Can an Ohio law firm charge an insurer a fixed flat fee for subrogation work based on the number of health-plan enrollees?
Ohio BPC Opinion 1995-002: Fixed Flat Fee for Insurer Subrogation Work
Short answer: The opinion concluded that a law firm representing an insurer or third-party administrator of group health benefit plans may enter a fixed flat fee agreement, based on the number of plan enrollees, to identify and pursue subrogation matters, provided the fee is reasonable, the client bears litigation expenses in addition to the flat fee under DR 5-103(B), and the firm's representation remains competent and diligent.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the Ohio Board of Professional Conduct'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. The opinion text is reproduced at the bottom; the official source (linked) controls.
Plain-English summary
The Board addressed whether a law firm could be paid a fixed flat fee, set per capita on the number of enrollees in a group health plan, for identifying and litigating the insurer/administrator's subrogation claims. It started from DR 2-106, which bars only illegal or clearly excessive fees and lists "whether the fee is fixed or contingent" among the reasonableness factors, so the Code does not prohibit fixed fees.
The Board surveyed the long acceptance of flat fees, citing ABA Formal Opinions 190 (1939) and 329 (1972) and Informal Opinion 1389 (1977), and described two types: a flat fee per case (approved in Oregon, Iowa, Wisconsin, and New Hampshire opinions) and a per-capita flat fee like that used by prepaid group legal services plans. It noted that some fixed fees draw criticism, citing Kentucky's concern about an insurer limiting an insured's defense in a side contract, but expressly set aside the third-party-payor situation as not presented here, because the client itself paid the fee.
The Board then identified three controlling limits. First, under DR 2-106(A) the flat fee must not be excessive, though it found an excessive fee unlikely where a sophisticated insurer agrees to it. Second, under DR 5-103(B) the client must pay actual litigation expenses on top of the flat fee, so the lawyer does not acquire a prohibited interest in the litigation. Third, under DR 6-101 and DR 7-101 the fee must not be so inadequate as to compromise competent and diligent representation of each client.
Currency note
The Ohio Board flags this opinion as a "CPR Opinion" interpreting the former Ohio Code of Professional Responsibility, which was superseded by the Ohio Rules of Professional Conduct effective February 1, 2007. The Board also notes the opinion is "Not current" because of subsequent rule amendments to DR 5-103(B), effective June 14, 1999.
This opinion issued in 1995. Treat this page as historical context, not current guidance. Verify against the current Ohio Rules of Professional Conduct before relying on any specific rule mentioned here.
Common questions
Q: Can a firm charge an insurer a flat fee based on the number of plan enrollees?
A: Yes. The Board concluded a law firm may enter a per-enrollee fixed flat fee agreement for subrogation work, provided the fee is reasonable, the client pays litigation expenses separately, and representation stays competent and diligent.
Q: Does the client still have to pay litigation costs under a flat fee?
A: Yes. The Board concluded DR 5-103(B) requires the client to pay actual litigation expenses in addition to the flat fee, so the lawyer does not acquire a prohibited financial interest in the litigation.
Q: Did the opinion address an insurer paying a flat fee to defend its insureds?
A: No. The Board noted Kentucky's concerns about an insurer limiting an insured's defense through a side fee contract, but expressly declined to decide the third-party-payor question, because here the client itself paid the fee.
Background and rules framework
The opinion interprets the former Ohio Code of Professional Responsibility: DR 2-106(A) and (B) (illegal or clearly excessive fees and the reasonableness factors), DR 5-103(B) (client liability for litigation expenses), and DR 6-101 and DR 7-101 (competent and zealous representation).
Citations and references
Rules of Professional Conduct:
- Former Ohio Code of Professional Responsibility DR 2-106(A), DR 2-106(B), DR 5-103(B), DR 6-101, DR 7-101
Other opinions cited:
- ABA Formal Ops. 190 (1939), 329 (1972); ABA Informal Op. 1389 (1977)
- Ohio BPC Ops. 87-001 (1987), 94-5 (1994)
- Oregon State Bar Formal Op. 1991-98; Iowa State Bar Op. 93-2; State Bar of Wisconsin Op. E-83-15; New Hampshire Bar Op. 1990-91/5; Kentucky Bar Ass'n E-368 (1994)
See also
- Ohio BPC Op. 1994-008: Splitting a Contingency Fee With a Non-Lawyer Investigator
- Ohio BPC Op. 1988-026: Fee Division Where Responsibility Is Assumed
- Ohio BPC Op. 1990-022: Lawyer Fee Paid by a Trustee Bank
Source
- Landing page: https://ohioadvop.org/advisory-opinion-index/
- Original PDF: https://www.ohioadvop.org/wp-content/uploads/2017/04/Op-95-002.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
The Supreme Court of Ohio
BOARD OF COMMISSIONERS ON GRIEVANCES AND DISCIPLINE
41 SOUTH HIGH STREET-SUITE 3370, COLUMBUS, OH 43215-6105
(614) 644-5800 FAX: (614) 644-5804
OFFICE OF SECRETARY
OPINION 95-2
Issued February 3, 1995
[CPR Opinion-provides advice under the Ohio Code of Professional Responsibility which is superseded by the Ohio
Rules of Professional Conduct, eff. 2/1/2007.]
