Can a plaintiff's lawyer personally agree, as a settlement condition, to indemnify the defendant against third-party claims to the settlement money, and can a defense lawyer demand it?

Plain-English summary

The Board addressed whether, in settling a matter, a plaintiff's lawyer may personally agree to indemnify the opposing party against any and all claims by third persons (such as lienholders or subrogated insurers) to the settlement funds, and whether an opposing lawyer may propose or require such an agreement.

The Board concluded that a plaintiff's lawyer's personal indemnification agreement of that kind is improper. It reasoned that the agreement is not authorized by Prof. Cond. R. 1.15(d), which governs a lawyer's duties as to funds in which third persons claim an interest. It further concluded the agreement violates R. 1.8(e), which prohibits a lawyer from providing financial assistance to a client in connection with litigation, and R. 1.7(a)(2), because the lawyer's personal exposure creates a substantial risk of materially limiting the representation through the lawyer's own personal interests.

The Board also concluded that it is improper for a lawyer to propose or require, as a condition of settlement, that the plaintiff's lawyer make such a personal indemnification agreement, because doing so violates R. 8.4(a) (violating or attempting to violate the rules, or doing so through the acts of another). The Board recommended that the opinion be applied prospectively.

In practice

The opinion holds that, under the Ohio Rules of Professional Conduct as they stood at the time of the opinion, a plaintiff's lawyer's personal agreement to indemnify the opposing party against third-person claims to settlement funds is improper under Rules 1.15(d), 1.8(e), and 1.7(a)(2), and that a lawyer who proposes or demands such an agreement as a settlement condition violates Rule 8.4(a). Per the opinion, the prohibition reaches both sides of the negotiation, and the Board recommended prospective application.

Common questions

Q: Can an Ohio plaintiff's lawyer agree to personally cover any third-party claims to the settlement money?

A: The opinion concluded no; such a personal indemnification agreement is not authorized by Rule 1.15(d) and violates Rules 1.8(e) and 1.7(a)(2).

Q: Can the defense side ask for that indemnification as a settlement term?

A: The opinion concluded no; proposing or requiring such a personal indemnification agreement violates Rule 8.4(a).

Q: Why is it a conflict for the lawyer?

A: The opinion concluded that personally assuming liability for third-person claims creates a substantial risk of materially limiting the representation through the lawyer's own personal interests, a conflict under Rule 1.7(a)(2).

Background and rules framework

The opinion interprets Ohio Prof. Cond. R. 1.15(d) (funds in which third persons claim an interest), R. 1.8(e) (financial assistance to a client), R. 1.7(a)(2) (personal-interest conflicts), and R. 8.4(a) (violating the rules through the acts of another) (Model Rules 1.15, 1.8, 1.7, 8.4).

Citations and references

Rules of Professional Conduct:

• Ohio Prof. Cond. R. 1.15(d) (third-person claims to funds) (Model Rule 1.15)
• Ohio Prof. Cond. R. 1.8(e) (financial assistance to a client) (Model Rule 1.8)
• Ohio Prof. Cond. R. 1.7(a)(2) (personal-interest conflicts) (Model Rule 1.7)
• Ohio Prof. Cond. R. 8.4(a) (violating the rules through the acts of another) (Model Rule 8.4)

See also

• Ohio BPC Op. 2009-009: Billing for Outsourced Health Care Lien Resolution
• Ohio BPC Op. 2010-006: Broad Power of Attorney in a Contingent Fee Agreement

Source

• Landing page: https://ohioadvop.org/advisory-opinion-index/
• Original PDF: https://www.ohioadvop.org/wp-content/uploads/2017/04/Op_11-001.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
65 SOUTH FRONT STREET, 5TH FLOOR, COLUMBUS, OH 43215-3431
(614) 387-9370 (888) 664-8345 FAX: (614) 387-9379
www.supremecourt.ohio.gov

                                  OFFICE OF SECRETARY




                                 OPINION 2011-1
                              Issued February 11, 2011

SYLLABUS: It is improper for a plaintiff’s lawyer to personally agree, as a condition of
settlement, to indemnify the opposing party from any and all claims by third persons to
the settlement funds. Such agreements are not authorized by Prof. Cond. Rule 1.15(d)
and violate Prof. Cond. Rules 1.8(e) and 1.7(a)(2). Further, it is improper for a lawyer to
propose or require, as a condition of settlement, that a plaintiff’s lawyer make a personal
agreement to indemnify the opposing party from any and all claims by third persons to
the settlement funds. Such conduct violates Prof. Cond. Rule 8.4(a). The Board
recommends that this advisory opinion be prospective in application.

OPINION: This opinion addresses whether, during settlement of a matter, it is ethical
for a lawyer to propose, demand, and or agree to personally satisfy any and all claims by
third persons as to settlement funds.

