A lawyer holds settlement funds in trust to pay a doctor the lawyer now believes defrauded the insurer. May or must the lawyer disclose, and how should the funds be disbursed?

Plain-English summary

A lawyer held funds in trust, received as part of a personal-injury settlement with an insurance company, intended to pay a doctor's bills. The lawyer came to believe the doctor had made numerous misrepresentations constituting fraud upon the insurer. The committee laid out a sequence:

• First, the lawyer must discuss the matter fairly with the client to determine whether fraud was in fact committed in this case.
• If fraud was committed, the lawyer must determine whether it is a material fact that, if not disclosed, would assist a criminal or fraudulent act by the client, which would violate RPC 4.1(b). If so, the lawyer could disclose the fact so far as permitted by RPC 1.6.
• If RPC 4.1(b) does not apply, the committee was of the opinion that the lawyer should disburse the funds as directed by the client, pursuant to RPC 1.14(b)(4).

The committee added that the lawyer should ask any client from whom consent should be obtained under RPC 1.6 for consent to reveal the fraud. If all affected clients did not consent and the client whose funds the lawyer held directed payment to the doctor, the lawyer must determine whether doing so would assist a criminal fraud (in which case RPC 4.1(b) would require disclosure), but if it would not assist a criminal fraud, then under RPC 1.6 the lawyer may not disclose it. Finally, if the lawyer determines it is a civil fraud, so that disclosure would not be permitted by RPC 1.6, the lawyer would have to disburse the funds at the client's direction. The committee noted that whether there is an ongoing and continuing criminal fraud is a legal question on which it could render no opinion.

Currency note

This opinion was issued in 1989, before the Washington State Bar Association's adoption of the 2006 revisions to the Washington Rules of Professional Conduct. In Washington's pre-2006 numbering, RPC 1.14 was the safekeeping-of-property rule, corresponding to ABA Model Rule 1.15. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance.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: Must the lawyer disclose the suspected fraud on the insurer?

A: Under this 1989 opinion, only if nondisclosure would assist a criminal or fraudulent act by the client; then RPC 4.1(b) requires disclosure, limited by RPC 1.6. For civil fraud, RPC 1.6 would not permit disclosure.

Q: How should the held funds be disbursed?

A: If RPC 4.1(b) does not apply, the lawyer should disburse the funds as the client directs under RPC 1.14(b)(4).

Q: Did the committee decide whether a crime occurred?

A: No. It said whether there is an ongoing and continuing criminal fraud is a legal question on which it could render no opinion.

Background and rules framework

RPC 1.6 (ABA Model Rule 1.6) protects client confidences. RPC 4.1(b) (ABA Model Rule 4.1(b)) requires a lawyer to disclose a material fact when necessary to avoid assisting a criminal or fraudulent act by a client, except where disclosure is prohibited by the confidentiality rule. RPC 1.14(b)(4), Washington's pre-2006 safekeeping rule corresponding to ABA Model Rule 1.15, governs delivery of funds the client is entitled to receive. The committee tied disbursement and disclosure together: the duty to disclose under 4.1(b) is bounded by what 1.6 permits, and absent a 4.1(b) duty, the lawyer disburses as the client directs.

Citations and references

Rules of Professional Conduct:

• ABA Model Rule 1.6 (confidentiality of information)
• ABA Model Rule 1.15 (safekeeping property)
• ABA Model Rule 4.1(b) (truthfulness in statements to others; disclosure to avoid assisting client crime or fraud)
• Washington RPC 1.6; RPC 1.14(b)(4); RPC 4.1(b)

See also

• WA Ethics Op. 1288: Disclosing a Court-Appointed Client's Eligibility Fraud
• WA Ethics Op. 1285: Confidences After a Joint Representation Ends in Litigation

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=367

Original opinion text

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

The Committee reviewed your inquiry concerning the disposition of funds that you hold in trust and were received by you as part of a personal injury settlement with an insurance company. Those funds were intended to pay bills of a doctor who you now believe has made numerous misrepresentations regarding his activities that constitute fraud upon the insurance company. The Committee was of the opinion that first, you must discuss this matter fairly with your client to determine in fact whether in this particular case fraud had been committed. If you determine that fraud has been committed, then you must determine whether that is a material fact that, if not disclosed, would assist a criminal or fraudulent act by your client, which would violate RPC 4.1(b). If so, then you could disclose the fact so far as permitted by RPC 1.6. However, if you determine that RPC 4.1(b) did not apply, then the Committee is of the opinion that you should disburse the funds as directed by your client, pursuant to RPC 1.14(b)(4).

The Committee was further of the opinion that you should ask any client from whom consent should be obtained pursuant to RPC 1.6 for consent to reveal the fraud. If all of the effected clients did not consent to disclosure of the fraud, and the client whose funds you hold directed that they be paid to the doctor, then you must determine whether to do so would assist a criminal fraud, in which case RPC 4.1(b) would require you to disclose it, but if it would not be assisting a criminal fraud, then pursuant to RPC 1.6 you may not disclose it.

Finally, the Committee was of the opinion that if you determine that it is a civil fraud and therefore disclosure would not be permitted by RPC 1.6, then you would have to disburse the funds at the direction of the client. The Committee noted that the question of whether there is an ongoing and continuing criminal fraud is a legal question on which it can render no opinion.