[Not current-subsequent rule amendments to DR 5-103(B), eff. Jun. 14, 1999.]
SYLLABUS: A law firm representing an insurer/third party administrator of group health benefit
plans may enter a fixed flat fee agreement with the insurer/third party administrator whereby the
law firm would identify and pursue subrogation matters and receive compensation for its services at
a fixed flat fee based upon the number of enrollees in a group health benefits plan. However, the
fixed flat fee must be reasonable, the expenses of litigation must be borne by the client in addition
to the fixed flat fee, and the attorney's performance must be competent and diligent.
OPINION: This opinion addresses fixed flat fees as a method of attorney compensation. A law
firm provides legal representation to a company that is both a third party administrator for
employer groups that self-fund employee health benefit plans and an insurer for employer groups
that purchase insurance for employee health care coverage. The law firm identifies subrogation
claims and litigates subrogation matters on behalf of the insurer/third party administrator. The
question is set forth below.
Is it proper for a law firm representing an insurer/third party administrator of group
health benefit plans to enter a fixed flat fee agreement with the insurer/third party
administrator whereby the law firm would identify and pursue subrogation matters
and receive compensation for its services at a fixed flat fee based upon the number
of enrollees in a group health benefits plan?
The Ohio Code of Professional Responsibility governs fees for legal services through DR 2-106.
The basic requirement of the rule is that a lawyer's fee may not be illegal or clearly excessive.
DR 2-106 (A) A lawyer shall not enter into an agreement for, charge, or collect an
illegal or clearly excessive fee.
Op. 95-2 2
The Code sets "reasonableness" as a standard in determining when fees are excessive and provides
factors to consider in determining reasonableness.
DR 2-106 (B) A fee is clearly excessive when, after a review of the facts, a lawyer
of ordinary prudence would be left with a definite and firm conviction that the fee is
in excess of a reasonable fee. Factors to be considered as guides in determining the
reasonableness of a fee include the following:
(1) The time and labor required, the novelty and difficulty of the
questions involved, and the skill requisite to perform the legal service
properly.
(2) The likelihood, if apparent to the client, that the acceptance of the
particular employment will preclude other employment by the
lawyer.
(3) The fee customarily charged in the locality for similar legal
services.
(4) The amount involved and the results obtained.
(5) The time limitations imposed by the client or by the
circumstances.
(6) The nature and length of the professional relationship with the
client.
(7) The experience, reputation, and ability of the lawyer or lawyers
performing the services.
(8) Whether the fee is fixed or contingent.
Since the Code refers to fixed fees as a factor to consider in determining reasonableness, it can be
assumed that the Code does not prohibit fixed fees. The most common type of fixed fee is the
fixed hourly fee, based upon the hours of work performed. Increasingly, fixed flat fees, not
adjusted to the time involved, are emerging as an alternative type of billing. See e.g., ABA/BNA
Lawyers' Manual on Professional Conduct, 41:304-318 (2/23/94). Nevertheless, fixed flat fees, not
adjusted to the time involved, are not a novel concept. As early as 1939, an ABA committee
advised that it is proper for a lawyer "[t]o permit a client, or a prospective or potential
Op. 95-2 3
client, such as a bank, insurance company, loan association, or any other concern or individual, to
decide the amount of compensation to be charged by the lawyer for legal services rendered, or to be
rendered, by fixing a rate of fees which the lawyer must adhere to, and which is not adjusted
according to the amount of time and effort involved, and the other factors referred to in ‘Canon
12’.” ABA, Formal Op. 190 (1939). In 1972, an ABA committee advised that “[n]o reasonable
method of fixing fees which takes into account the factors enumerated in DR 2-106 (B) is
proscribed by the Code of Professional Responsibility." ABA, Formal Op. 329 (1972). In 1977, an
ABA committee advised “[t]here is nothing improper in a lawyer charging and being paid a fixed
fee in advance for legal work on tax matters or litigation before the Tax Court if the client and the
lawyer choose to do so and it is fully understood that the fixed fee embraces all work to be done,
whether it be relatively simple and of short duration, or complex and protracted." ABA, Informal
Op. 1389 (1977))
One type of fixed flat fee agreement is a fixed flat fee per case. Several states have opined that it is
ethical for an attorney to enter this type of fee arrangement. In Oregon, an attorney may enter an
agreement with an insurer to provide legal services to insureds to be compensated at a flat rate per
case regardless of the amount of work required. Oregon State Bar Ass'n, Formal Op. 1991-98. In
Iowa, the negotiation of a fixed fee agreement is not per se improper, if the professional services
are specifically stated and circumscribed as to quantity in general and legal services required,
provided the expenses of litigation are the responsibility of the client over and above the fixed fee.
