Must a lawyer retained by a workers'-compensation insurer notify the employer before settling a comp claim, when the insurer pays the settlement?

Plain-English summary

The Grievance Commission asked whether a lawyer representing an employer's workers' compensation insurer must communicate with the employer before settling a claim before the Maine Workers' Compensation Commission. The Commission concluded that Rule 3.6(a), which requires a lawyer to take reasonable measures to keep the client informed of the status of the client's affairs, requires such communication.

Relying on Opinions 63 and 72, the Commission noted that the insured is the client of a lawyer retained by a liability insurer, so Rule 3.6(a) generally requires that lawyer to communicate with the insured about settling a claim. It then considered whether the same applies in workers' compensation, acknowledging differences: in tort defense the insured may have direct financial exposure (deductibles or excess), while in workers' compensation the insured-employer generally has no exposure because the insurer bears the settlement cost, and the insurer is itself a party to the comp proceeding. Those differences could support an argument that the insurer is the real party in interest and the employer is not the client.

The Commission rejected that argument because the employer, as well as the insurer, is also a party to the proceeding: the lawyer appears as counsel for each, and the settlement is approved by both parties, signified by the lawyer's signature as counsel for each. The Commission was therefore constrained to conclude the employer is a client for purposes of Rule 3.6(a). It added that the settlement concerns the status of the employer's affairs because the terms may affect the employer's insurance premium level and may involve the employee-claimant's resignation or return to work, matters of significant interest to the employer. The Commission noted its conclusion aligns with the recent amendment to 39 M.R.S.A. § 106(2) requiring insurers to notify employers of proposed settlements in certain circumstances.

Currency note

This opinion was issued in 1992, before Maine's replacement of the former Maine Bar Rules with the Maine Rules of Professional Conduct (effective August 1, 2009). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Must insurer-retained counsel notify the employer before settling a comp claim?

A: The opinion concluded yes. It held Rule 3.6(a) requires communicating with the employer before settling, because the employer is also a client of the lawyer.

Q: Why is the employer a client when the insurer pays the settlement?

A: The opinion reasoned that the employer, like the insurer, is a party to the comp proceeding; the lawyer appears as counsel for each and signs the settlement as counsel for each, so the employer is a client under Rule 3.6(a).

Q: How does a comp settlement concern the employer's affairs?

A: The opinion noted the settlement terms may affect the employer's insurance premium level and may involve the employee-claimant's resignation or return to work, matters of significant interest to the employer.

Background and rules framework

The opinion interprets Maine Bar Rule 3.6(a), which requires a lawyer to take reasonable measures to keep the client informed on the status of the client's affairs, in the insurer-retained-counsel context where both the insurer and the insured-employer are clients. This corresponds to ABA Model Rule 1.4 (communication) and Model Rule 1.8(f) (compensation from a third party).

Citations and references

Rules of Professional Conduct:

• Model Rule 1.4 (communication); Model Rule 1.8(f) (third-party compensation)
• Maine Bar Rule 3.6(a)

Statutes:

• 39 M.R.S.A. § 106(2) (insurer notification of proposed settlements), as amended by P.L. 1991, ch. 615, § A-50

Other opinions cited:

• Maine Professional Ethics Commission Ops. 63 and 72: the insured is the client of insurer-retained counsel

See also

• Maine Ethics Op. 125: Contacting an Insurance Carrier's Claims Adjuster
• ABA Formal Op. 01-421: Insurer Litigation Guidelines
• ABA Formal Op. 96-403: Insured Objecting to Settlement

Source

• Landing page: https://mebaroverseers.org/attorney_services/opinion.html?id=89852

Original opinion text

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

Issued by the Professional Ethics Commission

Date Issued: March 5, 1992

Question

The Grievance Commission has requested an advisory opinion as to whether a lawyer representing an employer's workers' compensation insurer is obligated by the Maine Bar Rules to communicate with the employer before settling a workers' compensation claim before the Maine Workers' Compensation Commission.

Opinion

For the reasons discussed below, the Professional Ethics Commission concludes that a lawyer representing an employer's workers' compensation insurance carrier is required by Maine Bar Rule 3.6(a) to communicate with the employer (the insured) before settling a workers' compensation claim before the Maine Workers' Compensation Commission.

In relevant part, Maine Bar Rule 3.6(a) provides that "[a] lawyer shall take reasonable measures to keep the client informed on the status of the client's affairs." The Professional Ethics Commission has previously opined that the insured party is the "client" of a lawyer retained by a liability insurer to represent the interests of the insured. See Opinions 63 and 72. In that situation, therefore, Rule 3.6(a) generally requires the lawyer retained by the insurer to communicate with the insured in regard to the settlement of a claim against the insured since the settlement concerns "the status of the clients' affairs" within the meaning of that Rule.

The question now presented is whether that same principle also applies in the context of a workers' compensation claim. At the outset, it is noted that there are some differences between the interests of an insured in defending against a tort claim and the interests of an insured (employer) in a workers' compensation claim. in the former situation, the insured has an immediate interest in any settlement since the settlement may require that the insured pay certain amounts below certain policy limits (deductibles) or above policy limits (excess exposure). In contrast, in the workers' compensation context, the insured-employer generally has no exposure in regard to the payment of a settlement, and the insurer generally bears the full cost of paying any settlement arrived at.

It is also noted that there may be differences between some liability insurance policies and workers' compensation policies in regard to the insurer's right to settle claims. Finally, it is noted that, in contrast with the usual tort action in which the insured is the defendant, the employer's insurer is a party to a worker's compensation claim proceeding.

Based on these considerations, it could be argued that in the worker's compensation context the insurer is the real party in interest, and that the employer is not the "client" of the lawyer retained by the insurer. The problem with that argument, however, is that the employer as well as the insurer is also a party to the proceeding; the lawyer enters an appearance as counsel for each, and the settlement is approved by both of those parties, signified by the lawyer's signature as counsel for each. Under these circumstances, the Commission is constrained to conclude that the employer as well as the insurer are "clients" of the lawyer for purposes of the above-quoted provision of Bar Rule 3.6(a).

That the settlement of a worker's compensation claim concerns the "status of the client's [employer's] affairs" within the meaning of Rule 3.6(a) is also manifest since the terms of the settlement may affect the employer's insurance premium level and may also involve consideration of such things as the resignation or the return to work of the employee-claimant, matters of significant interest to the employer.

Accordingly, the question presented here is answered in the affirmative.[1]

Footnote

[1] The Professional Ethics Commission notes that its opinion in this matter is in line with the recent amendment to 39 M.R.S.A. § 106(2), which requires the insurer to give notification of proposed settlements to the employer under certain circumstances. P.L. 1991, ch. 615, § A-50 (effective October 17, 1991).