Can a personal-injury lawyer advance living expenses to an injured client, to be repaid out of any recovery?

Plain-English summary

Opinion 34 (adopted March 27, 1965; addendum issued 1995) addressed a lawyer who handled personal-injury cases and wished to advance funds for clients' living expenses, to be reimbursed when the case concluded, in addition to any fee.

The Committee concluded the practice clearly violated Canons 6 and 10, with Canon 42 setting limits that did not authorize it. The principal objection was that advancing living expenses amounts to the lawyer purchasing an interest in the litigation, prohibited by Canon 10, whether or not the client's promise to repay was contingent on recovery, because a client too poor to live without advances was unlikely to be able to repay if there was no recovery. By giving the lawyer an additional stake beyond fees, the practice placed the lawyer's pecuniary interests in potential conflict with the client's best interests and undermined the undivided fidelity Canon 6 required. The Committee acknowledged the argument that advancing living expenses removes the pressure of an injured person's financial need and the disparity in economic status as factors in settlement or trial, and recognized that such disparity exists and ought not affect outcomes, but it concluded that money-lending is not a professional skill and that the remedy for economic disparity must be sought in the proper use of professional skills. It noted that advancing expenses, if publicized, also constitutes an improper inducement to employment under Canon 27. The Committee agreed with ABA Opinion 288 and Mahoning County Bar Association v. Ruffalo, and declined to follow People v. McCallum.

Currency note

This opinion was issued in 1965 under the former Canons of Professional Ethics, before the Colorado Rules of Professional Conduct took effect on January 1, 1993, and before Colorado's 2008 revisions to those rules. A 1995 addendum directed lawyers to Rule 1.8 (conflicts of interest) and noted that C.R.C.P. Chapter 23.3 may also apply. The modern rule on financial assistance to a client, Rule 1.8(e), and the Colorado case law have evolved since 1965 and treat advances for litigation costs and certain other assistance differently. Treat this page as historical context, not current guidance. Verify against current Rule 1.8 before relying on any specific limitation mentioned here.

Common questions

Q: Can a personal-injury lawyer lend a client money for living expenses during the case?

A: No, under this opinion. The Committee concluded that advancing living expenses to or for an injured client was improper because it amounted to acquiring an interest in the litigation and created a conflict with the client's interests.

Q: Does it matter whether repayment is contingent on winning?

A: No, under this opinion. The Committee concluded the practice was improper whether or not repayment was contingent on recovery, reasoning that a client poor enough to need the advances was unlikely to repay them if there was no recovery.

Q: Why was advancing expenses treated as a conflict of interest?

A: The opinion concluded that giving the lawyer an additional stake in the case beyond fees placed the lawyer's own pecuniary interests in potential conflict with the client's best interests, undermining the undivided fidelity the rules required.

Background and rules framework

The opinion applied the Canons of Professional Ethics: Canon 10 (a lawyer should not acquire an interest in litigation), Canon 6 (undivided fidelity and conflicting interests), Canon 42 (advances of expenses), and Canon 27 (improper inducement to employment). The 1995 addendum restates the analysis under Rule 1.8 (Model Rule 1.8, conflicts of interest, including 1.8(e) on financial assistance to a client) and notes C.R.C.P. Chapter 23.3.

Citations and references

Rules of Professional Conduct:

• Colo. RPC 1.8 / Model Rule 1.8 (conflicts of interest; financial assistance to a client under 1.8(e); per the 1995 addendum)

Cases:

• Mahoning County Bar Association v. Ruffalo, 199 N.E.2d 396 (Ohio 1964) (advancing living expenses improper)
• People v. McCallum, 173 N.E. 827 (Ill. 1930) (reaching a contrary conclusion; not followed)

Other opinions cited:

• ABA Committee on Professional Ethics Opinion 288 (advancing living expenses improper)

See also

• CBA Formal Op. 23: Insurer-Picked Counsel for a Minor's Guardian
• CBA Formal Op. 20: Suing or Collecting Unpaid Fees

Source

• Landing page: https://www.cobar.org/ethicsopinions
• Original PDF: https://www.cobar.org/Portals/COBAR/repository/ethicsOpinions/FormalEthicsOpinion_34_2011.pdf