May a California plaintiff's lawyer agree to indemnify defendants or their counsel against third-party (Medicare, health insurer) liens as a condition of settling the underlying personal injury case?
LACBA Ethics Opinion 532: Lawyer Indemnity of Opposing Party as a Settlement Condition
Short answer: A California plaintiff's lawyer may not agree to defend and indemnify defendants, defense counsel, or their insurers against third-party lien claims (such as Medicare or health insurers) as a condition of settlement; the agreement violates Rule 1.8.5(a) and creates a conflict the lawyer cannot consent around. A defense lawyer who demands such an indemnity violates Rule 8.4(a) by inducing a rule violation.
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 opinion addresses a recurring settlement-term demand: defense counsel insists, as a condition of paying the settlement, that plaintiff's counsel personally agree to defend and indemnify the defendants and their insurers against any future claim by Medicare or other lien claimants for amounts owed by the plaintiff. The committee concludes the demand is improper and the agreement, if made, would violate the California Rules of Professional Conduct.
First, Rule 1.8.5(a) prohibits a lawyer from paying or agreeing to pay the personal or business expenses of a client, with limited exceptions not relevant here. The opinion treats an agreement to indemnify against the client's lien obligation as an agreement to pay a client expense.
Second, the indemnity creates a conflict between lawyer and client because the lawyer's financial exposure could compromise the lawyer's exercise of independent professional judgment under Rule 1.7(b). Even if a client could otherwise give informed written consent, Rule 1.8.5(a) remains an independent bar.
Third, if the client insists that the lawyer accept the indemnity provision, Rule 1.16(a)(2) requires the lawyer to withdraw, because the lawyer cannot agree without violating Rule 1.8.5(a).
Finally, the committee concludes that defense counsel's demand violates Rule 8.4(a), which prohibits a lawyer from soliciting or inducing a violation of the Rules of Professional Conduct.
In practice
Under this opinion, plaintiff's counsel in a personal injury matter who is presented with a defense settlement term requiring the lawyer's personal indemnity against third-party liens must decline that term. The committee identifies three independent rule violations: Rule 1.8.5(a) (lawyer paying client expense), Rule 1.7(b) (compromise of independent professional judgment), and Rule 1.16(a)(2) (mandatory withdrawal if the client demands the lawyer agree).
Defense counsel's demand for such a provision is itself sanctionable under Rule 8.4(a) per the opinion.
Common questions
Q: Can plaintiff's counsel agree to indemnify the defense against Medicare liens as a settlement term?
A: No, per the opinion. The agreement would violate Rule 1.8.5(a) by paying the client's expense, create an independent conflict under Rule 1.7, and require withdrawal under Rule 1.16(a)(2) if the client demanded it.
Q: What if the client wants the lawyer to accept the indemnity to close the deal?
A: Per the opinion, the lawyer must still decline and, if the client persists, must withdraw under Rule 1.16(a)(2) because the lawyer cannot perform the agreement without violating Rule 1.8.5(a).
Q: Does defense counsel violate any rule by including this term in a settlement demand?
A: Yes, per the opinion. Rule 8.4(a) prohibits a lawyer from soliciting or inducing another lawyer to violate the rules; demanding plaintiff's counsel agree to a prohibited indemnity is such an inducement.
Q: Are there any narrower indemnity provisions a plaintiff's lawyer could accept?
A: The opinion does not approve any indemnity by counsel. It distinguishes the prohibited counsel indemnity from a client-only indemnity (where the client, not the lawyer, indemnifies the defense), which the opinion treats as a separate question not violating Rule 1.8.5(a).
Background and rules framework
The opinion interprets California Rule 1.8.5, which prohibits a lawyer from agreeing to pay the personal or business expenses of a client beyond the narrow exceptions listed in the rule. It also applies Rule 1.7(b) (material limitation conflicts), Rule 1.16(a)(2) (mandatory withdrawal when continued representation would result in a rule violation), and Rule 8.4(a) (no soliciting or inducing rule violations).
The federal backdrop is the Medicare Secondary Payer Act, 42 U.S.C. section 1395y, and its implementing regulation 42 C.F.R. section 411.24, which authorize Medicare to seek reimbursement from any party including the beneficiary's attorney for conditional payments. Defense counsel's demand often arises from concern about this exposure.
Citations and references
Rules of Professional Conduct:
- California Rule of Professional Conduct 1.8.5 (no payment of client expenses)
- California Rule of Professional Conduct 1.7 (concurrent conflicts; material limitation)
- California Rule of Professional Conduct 1.16(a)(2) (mandatory withdrawal)
- California Rule of Professional Conduct 8.4(a) (inducing rule violations)
- California Rule of Professional Conduct 1.0.1, 1.2, 1.4.1, 1.15, 2.1
Statutes and Regulations:
- Medicare Secondary Payer Act, 42 U.S.C. section 1395y
- 42 C.F.R. section 411.24 (Medicare recovery rights)
Cases:
- Beck v. Wecht, 28 Cal.4th 289 (Cal. 2002)
- Blanton v. Womancare Inc., 38 Cal.3d 396 (Cal. 1985)
- Gafcon, Inc. v. Ponsor & Associates, 98 Cal.App.4th 1388 (2002)
- Saunders v. Weissburg & Aronson, 74 Cal.App.4th 869 (1999)
- United States v. Harris, 2009 WL 891931 (N.D. W.Va. 2009), Medicare recovery from settling lawyer
Other opinions cited:
- State Bar of California Formal Opinion 1981-55
- State Bar of California Formal Opinion 1988-101
- LACBA Formal Opinion 517 (2006): Indemnification of Client's Litigation Costs
- Alabama Ethics Opinion RO 2011-01
- Alaska Ethics Opinion 2014-4
- Arizona Ethics Opinion 03-05
- Delaware Ethics Opinion 2011-1
See also
- LACBA Opinion 517: Indemnification of Client's Litigation Costs
- No other sibling opinions yet indexed.
Source
- Landing page: https://lacba.org/?pg=ethics-opinions
- Original PDF: https://lacba.org/docDownload/2010554