multiple clients if
the exercise of his independent professional judgment in
behalf of a client will be or is likely to be adversely
affected by his representation of another client, except
where it is obvious that the attorney can adequately
represent the interest of each and if each consents to the
representation after full disclosure; and
DR 3-l01(A) which prohibits an attorney from aiding a non-
lawyer in the unauthorized practice of law.
RELEVANT STATUTORY PROVISIONS:
Virginia Code 38.2-460l, as amended
Virginia Code 38.2-460l.l, as amended
Virginia Code 38.2-46l4, as amended
l2 U.S.C. 260l-26l7, Real Estate Settlement Procedures Act
PRIOR LEGAL ETHICS OPINIONS:
The following Opinions have dealt with the issue of attorney
relationships with title insurance agencies:
# 187 # 690 # 939 #1198 #1405
# 392 # 712 #1072 #1311 #1469
# 545 # 754 #1097 #1318 #1515
# 591 # 831 #1152 #1345
# 603 # 886 #1170 #1402
OPINION:
l. Definitions
For purposes of this Opinion, the following terms shall have
the indicated meanings:
Associated Attorney shall mean a partner, associate,
attorney who is of counsel or any other attorney who is in
any way involved in a profit or overhead sharing arrangement
with another attorney in the practice of law.
Attorney Agency shall mean a title insurance agency or title
insurance company, both as defined in the Code of Virginia,
which is directly or indirectly owned by an attorney or an
Associated Attorney, or a member of the family of the
attorney or the Associated Attorney, or in which the
attorney has any other financial, property, business or
personal interest, from which the attorney or the Associated
Attorney proposes to obtain title insurance or related
products or services for his client or a lender of his
client.
Managerial Role shall mean the functioning as an officer of
a corporation, member of a limited liability company,
partner of a partnership or in another supervisory position
on behalf of the Attorney Agency.
Title Insurance Agent shall be an individual licensed by the
Commonwealth of Virginia as such and shall have the
functions as set forth in the Code of Virginia.
2. Attorney Ownership of Title Insurance Agencies
While consistently opining that an attorney's activities
which simultaneously constitute the practice of law and
related business endeavors are not per se improper, the
Committee has cautioned that such activities must comport
with the applicable requirements of DR 5-l0l(A) when clients
of the attorney's law practice are also users of the service
offered through the business activity. See, e.g., LEO 1198
(ownership of court reporting service), 1311 (sale of
insurance products), 1318 (offering management consulting
services), 1345 (wife's ownership of court reporting
service). Thus, the Committee is of the opinion that it is
not improper for an attorney to (i) acquire an ownership or
other financial interest in an Attorney Agency or (ii) have
a Managerial Role in the Attorney Agency, provided that the
attorney complies with the requirements set forth in this
opinion.
When an attorney has an ownership or other financial
interest in an Attorney Agency, other title agency or any
other business other than his or her law practice, and
conducts a law practice on the same premises, the Committee
believes that it is incumbent upon the attorney to maintain
separate signage and telephone listings, separate and secure
client files, and separated office space. See LEO 754.
Furthermore, when the two entities employ the same
individuals, great caution should be taken to avoid any
inadvertent disclosure of client confidences and secrets.
See DR 3-l04 and DR 4-l0l.
Although the Committee is not authorized to interpret
statutes, attention is also directed to Va. Code 38.2-46l4
which sets forth a statutory prohibition against payment or
receipt of title insurance kickbacks, rebates, commissions,
and other payments, but provides also that "no person shall
be in violation of this section solely by reason of
ownership in a bona fide title agency"; and also l2 U.S.C.
260l-26l7, Real Estate Settlement Procedures Act which,
among other things, includes prohibitions against kickbacks
and unearned fees. The Committee cautions that an attorney
must comply with the requirements of all applicable state
and federal laws which, in some respects, may be more
stringent than those articulated in this Opinion.
The Committee also cautions that title insurance agencies,
as lay entities, are without authority to practice law, and
their activities are, of course, subject to the constraints
of the Unauthorized Practice Rules generally and to
Unauthorized Practice Rule 6 regarding Real Estate Practice
specifically. Part Six: Section I: UPR-6, Rules of Virginia
Supreme Court. See also LEO #l469.
3. Compensation of Attorney by Title Insurance Agency
The Committee has previously opined that it would be per seimproper for an attorney to be compensated by a title
insurance agency in which the attorney has an ownership or
other financial interest in a manner which is directly
related to the volume of business or the number of referrals
the attorney has generated for the agency or is based on
premiums paid for specific policies. See LEOs #545, 591.
