Medicare indemnification request by defense counsel is unethical - Florida Bar Staff Opinion 30310

November 18, 2011
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A lawyer should not agree to personally indemnify an opposing party, as it violates Florida rules and a lawyer should not require that another attorney enter into an agreement to personally indemnify an opposing party, as that also violates Florida Rules of Professional Conduct. This was the finding of Florida Bar Staff Opinion 30310, issued on April 4, 2011.

The context for this opinion was "whether an attorney representing a plaintiff in a personal injury matter under a contingency fee agreement may personally sign a settlement release containing a hold harmless and indemnification agreement in favor of the opposing party which would obligate the plaintiff's attorney to indemnify and hold harmless the defendant for any future liability under the Medicare Secondary Payor Act ...'MSPA'."

Paraphrasing the opinion, it said that the Federal Government may recover past paid benefits and future medical expenses it may pay resulting from the injury to a plaintiff in some third party claims or litigation. Defendants and their insurance carriers must report to Medicare third party claims settlements. Damages may be recovered against the defense and plaintiff attorneys if the MSPA's requirements are not followed.

In workers' compensation claims, claimants must repay the Federal Government for past payments. Medicare is considered a secondary payer for any future medical expenses arising from that claim. Settlement proceeds are to pay for claim-related future medical expenses first, and a Medicare Set Aside "MSA" may be used for that purpose.

In third party actions, if the plaintiff does not repay Medicare for past expenses, or does not appropriately take Medicare's future interests into account, this may lead to liability for the defendant. Additionally, due to ambiguity on Medicare's part, it is not clear if an MSA is required for future medical expenses stemming from torts and third party actions. This has led some defense attorneys to request hold harmless and indemnification language to protect them, the defendant and the insurer from potential liability under the MSPA.

With the above as background, the question in front of the Florida Bar ethics counsel was, "May plaintiff's counsel, at the request of defendant's counsel, agree to hold harmless and indemnify a defendant from third party claims arising out of defendant's settlement payments to plaintiff, including a potential claim by Medicare resulting from liability under the Medicare Secondary Payor Act?"

The opinion considered several items.

1. Financial Assistance to Client. Under Rule 4-1.(e), an attorney cannot provide financial assistance to a client except for advancing court and case expenses and the attorney may pay for such expenses for an indigent client. The opinion found that the indemnification and hold harmless given by plaintiff's counsel is not a court cost or litigation expense and therefore it is prohibited by this rule.

2. Conflict of Interest - representation. The opinion found that it is a conflict of interest between plaintiff's counsel and the client to enter into such an indemnification agreement under Rule 4-1.7(a)(2). This is, "because it creates a substantial risk that the representation of the client would be materially limited by the lawyer's personal interest in not having to pay the client's debt."

3. Avoid being a party to client's settlement agreements. The opinion generally stated that unless the agreement covers the lawyer's release of a claim for legal fees, the lawyer should generally avoid being a party to a client's settlement agreement.

4. Violates ethics rules. The Florida opinion cites an Indiana ethics opinion which said, "in cases not involving Medicare and Medicaid, settlement agreements that require a lawyer to indemnify the opposing party violate ethics rules and [the Indiana opinion] did not answer whether that would be the case with Medicare and Medicaid settlement agreements."

5. Defense lawyer should not ask plaintiff's counsel to sign. Citing Rule 4-8.4(a) the opinion says that "a defendant's lawyer should not request that the plaintiff's lawyer enter into such an indemnification agreement." This rule says a lawyer shall not, "violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so though the acts of another."

The Florida Bar ethics counsel's conclusion that a lawyer should not agree to personally indemnify an opposing party and that a lawyer should not require another attorney to enter into an agreement to personally indemnify an opposing party, has some interesting practical possibilities.

One obvious item is how will Florida defense counsel now protect themselves, the defendant and the insurer from the possibility that a plaintiff may not pay back a Medicare lien and may not take Medicare's interests into account for future medical payments.

Also, it will be interesting to see the rationale that other state bar associations will use to when ruling on this same ethical question.

Here is a link to the full opinion. Download Florida Bar Staff Opinion 30310. 4-4-11. Unethical 4 DC to request indemnification on MSP from PC