UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER鈥橲 CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.
Ethics Advisory Opinion 91-25
(SEE ALSO OPINION 91-38) (10/91)
Facts:
A client retains an attorney to recover damages for bodily injuries against a third party for injuries sustained by the client in an automobile collision. After the client has signed a contract of representation agreeing to, under a contingency fee arrangement, pay one-third (1/3) of the amount recovered, the client's health insurance provider contacts the attorney. The health insurance provider informs the attorney that it is entitled to reimbursement for all medical expenses paid in behalf of the client, arising from the accident, pursuant to a subrogation clause in the health insurance contract. The health insurance provider then agrees, in writing, to pay to the attorney a contingency fee for collecting the amounts due to the health insurance provider under its subrogation clause from the liable third party.
Question:
Is it unethical, after having entered into a contract with the client for a one-third (1/3) contingency fee on amounts recovered, to then enter into a contract with the health insurance provider to collect the amounts due the health insurance provider under its subrogation clause of its health insurance policy with the client?
Summary:
In a case in which a plaintiff is contractually obligated to reimburse his/her health insurance provider from any recovery from a negligent third-party, it should not be unethical for the attorney to represent the health insurance provider to recover medical expenses on a contingency fee basis from the third party in conjunction with the plaintiff's case against the third party if the attorney complies with the provisions of Rule 1.7 and 1.8 by making full disclosure of all implications to both the plaintiff and health insurance provider and obtaining their consent to this representation.
Opinion:
In the question presented, the attorney is attempting to accept responsibilities to a third party other than the client. The interests of the client and health insurance provider are not directly adverse from the facts presented, since the plaintiff is contractually obligated to provide reimbursement to the health insurance provider for funds recovered from a negligent third party. Thus, this issue should be governed primarily by Rule 1.7 of Rule 407, SCACR, which reads as follows:
(B) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:
(1) The lawyer reasonably believes the representation will not be adversely affected; and (2) The client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implication of the common representation and the advantages and risks involved. Under normal circumstances, the agreement to represent the health insurance provider and the plaintiff should not impose a conflict which prohibits this arrangement. Typically, the interests of the plaintiff and health insurance provider are concurrent in the recovery of funds against the defendant. Nevertheless, situations may arise in which the plaintiff and health insurance provider have differing positions and the attorney must explain all risks and advantages to both. Both the plaintiff and health insurance provider want their interest protected by the attorney. Many health insurance providers attempt to obtain agreements with the plaintiffs attorneys such that the medical expenses are paid first out of any recovery. This may leave the plaintiff with little or no recovery. On the other hand, many plaintiffs attorneys attempt to negotiate down the health insurance provider's expense to improve the recovery to the plaintiff. Such positions are adverse, and the attorney cannot appropriately represent both parties without disclosing these possibilities to the plaintiff and the health insurance provider. The attorney is, in effect, representing co-plaintiffs who must share from one recovery (although the health insurance provider is not a named party). In cases of disputed liability or multiple causes of the plaintiff's injuries requiring treatment, the one recovery may not be sufficient to satisfy both parties. In such a case, both parties want their share first and may be unwilling to compromise. If such a potential conflict becomes actual, the attorney must examine his duty in regards to Rule 1.7. If his representation is adversely affected, then he should withdraw. As a general rule, the attorney may enter such an agreement to collect the amounts due to the health insurance provider if he explains fully the risks and implications and obtains the clients' consent. He must be careful to comply with the requirements of Rule 1.7. He must (1) reasonably believe that the representation will not be adversely affected; and (2) the client has to consent after consultation, which includes an explanation of the implications of the common representation and the advantages and risks involved. Since this situation is one in which interests of the plaintiff and the health insurance provider may be concurrent at the time of entering the agreement, but may become adverse at a later date, this possibility should be explained to both parties. It would be advisable to have both parties agree to arrangements for this contingency, including who has authority to settle the case and any division of compromise settlement. The attorney must also realize that loyalty is an essential element in the lawyer's relationship to a client. If such an agreement would impair the attorney's loyalty to his client or materially interfere with the lawyer's independent professional judgment, then consideration should be given whether the client wishes to accommodate the other interests involved. The attorney should make full disclosure and obtain the client's consent prior to entering this agreement. This agreement also leads to the possibility of a aggregated settlement of claims. Rule 1.8 states that a lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients unless each client consents after consultation, including disclosure of the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement. This issue should be resolved by disclosing and providing for all contingencies by agreement of the plaintiff and health insurance provider at the time the initial agreement to represent the health insurance provider is entered. If not, the attorney may find himself with conflicts in his duties to each client which could require his withdrawal, if the differing interests become actual. Under the circumstances presented, the attorney may be able to represent both the plaintiff and health insurance provider if the requirements of Rule 1.7 and 1.8 are satisfied. There must, however, be fully informed consent, and the agreement should be in writing. This opinion does not address the appropriateness of the lawyer collecting a fee from the health insurer in addition to the fee for the client.