Can a plaintiff's lawyer personally guarantee to the defendant that medical liens and subrogation claims will be paid out of a client's settlement?

Plain-English summary

The opinion addresses a personal injury settlement in which the defendant's lawyer demanded that the plaintiff's lawyer personally sign a guarantee and indemnity that all perfected medical liens and the auto insurer's subrogation claim would be satisfied from the settlement proceeds. The defendant wanted protection in case the plaintiff failed to pay the lienholders and they then pursued the defendant.

The Committee starts from Rule 1.15, which requires a lawyer to safekeep property of clients and third persons, segregate funds in which a third party has an interest, notify those persons, and disburse what they are owed. Citing Western States Insurance Co. v. Olivero, 283 Ill. App. 3d 307 (3d Dist. 1996), the opinion notes a plaintiff's lawyer is already directly liable to a subrogation claimant and has an affirmative duty under Rule 1.15(b) to disburse that claimant's share. The lawyer therefore already must ensure lien and subrogation funds are properly paid.

The opinion then turns to Rule 1.8(d), which bars a lawyer from advancing or guaranteeing financial assistance to a client in connection with litigation, except for the expenses of litigation. The Committee acknowledges the guarantee here runs to the defendant, not directly to the client, and that the lawyer is not the primary obligor. But it reasons that guaranteeing payment of claims the plaintiff would ordinarily owe confers a real benefit on the plaintiff (a smoother, prompter settlement and reduced post-settlement exposure), so the guarantee is financial assistance to the client. The opinion stresses that Rule 1.8(d) does not distinguish direct from indirect assistance, and that such a guarantee is not an "expense of litigation" because it resolves the case rather than enabling its prosecution. It draws support from Arizona Ethics Op. 03-05. Having found the conduct barred by the more specific Rule 1.8(d), the Committee declined to opine on whether Rule 1.7(b) would also bar it.

Currency note

This opinion was issued in 2006, before Illinois adopted its current Rules of Professional Conduct effective January 1, 2010. The Illinois Rules cited here use the pre-2010 numbering; the opinion was affirmed by the ISBA Board of Governors in January 2010, which mapped the cited provisions to 2010 Rules 1.2(a), 1.7, 1.8(e), and 1.15(d). Subsequent rule amendments or later opinions may have changed the analysis. Verify against current rules before relying on any specific rule cited here.

In practice

Under the Illinois rule as it stood at the time of the opinion, the Committee held that a plaintiff's lawyer's personal guarantee and indemnity to the defendant that liens and subrogation claims will be paid from settlement funds violates Rule 1.8(d), even though the funds, not the lawyer's own money, would ultimately satisfy the claims. The opinion treats the lawyer's existing Rule 1.15 duty to segregate and disburse third-party funds as the proper mechanism, distinct from a personal guarantee. The financial-assistance prohibition was renumbered to Rule 1.8(e) in the 2010 Illinois Rules.

Common questions

Q: Can a plaintiff's lawyer sign a guarantee that liens will be paid from the settlement?

A: No. The opinion concludes that guaranteeing and indemnifying the defendant that liens and subrogation claims will be paid is financial assistance to the client barred by Rule 1.8(d).

Q: Does it matter that the guarantee runs to the defendant and not the client?

A: No. The opinion reasons the guarantee still benefits the client and notes Rule 1.8(d) does not distinguish between direct and indirect financial assistance.

Q: Is guaranteeing lien payment an "expense of litigation" exception?

A: No. The opinion concludes such a guarantee resolves the litigation rather than enabling its prosecution, so it is not an expense of litigation within the exception.

Q: What is the lawyer already required to do about the liens?

A: Under Rule 1.15, the opinion explains the lawyer must segregate the disputed funds, notify the lien and subrogation claimants, and disburse what they are owed, and that Olivero holds the lawyer directly liable for failing to pay a subrogation claimant.

Background and rules framework

The opinion interprets Illinois Rule 1.8(d) (the pre-2010 prohibition on advancing or guaranteeing financial assistance to a client, except litigation expenses; now Rule 1.8(e)) and Rule 1.15 (safekeeping of client and third-party property). It also discusses Rule 1.7(b) (conflicts) but takes no position on it, resolving the question under the more specific Rule 1.8(d). The corresponding Model Rules are MR 1.8(e), MR 1.15, and MR 1.7.

Citations and references

Rules of Professional Conduct:

• MR 1.8(e) (financial assistance to a client) / IL Rule 1.8(d) (pre-2010)
• MR 1.15 (safekeeping property) / IL Rule 1.15(a), (b)
• MR 1.7 (conflicts of interest) / IL Rule 1.7(b)

Cases:

• Western States Insurance Co. v. Olivero, 283 Ill. App. 3d 307, 670 N.E.2d 333 (3d Dist. 1996), lawyer's direct liability and Rule 1.15(b) duty to disburse a subrogation claimant's share

Other opinions cited:

• ISBA Op. 95-6: lawyer may not pay a client's medical expenses
• ISBA Op. 92-9: helping a client obtain third-party financing did not violate Rule 1.8(d)
• Arizona Ethics Op. 03-05; Kansas Bar Op. 01-05; North Carolina State Bar RPC 228

See also

• ISBA Ethics Op. 20-06: Possession of Disputed Settlement Funds
• ISBA Ethics Op. 13-01: Collecting a Fee Above a Court-Ordered Amount
• RI EAP Op. 2007-02: No Duty to Withhold Settlement Funds From a Client Absent Actual Notice of a Health Insurer's Claim

Source

• Landing page: https://www.isba.org/ethics/opinions/0601