E-Alert Case Updates

Requiring Plaintiff’s Attorney to Sign Settlement Agreement Purporting to Indemnify and Hold Harmless Defendant and Carrier Against Medical Liens is Unethical

Maryland State Bar Association, Inc.
Ethics Opinion 2012-03
by Colleen K. O’Brien, Associate
Semmes, Bowen & Semmes (www.semmes.com)

A recent Maryland State Bar Association, Inc. (“MSBA”) ethics opinion highlights what defense attorneys should NOT do. The issue considered by the MSBA involved an automobile accident claim. As part of the settlement agreement, the insurer demanded that the plaintiff’s attorney hold harmless and indemnify both the insurance carrier and the defendant from any claim for any of plaintiff’s medical bills, or from medical liens (including Medicare and Medicaid liens) or workers’ compensation liens, arising out of the accident or the action filed by plaintiff. MSBA was asked to consider whether this violated the Maryland Rules of Professional Conduct (“MRPC”).

MSBA concluded that attorneys, ethically, may not execute hold harmless and indemnification agreements like the one described above, and that it is unethical for one lawyer to require another lawyer to execute such an agreement as a condition of settlement.

To the MSBA, such an agreement violated several provisions of the MRPC. First, it violated MRPC 1.8(e), which prohibits a lawyer from providing a client with “financial assistance.” The potential financial assistance, in the form of indemnification liability, fell outside the scope of permitted expenses like court costs and litigation expenses. The MSBA noted that outside of Maryland, that it was practically universal that jurisdictions had found such provisions to be unethical.

Second, the agreement violated MRPC 1.7(a)(2), which pertains to conflicts of interest. Such an indemnification agreement creates a substantial risk of a conflict of interest where the agreement would substantially affect whether a lawyer agrees to represent a client, and if so, how that lawyer represents the client and what the lawyer recommends with respect to trial and settlement. The attorney’s personal interest in not having to pay the client’s debts may well influence these decisions, thus undermining the duties of zealousness and independence that an attorney owes to his client.

Third, the agreement was inconsistent with MRPC 1.2(a), which provides that an attorney shall abide by the client’s decision whether to settle a matter. If, as a condition of settlement, the attorney is forced to sign such an agreement which could impose substantial liability on the attorney, the attorney may either advise the client not to accept it or refuse to accept it even though the client wants to and should accept the offer.

Fourth, the agreement violated MRPC 1.15, which requires attorneys to protect the funds of clients and third persons. If attorneys follow MRPC 1.15, which includes obligations to third parties under federal and state laws, they are ethically bound to disburse the remaining funds to their clients consistent with their retainer agreements and the governing substantive law. The broad provisions of the Indemnity Agreement, especially those that make the lawyer personally responsible for the client’s obligations, are inconsistent with the obligations that they have under MRPC 1.15.

Overall, if your firm’s standard settlement agreement requires plaintiff’s counsel to indemnify and hold harmless both the defendant and the carrier for medical bills, medical liens (including Medicare and Medicaid), and workers’ compensation liens arising out of the accident and the litigation, then these provisions should be eliminated, because it is unethical for defense attorneys to ask for such terms, and likewise unethical for plaintiff’s attorneys to consent to such terms.