Can an insurance company's staff lawyer deposit money recovered for an insured client into a corporate account instead of a trust account?

Plain-English summary

The inquiring lawyer was employed by an insurance company to pursue subrogation claims against third-party tortfeasors. The subrogation actions were brought in the insured's name and, beyond seeking subrogation for the insurer, also sought recovery of the insured's deductible. The lawyer asked whether a staff lawyer could ethically deposit the recoveries directly into corporate accounts rather than into an IOLTA account.

The committee stated that RPC 1.14(a) required a lawyer to deposit all funds of a client paid to the lawyer into one or more identifiable interest-bearing trust accounts, and that RPC 1.14(b)(3) and (4) required a lawyer to render appropriate accounts to clients for their funds and to promptly pay or deliver them to the client on request. A lawyer receiving client funds in the form of subrogation recoveries therefore had to deposit the funds into a trust account and could not deposit them to a corporate account.

The committee added that, where the lawyer appeared to represent more than one client (the insurance company and the insured), depositing all of the funds into the insurer's general corporate account would breach the duty to separately account for and deliver client funds under RPC 1.14(b)(3) and (4). Whether the funds had to go into an IOLTA account or into a separate interest-bearing account for a particular client was governed by RPC 1.14(c) and depended on whether the account was capable of generating net interest for the client.

Currency note

This opinion was issued in 2000, before the Washington State Bar Association's adoption of the 2006 revisions to the Rules of Professional Conduct. RPC 1.14 on safekeeping client funds was later renumbered and amended (the trust-account safekeeping rules now appear at RPC 1.15A). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Could an insurance company staff lawyer deposit subrogation recoveries straight into a corporate account?

A: No. The committee concluded that the recoveries were client funds and that RPC 1.14(a) required them to be deposited into an identifiable interest-bearing trust account rather than a corporate account.

Q: Why did the committee treat the deductible portion as client money?

A: Because the actions also sought recovery of the insured's deductible, the lawyer appeared to represent both the insurer and the insured. The committee said depositing all the funds into the insurer's general corporate account would breach the duty under RPC 1.14(b)(3) and (4) to separately account for and deliver each client's funds.

Q: Did the recoveries have to go into an IOLTA account specifically?

A: Not necessarily. The committee said RPC 1.14(c) governed whether the funds went into an IOLTA account or a separate interest-bearing account for a particular client, and that this turned on whether the account was capable of generating net interest for the client.

Background and rules framework

The opinion interprets Washington's trust-account safekeeping rule, RPC 1.14, which corresponds to Model Rule 1.15. RPC 1.14(a) required client funds to be held in identifiable interest-bearing trust accounts; RPC 1.14(b)(3) and (4) required the lawyer to account for and deliver client funds; and RPC 1.14(c) determined, by reference to whether the account could generate net interest for the client, whether funds belonged in a pooled IOLTA account or a separate client account. (Washington renumbered these safekeeping provisions to RPC 1.15A in 2006.)

Citations and references

Rules of Professional Conduct:

• Model Rule 1.15 (safekeeping property), corresponding to the Washington rule the opinion applies
• Washington RPC 1.14(a), 1.14(b)(3), 1.14(b)(4), 1.14(c) (safekeeping client funds; trust-account and IOLTA requirements)

See also

• WSBA Ethics Op. 1029: Trust Funds, No Client Instructions
• WSBA Ethics Op. 1066: Qualified Trust Accounts
• WSBA Ethics Op. 1010: Trust Interest Before IOLTA
• WSBA Ethics Op. 1113: Returning Funds to a Client

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1155

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Advisory Opinion: 1915
Year Issued: 2000
RPC(s): RPC 1.14(a); 1.14(b)(3); 1.4(b)(4); 1.14(c)
Subject: Use by insurance company lawyers of corporate trust account for deposit of money recovered on behalf of insured client

The inquiring lawyer is employed by an insurance company to pursue subrogation claims against third party tortfeasors. The subrogation actions are brought in the name of the insured and that, in addition to seeking subrogation on behalf of the insurance company, the actions also seek recovery of the insured’s deductible. The lawyer asks if the insurance company staff lawyer may ethically participate in depositing the recoveries directly into corporate accounts, rather than into an IOLTA account.

The committee stated that RPC 1.14(a) requires a lawyer to deposit all funds of a client paid to the lawyer into one or more identifiable interest-bearing trust accounts. RPC 1.14(b)(3) and (4) requires a lawyer to render appropriate accounts to clients for their funds and to promptly pay or deliver them to the client on request.

Thus, a lawyer receiving client funds in the form of subrogation recoveries must deposit the funds into a trust account and may not deposit them to a client corporate account. In addition, where as here, the lawyer appears to be representing more than one client, i.e., the insurance company and the insured, a lawyer who directly deposits all the funds into the insurer’s general corporate account would breach his or her duty to separately account for and deliver client funds under RPC 1.14(b)(3) and (4).

Whether the funds must be deposited into an IOLTA account or into a separate interest-bearing account for a particular client or clients is governed by RPC 1.14(c) and essentially depends on whether the account is capable of generating net interest for the client.