Can a plaintiff's lawyer agree to personally indemnify the client's Medicare lien or other third-party obligation to settle the case?

Plain-English summary

A lawyer who represents asbestos plaintiffs explained that, under the Medicare Secondary Payer reporting requirements added by Section 111 of the MMSEA, defendants and insurers face penalties for misreporting settlement payments and have begun demanding that the plaintiff's lawyer personally indemnify the client's Medicare-lien obligations. She asked whether a lawyer may agree to indemnify a client's obligation to a third party as part of settling the client's claim.

The committee treats the MMSEA's requirements as a question of law beyond its jurisdiction but holds the indemnity demand impermissible under the conduct rules, aligning with N.Y. City 2010-3. Rule 1.8(e) bars a lawyer, while representing a client in contemplated or pending litigation, from advancing or guaranteeing financial assistance to the client, with narrow exceptions only for court costs and litigation expenses. "Financial assistance" includes guarantees (citing ABA Formal Op. 04-432 and Missouri Op. 125), and an agreement to indemnify the client's failure to satisfy her own obligation, such as a Medicare lien, is a guarantee of financial assistance prohibited by Rule 1.8(e). The settlement obligation is not a "court cost" or "expense of litigation," so it does not fit the exceptions; Comment [9B] limits permitted assistance to costs directly related to litigation, not personal obligations like liens.

The committee adds that although Rule 1.2(a) requires a lawyer to abide by the client's decision to settle, the lawyer cannot pursue or enter a settlement that violates the Rules, so the client's desire does not cure the problem. And under Rule 8.4(a), because a lawyer may not indemnify his own client's third-party obligation, another lawyer (such as the defendant's) may not enter a settlement that requires such an indemnification either.

In practice

Under the New York rule as it stood at the time of the opinion, a plaintiff's lawyer cannot agree to personally indemnify or guarantee the client's obligation to a third party (such as a Medicare lien) as part of a settlement; the opinion holds this is a barred guarantee of financial assistance under Rule 1.8(e), outside the court-costs exception, and not curable by the client's consent to settle. The opinion also holds, under Rule 8.4(a), that the defendant's lawyer may not enter a settlement requiring such an indemnification. It does not opine on the MMSEA's own requirements, treating those as a legal question.

Common questions

Q: Can a plaintiff's lawyer agree to cover the client's Medicare lien to get a settlement done?

A: No. The opinion holds that a lawyer's promise to indemnify the client's Medicare-lien obligation is a guarantee of financial assistance barred by Rule 1.8(e), because the lien is the client's personal obligation, not a court cost or litigation expense.

Q: Does it matter that the client wants to settle on those terms?

A: No. The opinion holds that although Rule 1.2(a) requires the lawyer to abide by the client's decision to settle, the lawyer may not pursue or enter a settlement that violates the Rules.

Q: Can the defendant's lawyer ask for or accept the indemnity?

A: No. The opinion holds that under Rule 8.4(a), another lawyer may not enter a settlement that requires the plaintiff's lawyer to give the prohibited indemnification.

Background and rules framework

The opinion applies Rule 1.8(e) (no advancing or guaranteeing financial assistance to a litigation client, with narrow court-cost exceptions), Rule 1.2(a) (settlement decisions must still be lawful and ethical), Rule 5.6(a)(2) (no settlement restricting the right to practice, cited as context), and Rule 8.4(a) (no violation through another). These correspond to Model Rules 1.8(e), 1.2(a), 5.6(a), and 8.4(a). The analysis follows N.Y. City 2010-3 and ABA Formal Op. 04-432.

Citations and references

Rules of Professional Conduct:

• New York Rule 1.8(e) (financial assistance to a litigation client); Model Rule 1.8(e)
• New York Rule 1.2(a) (settlement decisions, limited to lawful means); Model Rule 1.2(a)
• New York Rule 8.4(a) (no violation through the acts of another); Model Rule 8.4(a)

Statutes:

• Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), Section 111 (reporting requirements)

Cases:

• Fasso v. Doerr, 12 N.Y.3d 80 (2009), equitable subrogation by a health insurer
• Teichman v. Community Hosp. of Western Suffolk, 87 N.Y.2d 514 (1996), insurer recoupment

Other opinions cited:

• N.Y. City 2010-3: a lawyer may not give a hold-harmless/indemnity for the settling defendant
• ABA Formal Op. 04-432; Missouri Op. 125 (2008)

See also

• NY State Bar Op. 855: Referral to a spouse's litigation financing company
• NY State Bar Op. 969: Client indemnity for third-party opinion-letter claims
• NY State Bar Op. 1006: No-solicit, no-refer terms in a settlement

Source

• Landing page: https://nysba.org/ethics-opinion-852/