When a lawyer represents both an insurer and its insured, can the lawyer forward all settlement funds to the insurer and let the insurer decide how to split subrogation and the insured's uninsured losses?
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This page answers the general question as of 2016. Ezel answers yours: whether it's allowed on your facts, under the current Oregon Rules of Professional Conduct, with citations.
Plain-English summary
A lawyer represents both an insurer and an insured in an action against a third party for negligence. The insurer tells the lawyer that when settlement funds arrive, the lawyer must forward all of them to the insurer, and the insurer will then decide how much to keep as subrogation and how much to send the insured for uninsured losses. The opinion asks whether the lawyer may honor the insurer's request.
The opinion answers no. On these facts the lawyer has two clients, the insurer and the insured, so any settlement proceeds represent funds of both clients. The opinion applies Oregon RPC 1.15-1(d), which requires a lawyer to promptly deliver to a client or third person the funds that person is entitled to receive, and RPC 1.15-1(e), which requires a lawyer holding property claimed by two or more persons to keep it separate until the dispute is resolved and to promptly distribute the undisputed portions.
The opinion concludes the insurer is not "entitled to receive" the full settlement within the meaning of RPC 1.15-1(d). If the insurer and insured agree on how to divide the money, the lawyer must make the agreed division. If they do not agree, the lawyer must either retain the disputed sums pending resolution under RPC 1.15-1(e) or interplead the disputed funds. A footnote notes the tripartite-relationship assumption can be overcome by the particular facts, citing case law on when no such relationship exists.
In practice
The opinion holds that, under Oregon RPC 1.15-1 as it stood at the time of the opinion, settlement funds in which both an insurer client and an insured client claim an interest cannot be handed wholesale to one client to allocate. The analysis turns on the lawyer's duty to safeguard property claimed by two clients: the lawyer pays out what is undisputed, and holds or interpleads what is disputed. Verify the current text of Oregon RPC 1.15-1 before relying on any specific step.
Common questions
Q: My insurer client says to send all the settlement money to it and let it split with the insured. Can I?
A: No. The opinion concludes both clients have an interest in the funds, so the lawyer cannot forward everything to the insurer to allocate.
Q: What do I do with the settlement money instead?
A: Distribute the undisputed portions promptly. If the insurer and insured agree on the split, make that division; if they do not, hold the disputed sums in trust or interplead them under RPC 1.15-1(e).
Q: Does this assume the insurer is always my client?
A: No. The opinion notes the assumption of a tripartite relationship can be overcome by the specific facts, such as where the insurer did not hire the lawyer and the lawyer made clear she represented only the insured.
Background and rules framework
The opinion interprets Oregon RPC 1.15-1(d) and (e), corresponding to Model Rule 1.15, on a lawyer's duties when holding funds in which a client or third person claims an interest. The rule requires prompt delivery of funds a person is entitled to receive, separation of disputed property, and prompt distribution of undisputed portions.
Citations and references
Rules of Professional Conduct:
- Oregon RPC 1.15-1(d), (e) / Model Rule 1.15 (safekeeping property)
Cases:
- In re Howard, 304 Or 193, 743 P2d 719 (1987)
- In re Weidner, 310 Or 757, 801 P2d 828 (1990) (test for an attorney-client relationship)
- Evraz Inc., N.A. v. Continental Ins. Co., 2013 WL 6174839 (D Or 2013) (no tripartite relationship on those facts)
Other opinions cited:
- OSB Formal Ethics Op. No. 2005-30 (insurer-insured representation)
- OSB Formal Ethics Op. No. 2005-52 (disputed and jointly claimed funds)
See also
- OSB Ethics Op. 2005-52: Settlement Funds, Creditors, and the PIP Carrier
- OSB Ethics Op. 2005-30: Simultaneous Representation of Insurer and Insured
Source
- Landing page: https://www.osbar.org/ethics/toc.html
- Original PDF: https://www.osbar.org/_docs/ethics/2005-68.pdf
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