The proper negotiation and disbursement of settlement funds is a large responsibility for a plaintiff’s lawyer. While clients expect payment and lawyers deserve payment for their services, third persons such as medical providers, insurance carriers, or Medicare and Medicaid seek reimbursement from settlement proceeds as well.
The Ohio Supreme Court’s Board of Commissioners on Grievances and Discipline issued Opinion 2011-1 advising lawyers that, prospectively, they violate conduct rules when they negotiate a lawyer’s personal guarantee to satisfy any and all third person’s claims to settlement monies:
“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 settlement funds. 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.”
The Rules of Professional Conduct define the ethical duties of a lawyer in possession of settlement funds. A lawyer must promptly notify a client or third person upon receiving funds in which the client or third person has a lawful interest. A third person’s lawful interest is limited to interests resulting from a statutory lien, a final judgment addressing disposition of the funds, or a written agreement by the client or the lawyer on behalf of the client guaranteeing payment from the specific funds. If requested, a lawyer must promptly provide a full accounting of the funds. And the lawyer must promptly deliver to the client or third person the funds that the client or third person is entitled to receive. If there is a dispute between the lawyer’s client and the third person as to the viability of the claim on the funds, the lawyer should hold those funds in dispute in escrow until the dispute is resolved.
When a third person claims an interest in the funds that does not arise from a statutory lien, a final judgment addressing disposition of the funds, or a written agreement for payment from the settlement funds, the lawyer’s ethical duty is to notify the client of the interest claimed and promptly deliver the funds to the client.
A lawyer’s personal agreement to indemnify the opposing party for any and all third persons claim to settlement proceeds is distinct from an agreement by a client or the lawyer on behalf of the client guaranteeing payment from the funds in the lawyer’s possession, according to Opinion 2011-1. Therefore, a lawyer’s personal indemnification is essentially an agreement to provide financial assistance to a client – a clear violation of the rules.
Since a plaintiff’s lawyer cannot agree to indemnify an opposing party without violating the rules of ethics, a defendant’s lawyer may not request or require such indemnification as part of a settlement without also violating the Rules of Professional Conduct. The rules prohibit a lawyer from assisting or inducing another to violate the ethical rules.
Ohio is not alone. Arizona, Illinois, Indiana, Kansas, Missouri, North Carolina, South Carolina, Tennessee, and Wisconsin have similarly declared these types of indemnity agreements unethical. Indiana’s ethics committee carved out Medicare and Medicaid because an attorney may be personally liable for Medicare and Medicaid benefits that are not reimbursed from settlement proceeds. Ohio does not address Medicare and Medicaid indemnity provisions specifically. Therefore, Ohio lawyers should not include, as a condition of settlement, a plaintiff’s lawyer’s personal indemnification.
If you wish to see a full copy of the opinion or have any other questions regarding an attorney’s professional conduct, please feel free to contact one of our Legal Professional Liability Practice Group Members.