My client's health insurer paid her medical bills after her personal injury settlement, but it never asserted a lien or told the other side's insurer about a claim, and my client wants the settlement money now. Do I have to hold back funds for the health insurer?

Plain-English summary

The inquiring attorney settled a client's personal injury matter. The client's health insurer had paid most of the client's medical bills and had sent written inquiries asking whether a claim was being pursued against a third party, which the client did not answer. The health insurer never asserted a written lien regarding its subrogation rights, the settlement check from the third party's insurer did not name the health insurer as a payee, and the third party's insurer assured the attorney the health insurer had not notified it of any claim. The client insisted the settlement proceeds be turned over.

The panel first noted the attorney has a threshold obligation to advise the client about the client's rights and obligations under the health insurance contract as they relate to medical claims from the personal injury matter. Turning to Rule 1.15(b), quoted in full, the panel explained that a lawyer receiving funds in which a client or third person has an interest must promptly notify that person and promptly deliver funds the person is entitled to receive. Quoting the Comment to Rule 1.15 and treatise authority (Hazard & Hodes), the panel explained that a third party must have a "matured legal or equitable claim, such as a lien on specific funds," to trigger the lawyer's duty to segregate the funds pending resolution, and that where a lawyer has received notice of a third party's lien, the lawyer must hold the disputed amount absent the client's consent to payment, citing the panel's own General Informational Opinion 7 (1997). Because the health insurer here had not asserted a lien and the attorney had received no notice of any claim, and the client was insistent on receiving the funds, the panel concluded the attorney must disburse the settlement funds (less fees, expenses, and costs) to the client. The panel advised the attorney, before disbursing, to obtain the client's signature on a disbursement sheet or letter stating that no payment was made to the health insurer at the client's direction and that the insurer may seek reimbursement from the client directly.

In practice

The opinion holds that, under the Rhode Island rules as they stood at the time of the opinion, Rule 1.15(b)'s duty to protect a third person's interest in settlement funds is triggered by a matured legal or equitable claim, such as an asserted lien, of which the lawyer has notice; absent such notice, and where the client insists on receiving the funds, the lawyer must disburse the settlement proceeds to the client. The opinion also holds the lawyer has a threshold duty to advise the client about the client's rights and obligations under the health insurance contract before disbursing.

Common questions

Q: Do I have to hold back settlement funds every time a client's health insurer paid some medical bills?

A: Not automatically, according to this opinion. The Rule 1.15(b) duty to protect a third party's interest is triggered by a matured claim, such as an asserted lien, of which the lawyer has notice; without that notice, the panel found no duty to withhold funds.

Q: What should I do before disbursing the funds if there's any chance the insurer could later claim an interest?

A: The panel advised having the client sign a disbursement sheet or letter confirming no payment was made to the health insurer at the client's direction and noting the insurer may seek reimbursement from the client.

Q: What happens if the lawyer does receive notice of the insurer's lien before disbursing?

A: The opinion states that where a lawyer has received notice of a third party's lien, the lawyer must hold and protect the disputed amount, absent the client's consent to payment, until the dispute is resolved.

Q: Does the lawyer have any duty to the client about the health insurance contract itself?

A: Yes. The panel identified a threshold obligation for the attorney to advise the client about the client's rights and obligations under the health insurance contract as they relate to medical claims from the personal injury matter.

Background and rules framework

The opinion applies Rule 1.15(b) (Safekeeping Property), the Model Rule counterpart of the same number, quoted in full, which requires prompt notice and delivery of funds a client or third person is entitled to receive. The panel relies on the Comment to Rule 1.15 for the "just claims" and "duty under applicable law" standard, and on Hazard and Hodes' treatise for the "matured legal or equitable claim" formulation of when a third party's interest triggers the lawyer's duty to segregate funds.