   Is it proper for a plaintiff’s or claimant’s lawyer to personally agree, as a
   condition of settlement, to indemnify the opposing party from any and all
   claims by third persons to the settlement funds?

Lawyers who represent plaintiffs in civil actions, such as personal injury or medical
malpractice are required to work diligently to obtain a fair settlement for clients who
often have incurred substantial medical bills as a result of their injuries. Sometimes it
takes months and even years to reach settlement or judgment.

The proper disbursement of settlement proceeds is a huge responsibility for a lawyer who
receives the settlement proceeds. Clients are sometimes in dire need of funds from the
settlement proceeds. Lawyers need payment for their services too. And, third persons
such as medical providers, insurance carriers, or Medicare and Medicaid seek
reimbursement of their expenses from the settlement proceeds.

Increasingly, lawyers who represent plaintiffs are being asked to personally indemnify
the opposing party and counsel from any and all claims by third persons to the settlement
proceeds. Lawyers are concerned not only about whether it is ethical to enter such
Op. 2011-1 2

agreements, but also whether it is ethical to propose or require that other lawyers enter
such agreements.

This opinion advises as to the ethical concerns of a lawyer’s personal agreement to
indemnify. The opinion does not address legal issues that are outside this Board’s
advisory authority under Gov.Bar R. V(2)(C).

Applicable Ohio Rules of Professional Conduct

The Ohio Rules of Professional Conduct establish that a lawyer has an ethical duty to
safekeep funds of clients and third persons. The duties are very specifically set forth in
Prof. Cond. Rule 1.15 and apply to settlement funds that come into a lawyer’s possession.

One duty is that a lawyer who is in possession of a client’s or third person’s funds must
keep the funds in an interest bearing trust account separate from the lawyer’s funds. This
is required by Prof. Cond. Rule 1.15(a) which in pertinent part states: “A lawyer shall
hold property of clients or third persons that is in a lawyer’s possession in connection
with a representation separate from the lawyer’s own property. Funds shall be kept in a
separate interest-bearing account in a financial institution authorized to do business in
Ohio and maintained in the state where the lawyer’s office is situated. The account shall
be designated as a ‘client trust account,’ ‘IOLTA account,’ or with a clearly identifiable
fiduciary title.”

A second duty is that a lawyer who receives funds in which a third person has a lawful
interest must promptly notify the third person and upon request promptly render a full
accounting as to the funds; and, unless there is an exception within the rule or otherwise
permitted by law or by agreement, the lawyer must promptly deliver the funds the third
person is to receive. This is required by Prof. Cond. Rule 1.15(d) which states: “Upon
receiving funds or other property in which a client or third person has a lawful interest, a
lawyer shall promptly notify the client or third person. For purposes of this rule, the third
person’s interest shall be one of which the lawyer has actual knowledge and shall be
limited to a statutory lien, a final judgment addressing disposition of the funds or
property, or a written agreement by the client or the lawyer on behalf of the client
guaranteeing payment from the specific funds or property. Except as stated in this rule or
otherwise permitted by law or by agreement with the client or a third person, confirmed
in writing, a lawyer shall promptly deliver to the client or third person any funds or other
property that the client or third person is entitled to receive. Upon request by the client or
third person, the lawyer shall promptly render a full accounting regarding such funds or
other property.”

A third duty is that a lawyer who is in possession of funds in which two or more persons
claim interest, must hold the funds until the dispute is resolved, but must distribute the
undisputed portions of the funds. This is required by Prof. Cond. Rule 1.15(e) which
states: “When in the course of representation a lawyer is in possession of funds or other
property in which two or more persons, one of whom may be the lawyer, claim interests,
the lawyer shall hold the funds or other property pursuant to division (a) of this rule until
Op. 2011-1 3

the dispute is resolved. The lawyer shall promptly distribute all portions of the funds or
other property as to which the interests are not in dispute.”

When Prof. Cond. Rule 1.15 became effective on February 1, 2007, lawyers expressed
concern that their responsibility toward third person claims was limitless. That is not so,
nor was it ever so, but to alleviate concerns and clarify the duty to third persons Prof.
Cond. Rule 1.15(d) and Comment [4] were amended, effective January 1, 2010. [The
proposed amendments were based, in part, on OhioSupCt, Bd Comm’rs on Grievances &
Discipline, Op. 2007-7 (2007) and on a 2008 report and recommendation of an Ohio
State Bar Association committee that reviewed Prof. Cond. Rule 1.15.]