Iowa State Bar Association, Op.93-2 (1993). In Wisconsin, an attorney may enter agreement with
an insurance company to act as defense counsel in personal injury claim matters for a set fee in
each case up to the time of trial. State Bar of Wisconsin, Op. E-83-15 (1983). In New Hampshire,
it is not per se improper for an attorney to enter into an agreement with an insurance company to
undertake the defense of a number of insureds with payment of a fixed fee per case. New
Hampshire Bar Ass’n, Formal Op. 1990-91/5 (1991).
Another type of fixed fee is a fixed flat fee set on a per capita basis. This is the type of fixed fee
sometimes used by prepaid group legal services plans. For example, a lawyer or law firm is paid a
flat fixed fee per month or year based upon the number of potential clients in a union or consumer
group that may make a claim or need other legal services.
Op. 95-2 4
Certain fixed flat fees do not receive the approval of all ethics committees. In Kentucky, a lawyer
may not enter into a contract with a liability insurer in which the lawyer or law firm agrees to do all
of the insurer's defense work of an insured for a set fee, regardless of whether the fee is a fixed sum
for taking all of the cases in a geographic area, or whether the fixed fee is a maximum amount
payable for each case referred to the lawyer by the insurer. Kentucky Bar Ass'n, E-368 (1994).
The Kentucky committee identified several concerns: the insurer promises the insured a defense in
a contract of insurance, but limits its undertaking in a side contract with the insured's lawyer—a
contract to which the insured is not a party; the lawyer stands to gain by limiting services. Id. This
Board does not have before it the question of a fixed flat fee agreement when a third party is paying
for the defense of another, and thus it is not addressed at this time.
In the present inquiry, the proposed fixed flat fee is paid by the client to the attorney, based upon
the number of enrollees in a health benefits group administered or insured by the client. It is a
fixed flat fee set upon a per capita basis. Another approach would have been to base the fixed flat
fee upon the number of subrogation claims identified or the number of subrogation matters
pursued. Nevertheless, whatever approach is chosen, the determination of the propriety of the
fixed flat fee agreement would be based upon the factors described below.
First, a fixed flat fee is subject to the restriction in DR 2-106 (A) that it not be excessive. Although
a fixed flat fee is not directly adjusted to the amount of time and effort involved, it would not be per
se excessive. In fact, it is unlikely, that an insurer/third party administrator would agree to an
excessive fixed fee. Thus, within the context of this opinion, the Board explores the concern of
excessive fees no further.
Second, a fixed fee for legal services cannot be used to circumvent DR 5-103 (B), the rule that
requires clients to remain liable for expenses of litigation.
DR 5-103 (B) While representing a client in connection with contemplated or
pending litigation, a lawyer shall not advance or guarantee financial assistance to his
[her] client, except that a lawyer may advance or guarantee the expenses of
litigation, including court costs, expenses of medical examination, and costs of
obtaining and presenting evidence, provided the client remains ultimately liable for
such expenses.
Op. 95-2 5
In compliance with DR 5-103(B), a client who pays a fixed flat fee for legal services, must also pay
the actual expenses of litigation. The ethical basis of this rule has been described in prior opinions-
-to prevent an attorney from acquiring an interest in litigation that might interfere with the exercise
of independent professional judgment, such as an attorney's settlement of a case prematurely to
guarantee the recovery of expenses. See Ohio SupCt, Bd of Comm’rs on Grievances and
Discipline, Op. 87-001 (1987), Op. 94-5 (1994).
Third, a fixed flat fee agreement must not limit an attorney's duties of competent and zealous
representation to each and every client under DR 6-101 and 7-101. Attorneys who enter fixed fee
agreements, must remain mindful of their duty to represent clients competently and zealously.
They should not enter fee agreements that provide compensation so inadequate as to denigrate the
profession and have a deterrent effect upon the quality of work that can be performed.
In conclusion, this Board advises that a law firm representing an insurer/third party administrator of
group health benefit plans may enter a fixed flat fee agreement with the insurer/third party
administrator whereby the law firm would identify and pursue subrogation matters and receive
compensation for its services at a fixed flat fee based upon the number of enrollees in a group
health benefits plan. However, the fixed flat fee must be reasonable, the expenses of litigation must
be borne by the client in addition to the fixed flat fee, and the attorney's performance must be
competent and diligent.
Advisory Opinions of the Board of Commissioners on Grievances and Discipline are
informal, non-binding opinions in response to prospective or hypothetical questions
regarding the application of the Supreme Court Rules for the Government of the Bar of Ohio,
the Supreme Court Rules for the Government of the Judiciary, the Code of Professional
Responsibility, the Code of Judicial Conduct, and the Attorney's Oath of Office.