## Facts

- Brian Kelton sued Mid-Central Plumbing Company, Inc. and its sole shareholder, John Rogers, for damages arising from an alleged vehicle collision involving a Mid-Central vehicle.
- Mid-Central and Rogers were insured by Truck Insurance Exchange, which was reinsured by Farmers Insurance Exchange (FIE).
- Stephen Brown was an in-house attorney employed by FIE; FIE was not a party to Kelton’s tort suit.
- Mid-Central and Rogers were initially represented by outside counsel, who later moved to substitute Brown as counsel of record.
- Kelton objected and moved to disqualify Brown.
- The circuit court disqualified Brown, concluding that the substitution would (1) constitute unauthorized practice of law by a nonparty corporation and (2) create a nonwaivable conflict of interest.

## Issues

1. Whether Arkansas law permits a nonparty insurer to defend its insureds in court through the insurer’s in-house counsel under Ark. Code Ann. § 16-22-211.
2. Whether the insurer staff-counsel arrangement created a conflict of interest requiring disqualification under the Arkansas Rules of Professional Conduct.

## Decision

- The Arkansas Supreme Court affirmed the disqualification order.
- The court held that Ark. Code Ann. § 16-22-211 prohibits a corporation from practicing law on behalf of others in court when the corporation is not a party; therefore, FIE could not provide its in-house counsel to represent Mid-Central and Rogers.
- The court also upheld the finding that the arrangement posed an impermissible conflict of interest due to counsel’s employment relationship with the insurer and the potential divergence between insurer and insured interests.

## Legal Principles

- Under Ark. Code Ann. § 16-22-211, a corporation generally may not practice law for others; in-house counsel representation is permitted only for the corporation’s own interests when the corporation is a party.
- An insurer’s use of employee-attorneys to represent insureds in litigation where the insurer is not a party may constitute unauthorized corporate practice of law.
- A lawyer employed by an insurer faces structural risks of divided loyalty between the insurer’s financial and strategic interests and the insured’s defense interests; where those risks cannot be adequately cured, disqualification is proper.
- Courts will not expand statutory exceptions permitting corporate use of in-house counsel beyond the statute’s terms; any broader authorization must come from the legislature.

## Conclusion

The court affirmed disqualification of an insurer’s in-house attorney from defending insured defendants because Arkansas’s corporate-practice statute bars nonparty corporations from supplying legal representation to others, and the staff-counsel arrangement presented an unacceptably conflicted loyalty structure in the defense of the insureds.


Brown v. Kelton, 2011 Ark. 93 (Ark. 2011)