Can a lawyer let an insurer deposit settlement funds directly into the client's own account instead of the lawyer's trust account?

Plain-English summary

The committee reconsidered Opinion 00-2, which had discouraged lawyers from taking part in settlement arrangements where an insurer places funds directly into an account in the client's name (sometimes called a "Safe Haven Account" or "FUNDaccount") rather than sending the lawyer a check to deposit in the lawyer's trust account. The original opinion reasoned that such arrangements prevented a lawyer from meeting ethical obligations to third parties under Rule 5-1.1, and it raised a concern about reducing funds that would otherwise support the administration of justice through the Supreme Court-approved IOTA program.

The committee was concerned the original opinion might be read as limiting a client's ability to direct payment of the client's own share of settlement funds into specific accounts or to designated third-party recipients without first routing the funds through the lawyer's trust account. The committee stated that the client has wide discretion to direct how the money owed to the client is distributed, provided the client does not do so to avoid the client's legal obligation to pay the lawyer or to pay debts owed to third parties.

The committee concluded that the concerns in Opinion 00-2 can be avoided where the only funds going directly from the insurer into the client's account (or to another client-designated recipient) are monies owed to the client, and the insurer issues a separate check to the lawyer for the remaining balance, including fees, costs, and amounts subject to a lien or other valid legal claim the lawyer is obligated to protect. The lawyer would then deposit those funds in the trust account and distribute them according to the lawyer's ethical obligations, which also allows interest to be collected through an IOTA account when required by Rule 5-1.1(e).

In practice

The opinion holds that, under Rule 5-1.1 as it stood at the time, conduct that matches this fact pattern is permitted only for the client's own share: an insurer may pay the portion owed to the client directly into the client's account or to a recipient the client designates, while a separate check covering fees, costs, and third-party claims goes to the lawyer for deposit into the trust account and distribution. Per the opinion, the analysis turns on the lawyer keeping control over the funds in which others have an interest, so the lawyer can meet the duties Rule 5-1.1 imposes. The opinion also states that the client retains wide discretion over the client's own funds, subject to the limit that the client may not direct payment to avoid paying the lawyer or third-party debts.

Common questions

Q: Can settlement money skip the lawyer's trust account?

A: The opinion permits it only for the portion owed to the client. Funds covering attorney's fees, costs, or third-party claims must go to the lawyer for deposit into the trust account.

Q: Why can't fees and third-party funds go directly to the client?

A: The opinion reasons that the lawyer must keep control of those funds to meet ethical obligations to third parties under Rule 5-1.1, and notes the original concern about reducing IOTA funds.

Q: Can the client direct where the client's own share goes?

A: Yes. The opinion states the client has wide discretion to direct payment of the client's own funds, so long as it is not done to avoid paying the lawyer or debts owed to third parties.

Background and rules framework

The opinion applies Rule 5-1.1 of the Rules Regulating The Florida Bar, including the IOTA requirement in Rule 5-1.1(e) (Model Rule 1.15, safekeeping property). The committee's analysis distinguishes the client's own share of settlement proceeds, which the client may direct, from fees, costs, and third-party amounts, which the lawyer must control through the trust account. The committee also referred to Florida Opinion 02-4.

Citations and references

Rules of Professional Conduct:

• Rule 5-1.1, Rules Regulating The Florida Bar (trust accounts; IOTA at 5-1.1(e)) [Model Rule 1.15]

Other opinions cited:

• Florida Opinion 00-2 (original opinion reconsidered here).
• Florida Opinion 02-4.

See also

• FL Bar Ethics Op. 21-2: Receiving Trust Funds Through Venmo or PayPal
• FL Bar Ethics Op. 12-4: Trust-Account Audits for Multiple Title Insurers
• FL Bar Ethics Op. 60-34: Advising a Client's Creditors of Funds Held

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-00-2-rec/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-00-2-Rec.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

FLORIDA BAR ETHICS OPINION
OPINION 00-2 (Reconsideration)
January 21, 2005
Advisory ethics opinions are not binding.
A lawyer may participate in a settlement agreement in which the insurance company deposits directly into a client's financial account only the portion of the settlement proceeds owed to the client, but may not participate in a settlement if the funds deposited directly into the client's financial account include attorney's fees, costs and funds to which a third party may have a claim.
RPC: 5-1.1(e)
OPINIONS: 00-2, 02-4
The Committee has reconsidered Opinion 00-2 which discourages lawyers from being involved in settlement agreements in which an insurance company places funds directly into an account in a client's name instead of sending the lawyer a check which is then deposited into the lawyer's trust account.
Opinion 00-2 concludes that this type of arrangement, sometimes known as a "Safe Haven Account" or "FUNDaccount," prevents a lawyer from fulfilling his or her ethical obligations to third parties. See Rule 5-1.1 and Comment, Rules Regulating The Florida Bar. Additionally, the Committee was concerned about "reducing available funds that otherwise would be used to assist in the administration of justice through participation in the Supreme Court approved IOTA program."
The Committee is concerned that Opinion 00-2 might be interpreted as mandating limitations on the client's ability to direct payments of the client's share of settlement funds into specific financial accounts or to designated third party recipients without having those funds placed first in a lawyer's trust account. The client has wide discretion in directing the manner in which the monies owed to the client are distributed provided, however, that the client may not direct payment of funds in a manner intended to avoid the client's legal obligation to pay the client's lawyers or to pay debts owed to third parties. The Committee believes that the concerns expressed in Opinion 00-2 can be avoided in a settlement where the only funds going directly from the insurance company into a client's financial account or to another recipient designated by the client are monies owed to the client and the insurance company issues a separate check to the attorney for the remaining balance, including attorney's fees, any applicable costs, and amounts owed to third parties which are subject to lien or other valid legal claim that a lawyer is obligated to protect. See Florida Ethics Opinion 02-4. The attorney would then deposit these funds into his or her attorney trust account and distribute the funds in accordance with the attorney's ethical obligations.
This agreement gives a lawyer control over that portion of settlement proceeds covering fees, costs, and amounts to which third parties may have valid legal claims that a lawyer is obligated to protect. This permits the lawyer to fulfill his or her ethical duties under Rule 5-1.1 and Comment, Rules Regulating The Florida Bar. It also allows for the collection of interest on these funds, through placement in an IOTA account when required by Rule 5-1.1(e).
In conclusion, a lawyer may participate in an arrangement where an insurance company pays only that portion of the settlement proceeds owed directly to the client into a client's financial account or to another recipient designated by the client. As stated in Opinion 00-2, however, a lawyer should not participate in a settlement if the funds deposited into the client's account include the attorney's fees, costs and funds to which a third party may have a claim.