Can a Utah lawyer put an indemnification clause in a retainer agreement, and can the lawyer use it to make a client pay the lawyer's malpractice insurance deductible if the client's malpractice claim fails?

Plain-English summary

Opinion 18-04 answers two questions about an indemnification clause an attorney proposed to place in a retainer agreement at the start of representation. The clause would require the client to indemnify and hold the attorney harmless against any and all claims arising from the client's own acts, omissions, negligence, or willful misconduct.

On the first question, the Committee concludes the indemnification provision is not prohibited on its face. It distinguishes Rule 1.8(h), which limits a lawyer's ability to obtain an advance limitation of the lawyer's own liability for malpractice (allowed only if the client is independently represented), from a clause that shifts to the client the cost of third-party claims that arise from the client's conduct. The Committee cites secondary authority and out-of-state opinions (a New York opinion on an attorney indemnifying against a lessee's claims, and an Oregon opinion on a lawyer investigating a corporate employee) recognizing that a lawyer may seek a client's agreement to indemnify the lawyer for matters that do not constitute the lawyer's own malpractice.

On the second question, the Committee is more cautious. It observes that the average client may not understand indemnification or that the clause could make the client responsible for the attorney's malpractice insurance deductible if the client's malpractice claim fails. The Committee suggests that, for clarity, a lawyer consider an attorney-fees provision that plainly states which claims trigger the client's obligation, rather than an indemnification clause. While Rule 1.8(h) does not explicitly bar seeking the deductible (requiring payment for an unsuccessful claim does not, on its face, limit liability for malpractice), the Committee concludes that applying the provision to recover the deductible may chill a client's pursuit of a malpractice claim and so may be conduct prejudicial to the administration of justice under Rule 8.4(d). If a lawyer intends that use, the opinion states the lawyer should advise the client in writing of the advisability of seeking outside counsel about the provision and give the client time to do so.

In practice

Under this opinion, a Utah lawyer drafting a retainer agreement may include a clause requiring the client to indemnify the lawyer against third-party claims arising from the client's own conduct, and the opinion notes this is not barred on its face by the Rules. Per the opinion, a clause used to make the client pay the lawyer's malpractice insurance deductible after a failed malpractice claim is treated differently: the opinion concludes that use may be prejudicial to the administration of justice under Rule 8.4(d), and it states that a lawyer intending that use should advise the client in writing to seek independent counsel about the provision. The opinion was issued under the Utah rules as they stood in 2018; confirm the current text of Rules 1.8(h) and 8.4(d) before relying on any specific provision.

Common questions

Q: Can a Utah retainer agreement require the client to indemnify the lawyer?

A: For third-party claims arising from the client's own conduct, yes. The opinion concludes such a provision is not prohibited on its face, distinguishing it from an advance limitation of the lawyer's own malpractice liability, which Rule 1.8(h) restricts.

Q: Does Rule 1.8(h) block an indemnification clause for third-party claims?

A: No. The opinion reads Rule 1.8(h) as addressing prospective limits on the lawyer's liability to the client for malpractice (allowed only with independent representation), not a clause shifting the cost of claims by third parties that arise from the client's conduct.

Q: Can a lawyer use the clause to recover the lawyer's malpractice insurance deductible?

A: The opinion treats this as risky. It concludes that applying the provision to recover the deductible after an unsuccessful malpractice claim may chill the client's claim and be conduct prejudicial to the administration of justice under Rule 8.4(d); a lawyer intending that use should advise the client in writing to seek independent counsel.

Q: Does the opinion suggest a clearer alternative to an indemnification clause?

A: Yes. The opinion suggests a lawyer consider an attorney-fees provision in the engagement letter that plainly states which enumerated claims will make the client responsible for the lawyer's fees, which it views as easier for an average client to understand.

Background and rules framework

The opinion interprets two Utah Rules of Professional Conduct that track their ABA Model Rule counterparts. Rule 1.8(h) bars a lawyer from making an agreement prospectively limiting the lawyer's malpractice liability to a client unless the client is independently represented, and from settling a malpractice claim with an unrepresented client or former client without advising that person in writing to seek independent counsel. Rule 8.4(d) makes it professional misconduct to engage in conduct prejudicial to the administration of justice. The Committee frames the first question under Rule 1.8(h) and the second under both Rule 1.8(h) and Rule 8.4(d).

Citations and references

Rules of Professional Conduct:

• MR 1.8(h) / Utah RPC 1.8(h) (limiting malpractice liability; settling malpractice claims)
• MR 8.4(d) / Utah RPC 8.4(d) (conduct prejudicial to the administration of justice)

Other references:

• Hazard, Hodes & Jarvis, The Law of Lawyering 5.37 (2018)
• N.Y. State Ethics Op. 969 (2013) (lessor-client indemnifying attorney against lessee claims)
• Or. Formal Ethics Op. 2005-165 (client-employer indemnifying lawyer investigating an employee)

See also

• ABA Formal Op. 523: Engagement-Agreement Obligations and Withdrawal
• ABA Formal Op. 02-425: Arbitration of Fee Disputes and Malpractice Claims
• Utah Ethics Op. 18-05: Lawyer Employed by an RIA Firm

Source

• Landing page: https://www.utahbar.org/ethics-opinions/18-04/

Original opinion text

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

Issue

1. Is it permissible for an attorney to include an indemnification provision in a retainer agreement at the commencement of representation that requires the client to indemnify the attorney and related entities against third party claims that arise from the client's behavior or negligence?

