What must a Connecticut lawyer do with settlement funds subject to a letter of protection when the provider's claim or amount is uncertain?

Plain-English summary

The opinion defines a letter of protection as a lawyer's agreement with a healthcare provider that the provider will be paid from any proceeds of the client's claim in exchange for forbearance from collection. A lawyer may issue the letter only with the client's informed consent. A letter directly related to property the lawyer holds and specifically undertaken to help obtain that property creates an interest protected by Rule 1.15.

Not every third-party claim is a protected interest. The opinion identifies judgments, liens recognized by law, qualifying letters of protection or similar obligations, and written assignments signed by the client. A general creditor's assertion alone does not create an interest under the rule.

When the lawyer receives funds subject to a protected interest, Rule 1.15(e) requires prompt notice to the third party. The lawyer must take reasonable measures to determine the amounts claimed so the client can be told which claims must be paid, how much must be held, and the client's net proceeds. Rule 1.15(f) requires prompt distribution of all undisputed portions and segregation only of the amount subject to competing interests.

If a valid letter exists but its amount is unclear, the lawyer must honor the letter and use available information to determine the amount to safeguard. If the provider does not supply an amount after another request and the lawyer lacks enough information to calculate one, the Committee concludes there is no dispute over a specific amount under the rule and the lawyer may distribute the funds to the client. If the validity of the claimed interest itself is uncertain, Rule 1.15(g) permits a written request for substantiating information; absent compliance within sixty days, the lawyer may distribute the funds to the client while explaining that any underlying client obligation is not extinguished.

In practice

Under this opinion, uncertainty about the amount of a valid letter of protection differs from uncertainty about whether a valid interest exists. Rule 1.15(g)'s sixty-day process applies to the latter, not merely to an unresolved dollar amount under an otherwise valid letter.

The lawyer does not unilaterally adjudicate a dispute between the client and third party. A resolution may be negotiated if both agree and Rule 1.7 permits the lawyer's role; otherwise, the opinion identifies an interpleader action as a possible route to judicial determination.

Common questions

Q: Does every third-party demand require a lawyer to hold client funds?

A: No. Rule 1.15 protects a cognizable legal interest, not a general creditor's mere assertion of a claim. The opinion identifies four recognized categories: judgments, liens, qualifying letters of protection, and written assignments signed by the client.

Q: What must the lawyer do when settlement funds arrive under a qualifying letter of protection?

A: The lawyer must promptly notify the provider, determine the amounts claimed, distribute undisputed portions, and segregate the amount subject to competing interests.

Q: Must the lawyer hold the entire settlement while one amount is disputed?

A: No. Rule 1.15(f) requires prompt distribution of portions with identified, noncompeting interests and safeguarding only the portion subject to competing interests.

Q: What if the provider cannot state the amount due?

A: The lawyer may use available information to calculate an amount and seek agreement. If the provider does not respond or specify an amount after another request, and the lawyer cannot independently calculate one, the Committee concludes the funds may be distributed to the client.

Q: When does the sixty-day procedure in Rule 1.15(g) apply?

A: It applies when the validity of the third party's claimed interest is unclear. It does not apply when a valid interest exists and only the amount of the debt is uncertain.

Q: May the lawyer decide who wins a dispute over the funds?

A: Not unilaterally. The opinion allows a negotiated resolution when the client and third party agree and the lawyer can act under Rule 1.7; otherwise, a court may resolve the dispute through interpleader.

Background and rules framework

Rule 1.15(f) requires property with competing interests to remain separate until the interests are resolved and requires prompt distribution of undisputed portions. Rule 1.15(g) defines an optional substantiation process when the lawyer cannot determine whether a third party has a valid interest.

The opinion explains that Connecticut amended Rule 1.15(f) effective January 1, 2016, changing the focus from persons who "claim interests" to persons who "have interests." Subsection (g), also effective then, addressed indefinite holds based on unsubstantiated third-party claims.

Citations and references

Connecticut Rules of Professional Conduct:

• Rules 1.7, 1.15(e), 1.15(f), and 1.15(g)

Cases:

• Silver v. Statewide Grievance Committee, 42 Conn. App. 229, 237 (1996), certification dismissed as improvidently granted, 242 Conn. 186, 189 (1997), Rule 1.15 safeguards interests that otherwise exist at law

Other opinions cited:

• Connecticut Informal Opinion 95-18, letters of protection
• Connecticut Informal Opinion 95-20, claims protected under Rule 1.15
• Connecticut Informal Opinion 01-08, written assignments as protected interests
• Connecticut Informal Opinion 01-11, payment disputes between a client and physician

See also

• Ohio BPC Op. 2023-010: Letters of protection
• Texas Ethics Op. 625: Letters of protection and settlement funds
• LSBA Op. 05-RPCC-004: Third-party claims to funds

Source

• Landing page: Connecticut Bar Association Informal Ethics Opinions
• Original PDF: Informal Opinion 25-03