The following clarifying language was added to Prof. Cond. Rule 1.15(d): “For purposes
of this rule, the third person’s interest shall be one of which the lawyer has actual
knowledge and shall be limited to a statutory lien, a final judgment addressing disposition
of the funds or property, or a written agreement by the client or the lawyer on behalf of
the client guaranteeing payment from the specific funds or property.” Explanatory
language was also added to Comment [4] including this statement: “When the lawyer
knows a third person’s claimed interest is not a lawful one, a lawyer’s ethical duty is to
notify the client of the interest claimed and promptly deliver the funds or property to the
client.” Changes were also made to the first sentence of Comment [4]: “Divisions (d)
and (e) address situations in which third persons may claim a lawful interest in specific
funds or other property in a lawyer’s custody.”

In short, a lawyer’s ethical duty is to protect a third person’s lawful interest of which the
lawyer has actual knowledge. The lawful interest must be in the specific funds in the
lawyer’s custody.

The language in Prof. Cond. Rule 1.15(d) that defines a lawful interest as including “a
written agreement by the client or the lawyer on behalf of the client guaranteeing
payment from the specific funds or property” is not to be construed as a green light for a
lawyer to agree to personally indemnify opposing party for any and all third person
claims to settlement proceeds. A personal agreement by a lawyer to indemnify the
opposing party from any and all claims is distinct from an agreement by a client, or the
lawyer on behalf of the client, guaranteeing payment of lawful claims from the funds in
the lawyer’s possession.

Such a personal indemnification agreement by a lawyer is, in essence, an agreement by
the lawyer to provide financial assistance to the client. The lawyer is undertaking an
obligation to pay the client’s bills. This is unethical for several reasons.

Ohio lawyers are not permitted to provide financial assistance to client, except for very
narrow circumstances permitted by rule. Prof. Cond. Rule 1.8(e) states: “A lawyer shall
not provide financial assistance to a client in connection with pending or contemplated
litigation, except that a lawyer may do either of the following: (1) a lawyer may advance
court costs and expenses of litigation, the repayment of which may be contingent on the
Op. 2011-1 4

outcome of the matter; (2) a lawyer representing an indigent client may pay court costs
and expenses of litigation on behalf of the client.” None of the exceptions apply herein.

Further, such agreement creates a conflict of interest for a lawyer because there would be
substantial risk that the lawyer’s representation of the client would be materially limited
by the lawyer’s concerns about having personal financial responsibility for known and
unknown claims against the client. Prof. Cond. Rule 1.7(a) states: “A lawyer’s
acceptance or continuation of representation of a client creates a conflict of interest if . . .
(2) there is a substantial risk that the lawyer’s ability to consider, recommend, or carry
out an appropriate course of action for that client will be materially limited by the
lawyer’s responsibilities to another client, a former client, or a third person or by the
lawyer’s own personal interests.” Even if this conflict of interest could be ameliorated
under Prof. Cond. Rule 1.7(b), the agreement still would be improper under Prof. Cond.
Rule 1.15 and 1.8(e).

It is also this Board’s view that it is improper for a lawyer to propose or require that a
plaintiff’s lawyer make a personal agreement to indemnify the opposing party from any
and all claims by third persons to the settlement funds. Such conduct violates Prof. Cond.
Rule 8.4(a). Prof. Cond. Rule 8.4(a) states that it is professional misconduct for a lawyer
to “violate or attempt to violate the Ohio Rules of Professional Conduct, knowingly assist
or induce another to do so, or do so through the acts of another.”

This Board is not alone in finding such agreements unethical.

Advisory opinions from other states

An Arizona ethics committee advised that “[a] claimant’s attorney may not ethically enter
into any settlement agreement that would require the attorney to indemnify or hold the
Releasee harmless from any lien claims against the settlement proceeds.” State Bar of
Arizona, Op. 03-05 (2003). The committee concluded that such agreements would
violate several of the Arizona Rules of Professional Conduct, ER 1.7, 2.1, 1.8, 1.16(a).
Id.

An Illinois ethics committee was asked: “Whether the Illinois Rules of Professional
Conduct prohibit a lawyer representing a party receiving money in a settlement from
entering into an agreement in which that lawyer provides his/her personal guarantee that
the settlement funds will be paid to all person who have a claim on the funds and
indemnifies the defendant against such claims?” Illinois State Bar Assn., Op. 06-01
(2006). The Illinois committee stated that “a plaintiff’s lawyer’s personal guarantee to
pay the lien and subrogation claims against his client (even if such payments are to be
made by the settlement funds) constitutes the provision of financial assistance to his
client and violates Rule 1.8(d) of the [Illinois] Rules of Professional Conduct.” The
committee did not take a position of whether Rule 1.7(b) would be violated by such
personal guarantees. Id.
Op. 2011-1 5