Similarly, the Committee is of the belief that the attorney
may not receive a fixed salary from the agency unless it is
substantially related to the services rendered or work
performed for the agency. See LEO #59l; see also LEO #1402
(vacating LEO #ll38; thus concluding that no operative LEO
permits an attorney who is a shareholder in a title
insurance company to receive consulting fees tied to the
number of policies obtained for his clients). Thus, the
Committee finds that an attorney may receive reasonable
compensation from an Attorney Agency or other title
insurance agency in the form of: (i) periodic dividends on
stock or similar distributions as a result of ownership of
the Attorney Agency; (ii) legitimate fees based upon the
attorney's having rendered services for the Attorney Agency
or other agency; or (iii) reimbursement of reasonable
expenses actually incurred on behalf of the Attorney Agency
or other agency. See LEOs #545, 59l. See also Va. Code
38.2-46l4 supra.
Indirect remuneration to the attorney through the receipt of
interest earned on funds deposited in the agency's escrow
account has also been deemed improper and violative of DR l-
l02(A)(2) if the attorney has specifically steered a client
to the separate lay agency owned by the attorney for the
purpose of circumventing the absolute prohibition against an
attorney earning interest on a client's funds. See LEOs
#392, 831, ll70.
Finally, the Committee has also found that it would be
improper for the attorney to accept indirect remuneration in
the form of payments by the title insurance company for law
firm employees' salaries, and goods, services, and
advertisements rendered to the law firm. See LEO #1405.
4. Representation of Parties to a Real Estate
Transaction Involving the Attorney Agency
The Committee is of the opinion that the following
activities in and of themselves, when engaged in by an
attorney or any Associated Attorney, do not per se create a
conflict under DR 5-l05(A) which would prohibit an attorney
from representing a party to a real estate transaction where
title insurance or related products or services are obtained
from the Attorney Agency for the client of the attorney or
lender of the client.
(i) providing legal advice or acting as general
counsel to the Attorney Agency;
(ii) representing the Attorney Agency before any
tribunal, administrative agency or court;
(iii)holding oneself out to the public as being an
attorney for the Attorney Agency (i.e. the
representation of any attorney status on any business
card, stationery, advertisement, brochure or
announcement of the Attorney Agency);
(iv) serving as a director of the Attorney Agency;
(v) serving in a Managerial Role in the Attorney
Agency; or
(vi) serving as a registered agent of the Attorney
Agency.
The Committee cautions, however, that during the course of
representing a party to a real estate transaction where
title insurance or related products or services are obtained
from the Attorney Agency for the client of the attorney or
the lender of the client, the activities described in (i)
through (vi) above may create a conflict under DR 5-l05 in
which event the attorney may continue to represent the party
only if it is obvious that adequate representation can be
provided that party and the Attorney Agency, and both
consent to the representation. DR 5-l05(B) and (C).
However, the Committee is further of the opinion that, under
DR 5-l05(A), it is improper for an attorney to represent a
party to a real estate transaction if title insurance or
related products or services are to be provided by the
Attorney Agency to the client of the attorney or the lender
of the client and (i) the attorney or any Associated
Attorney holds a license with the Attorney Agency as a Title
Insurance
Agent and acts as a Title Insurance Agent in the transaction or
(ii) the attorney or Associated Attorney, if not holding a
license with the Attorney Agency as a Title Insurance Agent,
directly or indirectly performs the function of a Title Insurance
Agent for the Attorney Agency in the transaction. The Committee
further opines that the impropriety is not curable with
disclosure to and consent of the client since it is not obvious
that the attorney can adequately represent the interest of each.
DR 5-l05(A) and (C).
5. Full Disclosure and Client Consent
The Committee is of the opinion, in circumstances where it
would not be improper for the attorney to represent a party
to a real estate transaction wherein the Attorney Agency
provides title insurance or related products or services,
that, prior to using such Attorney Agency, the attorney is
required to make a full and adequate disclosure to the
client. See DR 5-l0l(A) and LEOs #886, 939, ll52.
Furthermore, since the transaction will create a business
relationship between the attorney and client, DR 5-l04(A)
requires that the transaction must not be unconscionable,
unfair or inequitable when made. See LEOs #603, 712.
The Committee has consistently quantified adequate
disclosure as that which will enable the client to make an
informed decision. Furthermore, the Committee is of the
view that all doubts regarding the sufficiency of the
disclosure must be resolved in favor of the client, and
against the attorney, since it is the attorney who seeks to
profit in advising his client to utilize the services of a
business in which the attorney has a pecuniary interest.
See LEO #187. In the circumstances under consideration, the
Committee opines that a sufficient disclosure would include
title insurance costs, including the title insurance
premium, binder fees, title examination fees, closing fees,
and any other charges which the Attorney Agency would make
and a suggestion of the availability of securing title
insurance and related services from alternative title
insurance agencies. See LEO #l5l5.
The Committee is of the further opinion that it is advisable
that the disclosure be made in writing and accepted by the
client in writing. Id.
This Opinion is advisory only, based only on the questions raised
and not binding on any court or tribunal.
Committee Opinion
December 8, l994
Revised February 15, 1995
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