OHIO STATE BAR
ASSOCIATION,. E51 W.40
OSBA Informal Advisory Opinion 2011-01
February 9, 2011
Re: Request for Informal Advisory Opinion You have requested the opinion of the Ohio State Bar Association Commi tt ee on Legal Ethics and Professional Conduct on: a) whether plaintiff's counsel may agree to indemnify defendant and/or its insurer against third-pa rty liens and subrogation claims arising out of defend ant's payment of settlement proceeds to plaintiff; and b) whether defendant's counsel may request such an agreement as a condition of settlement. The Committee concludes that the Ohio Rules of Professional Conduct prohibit both entering into an d requesting such an agreement.' Background: A variety of third parties — such as health care providers, private insurers, governmental health programs and workers' compensation insurance carriers — may provide services or benefits to a personal-injury plaintiff before the suit is resolved. When se tt ling a personal injury suit, defendants have an interest in eliminating the risk that such third parties might look to them to satisfy their liens or subrogation claims arising from such services. Therefore, defendants' counsel commonly request as a condition of settlement that plaintiff's counsel agree to indemnify defendants and their insurers against an y and all third-pa rt y liens and subrogation claims. For inst an ce, the letter you have provided, and about which you seek advice, recites that: ... as furt her consideration of the parties' willingness to settle the claim referenced in the Release of All Claims, and to induce said se ttlement, Claimant (and Claimant attorney if applicable) agree(s) ... that I (we) will hold harmless and indemnify each and every released party ... an d [their insurer] ... and hold free and harmless from an d against any and all losses, claims demands ... any and all statutory, contractual or common law subrogation claims or liens, including but not limited to, all Hospital liens, workers' compensation subrogation liens, Medicare or Medicaid liens, Social Security disability liens, health insurance liens, Federal, State or Local governmental liens. (Emph as is added.)
The Committee's Informal Opinions are in response to questions regarding the application of the Ohio Rules of Professional Conduct, and therefore no opinion is expressed here regarding the potential liability of an Ohio attorney under any federal statute or federal regulation pertaining to Medicare payment3 made in the context of a settlement or judgment in a personal injury or wrongful death suit. See generally 42 U.S.C. § 1395(b); 42 C.F.R. § HEADQUARTER' 1.24. ;
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Applicable Rules of Professional Conduct: Your request for an opinion requires consideration of the following rules of the Ohio Rules of Professional Conduct: 1.2(a)
(lawyer shall abide by client's decision whether to settle a matter);
1.4(a)(1) (lawyer shall promptly inform client of any decision or circumstance that requires client's informed consent); 1.7(a)(2) (conflict of interest is created when a substantial risk exists that lawyer's ability to consider, recommend or carry out an appropriate course of action for client will be materially limited by lawyer's own personal interests); 1.8(e)
(lawyer shall not provide financial assistance to client in connection with pending litigation except court costs and expenses of litigation);
2.1
(lawyer shall exercise independent professional judgment in representing client);
8.4(a)
(lawyer shall not violate rules of conduct or knowingly assist or induce another to do so).
Opinion: The proposal that an attorney indemnify the released parties against third-party liens and subrogation claims as a condition of settling a client's personal injury claim has several ramifications. First, it raises a conflict of interest between the attorney and the client under ORPC 1.7(a)(2). In particular, the proposal creates an unavoidable risk that the lawyer's ability to counsel the client on the settlement terms will be limited by the lawyer's own personal financial interest in minimizing the risk of being ultimately liable to repay third parties who have advanced sums on behalf of the plaintiff. Consideration of a settlement offer that might be to the client's advantage will necessarily be affected by the concern that agreeing to the indemnification requirement could expose the attorney to personal financial consequences. Under these circumstances, it would be difficult, if not impossible, for a lawyer to exercise on the client's behalf the independent professional judgment required by ORPC 2.1. Second, the indemnification agreement violates ORPC 1.8(e)'s prohibition against providing financial assistance to a client in connection with pending litigation. Under Rule 1.8(e), an attorney may not advance medical or other non-litigation expenses on a client's behalf during litigation; it follows that guaranteeing such payment or accepting ultimate responsibility for such payment as a condition of settlement is equally impermissible. Ethics authorities in many jurisdictions have applied their states' versions of Rule 1.8(e) (or its predecessor under the
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Code of Professional Responsibility, DR 5-103) in determining that attorneys may not agree to indemnify defendants or their insurers against third-party liens or subrogation claims.2 In addition, the interplay of ORPC 1.2(a), ORPC 1.4(a)(1) and ORPC 1.8(e) creates a Catch-22 situation for an attorney faced with a settlement proposal conditioned on the attorney's agreement to indemnify defendants against third-party liens. Rule I.4(a)(1) would require an 3 attorney to promptly inform a client of a settlement offer and Rule 1.2(a) requires the attorney to abide by the client's settlement decision; yet as discussed above, Rule 1.8(e) prohibits an attorney from entering into such an indemnification agreement. If the attorney refuses on ethical grounds to enter into such an agreement, the client's ability to take advantage of settlement terms that the client finds acceptable will be thwarted. Avoidance of this ethical dilemma further supports the Committee's advice here.
