June 2015 Subrogation Ethics Update
To sign or not to sign? That is the question…. With the surge in subrogation claims that has occurred in the last ten years insurance companies are seeking protection from a potential subrogation or lien interest down the road. Not only do many require plaintiffs to sign a release with “hold harmless” language in it but, sometimes they ask that attorneys sign these agreements as well.
This can never be signed by any attorney.
Why? Because it is unethical for an attorney to acquire a financial interest in their client’s case. In addition, logically it is silly as the attorney is not a party to the lawsuit and does not have the power to release any claims.
Not only is it unethical for an attorney to sign such a document, it is also unethical for an attorney to even ask another attorney to sign such a document.
In January of 2012 the Philadelphia Bar Association Professional Guidance Committee tackled this issue and found that the attorney was “prohibited from executing such a release by Pennsylvania Rules of Professional Conduct 1.7(a)(2) and (b)(4), as well as 1.8(e). The prohibitions in the cited Rules necessarily implicate other Rules, including 1.15(e) and (f).” The PRPC rules can be found here. Their inquiry dealt with a release that required “as a condition of settlement, that the client and the inquirer execute a release indemnifying them from any “claims, causes of action, fees, penalties and interest under the Medicare, Medicaid and SCHIP Extension Act of 2007.”
The Committee found that “an attorney cannot agree to personally indemnify a defendant against a claim that might accrue by reason of the client’s failure to reimburse health care services providers who would have a statutory and/or contractual right to recover the cost of accident-related medical services from the proceeds of the personal injury settlement.”
Furthermore, even simply requesting that an attorney agree to indemnify against lien claims creates a potential conflict of interest between the claimant and the claimant’s attorney. This creates serious issues for any attorney who requests such a release. The vast majority of states are of the same opinion as Pennsylvania:
- Arizona Opinion 03-05 (2003) (attorney’s refusal to indemnify could affect reaching a settlement, while agreeing to indemnification compromises independent judgment.)
- California Eth. Op. 1981-55 (1981) (situations exist where a lawyer’s concern that the client maintain the wherewithal to meet his or her bond obligations might interfere with the attorney’s judgment with respect both to the particular case for which the bond is required, and to other matters).
- Delaware Opinion 2011-1 (2011) (The Committee is of the opinion that any agreement by a lawyer to personally satisfy or indemnify any claims to the settlement funds made by a third party is made in violation of Rules 1.7(a)(2) and 1.8(e) of the Delaware Lawyers’ Rules of Professional Conduct (“DLRPC”).)
- Florida Eth. Op. 70-8 (1970) (an attorney cannot become a surety on any bond of his client).
- Illinois Adv. Op. 06-10 (2006) (attorney’s personal guarantee to pay liens and subrogation claims against his client constitutes “financial assistance” in violation of Rule 1.8(d)).
- Indiana Opinion No. 1 of 2005 (indemnity agreement would force attorney to weigh client’s benefits as against his own interests).
- Kansas Op. 01-05 (2001) (an agreement to indemnify places the lawyer in a position where he or she creates a conflict of interest between the client and the insurance company and insured, and/or the lawyer’s own interests).
- Montana Ethics Opinion 131224 (2013) (Defendants and their insurers may attempt to include in settlement agreements indemnification provisions … This practice presents a number of professional responsibility challenges. In addition to the creation of direct conflict between counsel and client, the arrangement violates the prohibition on direct financial assistance, as well as undermines the attorney-client balance on whether to settle a matter, impairing the lawyer’s role as advisor.)
- Missouri Formal Op.125 (2008) (any type of guarantee to cover a client’s debts constitutes improper financial assistance and requesting an attorney to enter into such an agreement is thereby also a violation).
- North Carolina State Bar Ethics Op. RPC 228 (1996) (a lawyer for a personal injury victim may not execute an agreement to indemnify the tortfeasor’s liability insurance carrier against the unpaid liens of medical providers).
- New York Formal Opinion 2010-3 (Plaintiff’s counsel may not agree to hold defendant harmless from claims arising out of defendant’s payment of settlement consideration and defendant’s counsel may not ask plaintiff’s counsel to provide such financial assistance.)
- Ohio Opinion 2011-1 (2011) ( It is improper for a plaintiff’s lawyer to personally agree, as a condition of settlement, to indemnify the opposing party from any and all claims by third persons to the settlement funds. Such agreements are not authorized by Prof. Cond. Rule 1.15(d) and violate Prof. Cond. Rules 1.8(e) and 1.7(a) (2). Further, it is improper for a lawyer to propose or require, as a condition of settlement, that a plaintiff’s lawyer make a personal agreement to indemnify the opposing party from any and all claims by third persons to the settlement funds. Such conduct violates Prof. Cond. Rule 8.4(a).)
- South Carolina Ethics Adv. Op. 08-07 (2008) (an attorney may not serve as an indemnitor on behalf of her client to protect released parties in a settlement against lien claims asserted by third parties regarding settlement proceeds).
- Tennessee Formal Op. 2010-F-154 (2010) (entering into agreements requiring the plaintiff’s attorney to indemnify a party or subrogation interest holder from medical expenses or liens creates a conflict of interest between attorney and client, and an attorney cannot be required to sign an agreement regarding the disposition of settlement funds subject to dispute prior to the resolution of the dispute).
- Vermont Ethics Op. 96-05 (1996) (interests of client may be in conflict with the lawyer’s agreement to protect the interests of the health care provider if indemnified).
- Washington Advisory Opinion 1736 (1997) (It is a violation of RPC 1.8(e) for an attorney to sign a hold harmless agreement to repay the client’s non-litigation expenses which pledges the attorney’s credit, and the attorney should convey to the client that the attorney will not be signing such an agreement).
- Wisconsin Formal Op. E-87-11 (1987) (indemnity agreement would constitute a prohibited acquisition of a financial interest in the cause of action or subject matter of the litigation the lawyer is controlling).
As you can see, the law takes a very negative view on these agreements and they can cause issues for every attorney involved in them. Therefore, it is imperative that no attorney ask for and no attorney sign such an agreement. To see the full opinion from the Philadelphia Bar Association Professional Guidance Committee please click here.