Citations and references

Rules of Professional Conduct:

• MR 1.15(b) (Safekeeping Property) / RI Rule 1.15(b)

Other opinions cited:

• Rhode Island Ethics Advisory Panel General Informational Op. 7 (1997): a lawyer with notice of a third party's lien must hold disputed funds absent the client's consent to payment

See also

• Arizona Ethics Op. 97-02: Personal Injury Settlements, Creditors of Client
• ISBA Ethics Op. 06-01: Lawyer's Personal Guarantee to Pay Liens and Subrogation Claims

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%202007-02.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Final

                Rhode Island Supreme Court Ethics Advisory Panel
                     Opinion No. 2007-02 Request No. 926
                             Issued February 8, 2007

Facts:

    The inquiring attorney has settled a personal injury matter on behalf of a client.

The client's medical bills were paid in large part by the client's health insurer. The client
had received written inquiries from the health insurer but did not respond to the question of
whether a claim was being pursued against a third-party. The inquiring attorney states that
the health insurer has not asserted a written lien regarding its subrogation rights. The
settlement check issued by the third party's insurer does not include the health insurer as
payee. The third party's insurer has assured the inquiring attorney that the health insurer
has not notified it of a claim. The client insists that the settlement proceeds be turned over
to the client.

Issue Presented

   The inquiring attorney asks what his/her obligations are relative to the

disbursement of the settlement funds.

Opinion

     In this case where the client insists that the settlement proceeds be disbursed to the

client, and where the inquiring attorney has received no notice of a claim from the health
insurer, the inquiring attorney must disburse the settlement funds to the client.

Reasoning

    As a threshold matter, the inquiring attorney has an obligation to advise the client

about the client's rights and obligations pursuant to the health insurance contract as they
relate to medical claims resulting from the client's personal inquiry case. The inquiring
attorney must also consider a lawyer's obligations under Rule 1.15(b). The Rule states:

                 (b) Upon receiving funds or other property in which a
                 client or third person has an interest, a lawyer shall
                 promptly notify the client or third person. Except as
                 stated in this rule or otherwise permitted by law or by
                 agreement with the client, 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 and, upon request by the client or third
                 persons, shall promptly render a full accounting
                 regarding such property.

2007-02
Page 2 of 2

   The Comment to Rule 1.15 explains:

                Third parties, such as a client's creditors, may have
                just claims against funds or other property in a
                lawyer's custody. A lawyer may have a duty under
                applicable law to protect such third party claims
                against wrongful interference by the client, and
                accordingly may refuse to surrender the property to
                the client. However, a lawyer should not unilaterally
                assume to arbitrate a dispute between the client and
                the third party.

   Professors Geoffrey Hazard and William Hodes provide further guidance in

determining when a lawyer's obligation to third parties arises under Rule 1.15(b). They
have stated:
[The Comment] to Rule 1.15 uses the phrase "just claims"
and "duty under applicable law" to suggest that the third party
must have a matured legal or equitable claim, such as a lien
on specific funds, in order to trigger the lawyer's duty to hold
the funds apart from either claimant, pending resolution of the
dispute. Geoffrey C. Hazard, Jr. and W. William Hodes, The
Law of Lawyering § 19.6, at 19-12 (3rd ed., Supp. 2005-2).

   Thus, for example, where a lawyer in possession of a client's award or settlement

funds has received notice of a third party's lien, absent the client's consent to payment, a
lawyer would have an obligation to hold and protect the disputed amount until resolution.
See Ethics Advisory Panel General Informational Op. 7 (1997).

    However, such is not the case in the instant inquiry. The Panel concludes that in

this case where the client is insistent that the attorney turn over the settlement funds to
him/her, and where the inquiring attorney has received no notice of a claim from the health
insurer, the inquiring attorney must disburse the settlement funds (less any attorney's fees,
expenses and costs) to the client. Before disbursing the funds to the client, the inquiring
attorney is advised to obtain the client's signature on a disbursement sheet or letter that
includes statements to the effect that no disbursement was made to the client's health
insurer pursuant to the client's direction; and that the health insurer may seek
reimbursement from the client for payments for medical claims relating to the personal
injury matter.