2. Is it permissible, in response to a malpractice claim brought after the conclusion of the representation, for the attorney to use such an indemnification provision to hold a client responsible for the attorney's malpractice insurance deductible if the client does not prevail on the malpractice claim against the attorney?

Opinion

OPINION

3. An attorney may include an indemnification provision in a retainer agreement at the commencement of representation that requires the client to indemnify the attorney and related entities against claims that arise from the client's behavior or negligence.

4. An attorney may not participate in an agreement that limits the attorney's liability for malpractice. Although the proposed application does not limit explicitly limit the attorney's liability for malpractice, it could decrease the likelihood that a client will bring a claim for malpractice, if he or she will be required to pay the attorney's deductible if the claim fails, and thus has the potential to interfere with the administration of justice by having a chilling effect on a potential malpractice suit.

BACKGROUND

5. The Ethics Advisory Opinion Committee (the "Committee") has been asked to opine whether a retainer agreement signed at the commencement of representation containing the following indemnification provision is permissible under the Utah Rules of Professional Conduct:

Indemnification: Client shall indemnify and hold harmless [Attorney], it officers, employees, and agents from and against any and all liability, loss, expense (including reasonable attorney's fees) or any and all claims, lawsuits, demands, causes of action, liability, loss, injury and/or damage of any kind whatsoever (including without limitation all claims for monetary loss, property damage, equitable relief, personal injury or wrongful death), whether brought by an individual or other entity, or imposed by a court of law or by administrative action of any federal, state or local governmental body or agency, arising out of, in any way whatsoever, any acts, omissions, negligence, or willful misconduct on the part of the client.

6. The Committee has also been asked to opine whether, if the above indemnification provision is allowable, it could be used at the close of an unsuccessful malpractice claim against the attorney to hold a client responsible for the attorney's malpractice insurance deductible.

Discussion

DISCUSSION

7. The proposed indemnification provision is not specifically prohibited by the rules. Although Rule 1.8 of the Utah Rules of Professional Conduct addresses an attorney's prospective limitations to a client for malpractice, it does not address the specific question of whether an attorney may include an indemnification provision for claims brought by third parties. Rule 1.8(h) provides that a lawyer shall not:

1.8(h)(1) make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless the client is independently represented in making the agreement; or

1.8(h)(2) settle a claim or potential claim for such liability with an unrepresented client or former client unless that person is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel in connection therewith.

Under this rule, an attorney may obtain advance limitation on his or her liability for malpractice only if the client is advised in writing of the advisability of and provided the opportunity to seek separate counsel regarding the prospective limitation. There is no rule, however, that directly prohibits an attorney from obtaining a client's advance agreement to indemnify the attorney on matters that do not constitute legal malpractice. See Hazard, Hodes & Jarvis, Law of Lawyering 5.37 (2018) (citing example of attorney writing an opinion letter for a lessor-client that was to be provided to the lessee; attorney could require client to agree to indemnify the attorney for any claims brought by the lessee (citing N.Y. State Ethics Op. 969 (2013)); Or. Formal Ethics Op. 2005-165 (attorney asked to investigate corporate employee may seek indemnity from client-employer against subsequent claims by the employee against the lawyer). Therefore, the proposed indemnification provision is not prohibited on its face under the rules.

8. However, the Committee notes that the average client may not understand what indemnification is or in what specific circumstances it could be applied. Specifically, with respect to the second issue, the client may not understand that he or she may be responsible to pay an attorney's insurance deductible for the client's unsuccessful malpractice suit. For the sake of increased clarity, attorney should instead consider utilizing an attorney fees provision in the engagement letter that clearly sets forth that client will be responsible for paying attorney's attorney fees in specifically enumerated types of claim against the attorney. Such a provision would be preferable to the indemnification provision for the average client to ensure that the client understands that he or she may potentially be liable for attorney fees.

9. Likewise, Rule 1.8(h) does not explicitly bar an attorney from seeking payment of its malpractice insurance deductible. Requiring the payment for an unsuccessful malpractice claim, on its face, does not limit liability for malpractice.

10. However, the Committee notes that seeking to hold a client responsible for the attorney's malpractice insurance deductible may be misconduct under the rules. Rule 8.4(d) provides that it is misconduct to "engage in conduct that is prejudicial to the administration of justice." In this hypothetical situation, applying the provision to recover the attorney's deductible may have a chilling effect on a client's pursuit of a malpractice claim and would thus be prejudicial to the administration of justices. In light of Rule 8.4(d) and the potential for discouraging a client from bringing a malpractice claim against the attorney, if the attorney intends to apply the provision so that he or she will seek payment of his or her malpractice insurance deductible, the attorney should advise the potential client in writing of the advisability of seeking outside counsel regarding the provision and allow the client time to seek that counsel.