An Indiana ethics committee was asked “whether the Indiana Rules of Professional
Conduct (“Rules”) permit plaintiff’s counsel to execute a settlement agreement requiring
counsel to hold harmless and indemnify the defendant, defendant’s insurer and defense
counsel from any subrogation liens and/or third-party claims.” Indiana State Bar Assn.,
Op. 1 (2005). The committee noted that the practice violates the Rules on several
grounds that include Rule 1.2(a), 1.7(a)(2), 1.8(e), 2.1(a), 1.16, 1.15(d). The committee
noted that “[c]ourts are divided on whether Medicare and Medicaid benefits may be
recovered from the claimant’s attorney if not reimbursed from the settlement proceeds.”
Id. “In conclusion, the Committee is of the opinion that non-Medicare and Medicaid
settlement agreements that require a counsel to hold harmless and indemnify the
opposing party from subrogation liens and/or third-party claims violate our Rules.” Id.

A Kansas ethics committee advised that “[a] lawyer for a personal injury plaintiff or
claimant signing a blanket indemnification provision whereby the lawyer agrees to hold
the insurance company and the insured harmless from ‘any and all subrogation liens of
every kind and nature whatsoever, both known and unknown’ places the lawyer in a
position where he or she creates a conflict of interest between the client and the insurance
company and insured, and/or the lawyer’s own interests.” Kansas Bar Assn, Op. 01-5
(2001).

A Missouri ethics committee was asked “whether it is a violation of the Rules of
Professional Conduct for an attorney to agree to indemnify the opposing party for debts
owed by the attorney’s client” and “whether it is a violation for an attorney to request or
demand that another attorney agree to such indemnification.” Missouri SupCt, Advisory
Committee, Op. 125 (2008). That committee advised “[i]f a client owes a debt to a third
party who expects payment from the client’s recovery by settlement or judgment, an
attorney may not agree to pay the third party from the attorney’s own funds, if the client
does not pay the third party.” Further, the committee advised that “[b]ecause an attorney
who agrees to indemnify an opposing party will violate Rule 4-1.8(e), it is a violation for
another attorney to request or demand that an attorney enter into such an agreement. The
second attorney would violate Rule 4-8.4.” Id.

A North Carolina ethics committee advised that under Rule 5.1(b) of the North Carolina
Rules of Professional Conduct a lawyer for a personal injury client may not execute an
agreement to indemnify the tortfeasor’s liability insurance carrier against the unpaid liens
of medical providers as part of the settlement of the client’s claims. North Carolina State
Bar Assn. Op. 228 (1996).

A South Carolina ethics committee advised that “[a]n attorney may not agree to serve as
an indemnitor on behalf of her client to protect released parties in a settlement against
lien claims asserted by third parties regarding settlement proceeds.” South Carolina Bar,
Op. 08-07 (2008).

In Tennessee, an ethics committee noted that “[r]equiring a plaintiff’s lawyer to enter
agreements posed in the inquiry, particularly requiring that the attorney indemnify and/or
hold harmless any party being released or subrogation interest holder from medical
Op. 2011-1 6

expenses or liens, creates a conflict between the interests of the plaintiff’s attorney and
those of their client.” Tennessee SupCt, Board of Professional Responsibility, Op. 2010-
F-154 (2010). The committee advised that “an attorney cannot ethically agree to such
agreements and/or clauses.” The committee cited Rules 1.7(b), 2.1, 1.2 and 1.8(e). Id.

A Wisconsin ethics committee was asked: “Do any standards of professional conduct
preclude attorneys from proposing, demanding and/or entering into settlement
agreements that include indemnification and hold harmless provisions binding an
attorney to personally satisfy any unknown lien claims against the settlement funds or
property?” State Bar of Wisconsin, O. E-87-11. The committee advised that “inclusion
of such indemnification and hold harmless provisions in settlement agreements is
improper” under both the Code of Professional Responsibility and the Rules of
Professional Conduct for Attorneys. Id. “Accordingly, lawyers may not propose,
demand or enter into such agreements.” Id.

Conclusion

In conclusion, the Board advises as follows. It is improper for a plaintiff’s lawyer to
personally agree, as a condition of settlement, to indemnify the opposing party from any
and all claims by third persons to the settlement funds. Such agreements are not
authorized by Prof. Cond. Rule 1.15(d) and violate Prof. Cond. Rules 1.8(e) and
1.7(a)(2). Further, it is improper for a lawyer to propose or require, as a condition of
settlement, that a plaintiff’s lawyer make a personal agreement to indemnify the opposing
party from any and all claims by third persons to the settlement funds. Such conduct
violates Prof. Cond. Rule 8.4(a). The Board recommends that this advisory opinion be
prospective in application.

Advisory Opinions of the Board of Commissioners on Grievances and Discipline are
informal, nonbinding 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
Ohio Rules of Professional Conduct, the Ohio Code of Judicial Conduct, and the
Attorney’s Oath of Office.