Can a lawyer base a contingency fee on both the medical offset the insurer takes and the settlement the client actually receives in an uninsured/underinsured motorist claim?
LACBA Ethics Opinion 458: Contingency Fees and the Medical Offset
Short answer: The committee concluded that an attorney and client may enter a written contingency fee contract under which the fee is based on both the medical offset taken by the insurance carrier and the settlement actually received, if the contract complies with Rule 4-200 and Business and Professions Code section 6147 and the client gives knowledgeable consent.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the Los Angeles County Bar Association's view of California's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
The inquiring attorney represented a client in a claim against the client's own carrier for uninsured/underinsured motorist benefits. The policy allowed the carrier to offset medical expenses it paid against the settlement owed, so that, for example, a client claiming $15,000 in coverage who had received $5,000 in medical payments would net a $10,000 settlement. The attorney asked whether the contingent fee could be based on the full $15,000 claimed (including the medical offset) or only on the $10,000 the client actually received.
The committee identified Rule 4-200, which prohibits an unconscionable fee and lists eleven factors for determining conscionability, including whether the fee is fixed or contingent and the time and labor required. It identified Business and Professions Code section 6147's requirements that a contingency fee contract be in writing, state the rate, and explain how disbursements and costs affect the fee and recovery, and the rule from Denton v. Smith that a fee contract is presumptively invalid if the attorney does not explain and the client does not understand it.
The committee concluded that it is not necessarily unconscionable to base a contingent fee on the medical offset plus the settlement, as long as the manner of calculation is fully explained and the client gives knowledgeable consent, and the written contract specifies the calculation and meets section 6147. It cautioned that there may be a substantial conscionability issue under Rule 4-200(B)(10) (time and labor) if the work required to recover the medical offset is de minimis, and that the fee must still be reasonable considering all the factors. The committee distinguished its Opinion 352 (which involved representing the client's own medical carrier in an action against a third party) because here the attorney sought recovery directly from the carrier under the client's own policy and did not represent the carrier. It concluded that the inquiring attorney's proposed "hypothetical contract," standing alone, did not satisfy the disclosure and informed-consent requirements, in part because of uncertainty over the words "received" and "collected," and should specifically state that the fee will be based on both the medical offset and the settlement actually paid.
Currency note
This opinion was issued in 1990, before California's November 1, 2018 adoption of the renumbered Rules of Professional Conduct. It interprets former Rule 4-200 (unconscionable fees), which corresponds to current Rule 1.5, and Business and Professions Code section 6147 (contingency fee contracts). Subsequent rule amendments or later opinions may have changed the analysis, and section 6147 has since been amended. Treat this page as historical context, not current guidance. Verify against current rules and statutes before relying on any specific requirement mentioned here.
Common questions
Q: Can a contingency fee be calculated on the insurer's medical offset, not just the cash the client receives?
A: Per the opinion, yes, if the manner of calculation is fully explained, the client gives knowledgeable consent, and the written contract specifies the calculation and meets section 6147 and Rule 4-200.
Q: Could such a fee still be unconscionable?
A: Per the opinion, yes. The committee identified a substantial conscionability issue under Rule 4-200(B)(10) if the time and labor to recover the medical offset is de minimis, and required the fee to be reasonable considering all the factors.
Q: Why did the committee say the proposed contract did not comply?
A: Per the opinion, the hypothetical contract's language about monies "received" or "collected" did not clearly inform the client that the fee would be based on the medical offset plus the settlement actually paid.
Background and rules framework
The opinion interprets former California Rule 4-200 (unconscionable fees), which corresponds to ABA Model Rule 1.5, and Business and Professions Code section 6147 (written contingency fee contracts). The informed-consent analysis is anchored in Denton v. Smith, Bushman v. State Bar, and Warner v. State Bar.
Citations and references
Rules of Professional Conduct (former):
- California Rule 4-200 (unconscionable fees)
Statutes:
- California Business and Professions Code section 6147 (contingency fee contracts)
Cases:
- Warner v. State Bar, 34 Cal.3d 36 (1983)
- Bushman v. State Bar, 11 Cal.3d 558 (1974)
- Denton v. Smith, 101 Cal.App.2d 841 (1951)
Other opinions cited:
- LACBA Formal Opinion 352
See also
- LACBA Ethics Op. 526: Contingency Fee, First-Proceeds Risk-Shifting, and Informed Consent
- LACBA Ethics Op. 523: Contingency Fee Combining Damages and a Statutory Fee Award
- LACBA Ethics Op. 478: Medical Liens and Disbursement of Client Funds
Source
- Landing page: https://lacba.org/?pg=ethics-opinions
- Original PDF: https://lacba.org/docDownload/2010985