When a settlement check arrives, must the lawyer pay the client's medical providers directly, and what happens if a lienholder is out of business?
NY State Bar Ethics Opinion 717: Paying medical liens from settlement proceeds
Short answer: The lawyer had to pay a provider directly when it held an undisputed valid lien or assignment, had to hold disputed funds (while disbursing undisputed funds) when the client contested a lien, and did not have to prefer mere creditors without liens; for an out-of-business lienor with no locatable successor, the lawyer could apply to court to pay the funds to the Lawyers' Fund for Client Protection.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association'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
A lawyer received a settlement check for a client's motor vehicle claim. The attorney's fee was not at issue. The client had five unpaid medical bills; two providers had liens (one of those two was out of business), and one of the providers without a lien was also out of business. The committee addressed whether the lawyer could simply hand the check to the client, whether the lawyer had to pay valid lienholders directly, and how to handle an out-of-business lienor.
The committee applied DR 9-102. Under DR 9-102(C)(1) the lawyer must promptly notify the client and the holders of valid liens or assignments when the check is received. Under DR 9-102(C)(4) the lawyer must promptly pay or deliver funds the client or third person is entitled to receive. The committee held the lawyer must make reasonable efforts to determine whether a provider has an interest in the funds; absent a lien or assignment, a provider is merely a creditor of the client and is not entitled to payment from the funds, so the lawyer is not ethically bound to prefer such creditors over the client (and would violate DR 9-102(C)(4) by doing so). Where a provider undisputedly holds a valid lien or assignment, the lawyer must pay it directly, and a lawyer who disregards a valid lien may be liable to the lienor (Leon v. Martinez).
For disputes, the committee held that if a provider asserts a lien or assignment and the client disputes it, the lawyer should hold the check or proceeds pending resolution. If the check is payable to the client, the lawyer should counsel the client to endorse it for deposit in the lawyer's trust account to avoid the check going stale; if the client refuses, the lawyer should retain the check; if the client endorses it, the lawyer should promptly remit the undisputed balance and hold the disputed portion. The lawyer may negotiate or commence an interpleader action, though interpleader is not ethically required. For a valid lienor that is out of business with no locatable successor, the committee offered options: disburse to the client after exhausting reasonable efforts to find a successor; use the DR 9-102(F) procedure to apply to the Supreme Court to pay the money to the Lawyers' Fund for Client Protection; or, for a hospital lien, deposit with the Commissioner of Finance or County Treasurer under Lien Law section 189(9).
Currency note
This opinion was issued in 1999, under New York's former Code of Professional Responsibility, which New York replaced with the Rules of Professional Conduct in 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 a lawyer pay a client's medical providers directly from settlement funds?
A: The opinion concluded the lawyer must pay a provider directly only when it has an undisputed valid lien or assignment; providers without a lien or assignment are mere creditors the lawyer is not required (and is barred under DR 9-102(C)(4)) to prefer over the client.
Q: What if the client disputes a lien?
A: The opinion held the lawyer should hold the disputed funds pending resolution while promptly disbursing any undisputed amount, and may use negotiation or an interpleader action to resolve it.
Q: What if the lienholder is out of business?
A: The opinion offered options: disburse to the client after a reasonable search for a successor, apply to the Supreme Court under DR 9-102(F) to pay the Lawyers' Fund for Client Protection, or for a hospital lien deposit with the Commissioner of Finance or County Treasurer.
Background and rules framework
The opinion interpreted DR 9-102(C)(1) (notice of receipt of funds), DR 9-102(C)(4) (prompt payment of funds a person is entitled to receive), and DR 9-102(F) (procedure for funds owed to a missing person) of New York's former Code of Professional Responsibility. The Model Rule analogue is Rule 1.15 (safekeeping property; distribution of disputed funds). New York replaced the Code with the Rules of Professional Conduct in 2009; the DR numbers cited here are historical.
Citations and references
Rules of Professional Conduct:
- MR 1.15 (safekeeping property; handling disputed funds)
- NY DR 9-102(C)(1), (C)(4), (F)
Statutes:
- N.Y. Lien Law section 189(9) (deposit of hospital lien funds)
Cases:
- Leon v. Martinez, 84 N.Y.2d 83 (1994), liability for disregarding a valid lien or assignment
See also
- NY State Bar Op. 946: Paying settlement proceeds to a third party at the client's direction
- NY State Bar Op. 852: Settlement agreements requiring the attorney to indemnify
Source
- Landing page: https://nysba.org/opinion-717/