When an insurance company mistakenly tenders a settlement check ten times the intended amount, must the plaintiff's lawyer disclose the apparent error?

Plain-English summary

A lawyer represented a plaintiff in a personal injury case. Before suit, he tried to settle with the insurance company. He demanded $20,000; the company offered $1,000; he countered at $10,000; the company countered at $1,400. The lawyer then wrote threatening suit unless the matter settled for $10,000, and the company tendered a check for $14,000. The lawyer asked whether he had an obligation to disclose the company's apparent error.

The committee concluded the attorney should disclose the apparent error to the company. It relied on ABA Informal Opinion 86-1518, in which the ABA opined that a client does not have a right to take unfair advantage of a scrivener's error that omitted an important provision from a contract. On these facts, the committee found it obvious that the insurance company had erroneously tendered a check with an extra zero. While the committee did not condone the company's tactic of tendering a check for an amount the client had already rejected (perhaps hoping the client would endorse it in error), it concluded that did not permit the attorney to engage in similar dishonorable behavior. Knowing the check was mistakenly tendered, the committee concluded the attorney's duty was to act with honesty and to avoid a possible fraud, citing SCRA 1986, Rules 16-102(D), 16-401, and 16-804(C).

Currency note

This opinion was issued in 1987, under the New Mexico Rules of Professional Conduct effective January 1, 1987 (SCRA 1986, Rules 16-102, 16-401, and 16-804). It predates the State Bar of New Mexico's November 3, 2008 revisions to those Rules (the New Mexico adoption of the ABA Ethics 2000 changes). Treat this page as historical context, not current guidance.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: If an insurer mistakenly overpays a settlement, must the plaintiff's lawyer say so?

A: The opinion concluded the lawyer should disclose the apparent error to the company, reasoning that knowing the check was mistakenly tendered, the lawyer's duty was to act honestly and avoid a possible fraud.

Q: Can the client keep the overpayment because the insurer made the mistake?

A: No. The committee, relying on ABA Informal Opinion 86-1518, concluded a client has no right to take unfair advantage of an obvious mistake such as a check tendered with an extra zero.

Q: Did the insurer's own questionable tactic change the analysis?

A: No. Although the committee did not condone the company tendering a check for an amount the client had already rejected, it concluded that did not permit the attorney to engage in similar dishonorable behavior.

Background and rules framework

The opinion applied the New Mexico Rules of Professional Conduct effective January 1, 1987: Rule 16-102(D) (a lawyer shall not counsel or assist a client in conduct the lawyer knows is criminal or fraudulent), Rule 16-401 (truthfulness in statements to others), and Rule 16-804(C) (conduct involving dishonesty, fraud, deceit, or misrepresentation). These correspond to current Model Rules 1.2(d), 4.1, and 8.4(c).

Citations and references

Rules of Professional Conduct:

• Rule 16-102(D) (SCRA 1986) (no counseling or assisting criminal or fraudulent conduct)
• Rule 16-401 (truthfulness in statements to others); Rule 16-804(C) (dishonesty, fraud, deceit, or misrepresentation)

Other opinions cited:

• ABA Informal Opinion 86-1518: a client does not have a right to take unfair advantage of a scrivener's error omitting an important contract provision

See also

• NM Ethics Op. 1987-5: Criminal Threats in Demand Letters

Source

• Landing page: https://www.sbnm.org/Leadership/Committees/Ethics-Advisory-Committee/Ethics-Advisory-Opinions
• Original PDF: https://www.sbnm.org/Portals/NMBAR/AboutUs/committees/Ethics/1987/1987-11.pdf

Original opinion text

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

Advisory Opinion 1987-11
An attorney asks whether he has an obligation to disclose to the opposing party its apparent error under the following circumstances. The attorney represents the plaintiff in a personal injury case. Prior to filing suit, the attorney attempted to settle with the insurance company. The attorney demanded $20,000. The company was willing to settle for $1,000. The attorney countered with a proposal for $10,000. The company countered with its own proposal for $1,400. The attorney wrote the company a letter, threatening suit unless the matter were settled for $10,000. The company tendered him a check for $14,000 in settlement of the matter.
It is the opinion of the committee that the attorney should disclose to the company its apparent error. The ABA Committee on Ethics and Professional Responsibility recently addressed a similar question. In ABA Informal opinion 86-1518, the committee opined that a client does not have a right to take unfair advantage of a scrivener's error in omitting an important provision from a contract.
Based on the facts of this attorney's case, it is obvious that the insurance company erroneously tendered a check with an extra zero. While we do not condone the insurance company's tactic of tendering a check in settlement for an amount which the client has already rejected (perhaps hoping that the client would endorse the check in error), we do not believe that this permits the attorney to engage in similar dishonorable behavior. Knowing that the check was mistakenly tendered, we believe that the attorney's duty is to act with honesty and to avoid a possible fraud. See SCRA 1986, Rules 16-102(D), 16-401, and 16-804(C).