2
See, e.g., Ariz. St. Bar Comm. on Rules of Profll Cond. Formal Op. 03-05 (Aug. 2003) (attorney may not
ethically enter into any settlement that would require attorney to indemnify or hold releasee harmless from any lien claims) (available at http://tinyurl.com/2ga6svz); Fla. St. Bar Ass'n Comm. on Prof I Ethics Op. 70-8, 1970 WL 10144 (May 29,
1970)
(attorney may not indemnify bonding company that acts as surety for costs on behalf of
plaintiff, based on prohibition against lawyer paying expenses of litigation); 111. St. Bar Ass'n Adv. Op. No. 06-01, 2006 WL 4584284 (July 2006) (lawyer may not personally guarantee payment of liens and subrogation claims chargeable against client's settlement proceeds); Ind. St. Bar Ass'n Legal Ethics Comm. Op. 1!2005 (Oct.
2005)
(agreement in connection with settlement that requires counsel to indemnify opposing party against subrogation liens and third party claims violates ethics rules) (available at http://tinyurl.com/29g5oe9); Kan. Bar Ass'n Ethics Adv. Comm. Ethics Op. 01-5 (2001) (agreement to hold insurance company and insured harmless from subrogation liens creates conflict of interest between personal injury plaintiff and plaintiff's counsel) (digested in [Ethics Ops. 2001-2005] Laws. Man. on Prof. Conduct (ABA/BNA) 1201:3802); Mo. Sup. Ct. Adv. Comm. Formal Op. 125 (Nov. 13, 2008) (attorney may not indemnify opposing party against client's failure to repay debt to third party from settlement proceeds) (available at http://tinyurt.com/2cgfwgz); N.Y.C. Bar Ass'n Comm, on Prof 1 & Jud. Ethics Formal Op. 2010-3 (2010) (plaintiffs counsel may not agree to hold defendant harmless for claims arising out of defendant's payment of settlement consideration) (available at http.//tinyurl.conz/286gk2p); S.C. Bar Ethics Adv. Comm. Op. 08-07 (Aug. 22, 2008) (attorney may not agree to indemnify released parties against lien claims asserted by third parties against settlement proceeds) (available at http://tinyurl. com/2blc6ut); Tenn. Sup. Ct. Bd. of Prof'l Resp. Formal Ethics Op. 2010-F-154 (Sept. 10, 2010) (attorney cannot ethically agree to indemnify releasees against medical expenses or liens in connection with settlement agreement) (available at http://tinyurl. com/25svwzr); Wisc. St. Bar Formal Op. E-87-11
(1987)
(attorney may not enter into agreement to personally satisfy unknown lien claims
against settlement funds or property) (available at http://tinyurl.com/2a7)54J). '
See ORPC 1.4(a) cmt. [2] (lawyer who receives offer of settlement in a civil controversy must promptly
inform client of substance unless client has previously indicated thea proposal will be acceptable or unacceptable or has previously authorized lawyer to accept or reject offer). -3-
Last, ORPC 8.4(a) makes it improper for defendants' attorneys to request as a condition of settlement that plaintiff's attorneys agree to indemnify defendants or their insurers against third-party liens or subrogation claims. Rule 8.4(a) provides that knowingly assisting or inducing another to violate an ethics rule constitutes misconduct. The Committee concludes that the Rules of Professional Conduct prohibit entering into such an agreement; therefore, requesting such an agreement is likewise prohibited. Other ethics authorities agree.4 Conclusion: The Ohio Rules of Professional Conduct prohibit both entering into and requesting another to enter into an agreement to indemnify defendant and/or its insurer against third-party liens and subrogation claims arising out of defendant's payment of settlement proceeds to plaintiff.
^ffe P.-Whetz^l AL ETHICS AND PROFESSIONAL ON UCT COMMITTEE NOTE: Advisory Opinions of the Ohio State Bar Association Legal Ethics and Professional Conduct Committee are informal, non-binding opinions in response to prospective or hypothetical questions regarding the application of the Supreme Court Rules for the Government of the Judiciary, the Code of Professional Responsibility, the Code of Judicial Conduct, and the Attorney's Oath of Office.
See Mo.
Sup. Ct. Adv. Comm. Formal Op. 125 (Nov. 13, 2008) (requesting or demanding that an attorney
agree to indemnify opposing party against client's failure to repay debt to third party from settlement proceeds would violate proscription against assisting or inducing another to violate rules of professional conduct) (available at hftp.//tinyurf.com/2cgfivgz); N.Y.C. Bar Ass'n Comm, on Prof 1 & 7ud. Ethics Formal Op. 2010-3 (2010)
(defendant's counsel may not request plaintiffs counsel to provide financial assistance to client consisting of agreement to hold defendant harmless for claims arising out of defendant's payment of settlement consideration) (available at http://tinyurl.com/286gk2p); Wisc. St. Bar Formal Op. E-87-11 (1987) (attorney may not propose or demand that another attorney agree to personally satisfy unknown lien claims against settlement funds or property) (available at http://tinyurl.com/2a7fytf).
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