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Due to mandatory insurer reporting of settlements with Medicare beneficiaries pursuant to Section 111 of the MMSEA ( see previous posts at http://www.thesettlementplan.com/post-detail.php?id=80 ; http://www.thesettlementplan.com/post-detail.php?id=85 and http://www.thesettlementplan.com/post-detail.php?id=110 ), many insurers are inserting indemnification clauses into settlement agreement and releases.  While reporting has been pushed back for most cases ( see post at http://www.thesettlementplan.com/post-detail.php?id=122 ), don’t expect to see defendants giving up on putting indemnification clauses into releases.  The NYC Bar opinion that was recently released addresses whether it is proper for defense counsel to request a plaintiff lawyer to sign off on a release with an indemnification clause.  It also addresses whether a plaintiff lawyer may sign off on a release agreeing to indemnify the defense.  The opinion concluded that it was improper conduct for defense counsel to request the plaintiff lawyer sign off on a release with indemnification by the plaintiff lawyer.  The opinion also concluded that a lawyer would be providing banned financial assistance to the plaintiff by agreeing to participate in indemnifying the defendant against any lien claims (including Medicare). 

The opinion states the following:

“Rule 8.4(a) provides that a "lawyer or law firm shall not . . . violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another."  N.Y. Prof’l Conduct R. 8.4(a) (2010).  In light of our conclusion that plaintiff's counsel may not agree to hold defendants harmless for performance of their payment obligations pursuant to a settlement agreement, it necessarily follows that defendants' counsel may not request such indemnification without violating Rule 8.4(a).  See Missouri Formal Op. 125 (2008).”

“Under this Rule [N.Y. Prof’l Conduct R. 1.8(e)(1) (2010)], a lawyer generally may not assist a client in meeting its financial obligations to third parties stemming from the settlement of litigation.  In the event of a settlement, a client's obligation to use settlement proceeds to satisfy a lien or other indebtedness is a personal obligation of the client, and, for purposes of the Rule, is indistinguishable from the client’s obligation to pay other expenses such as medical expenses or residential rent.  A lawyer's agreement to guarantee a client’s obligations to third party insurers to induce a defendant to settle thus amounts to “guarantee[ing] financial assistance to the client” in violation of Rule 1.8(e).”

The opinion also went on to find that a plaintiff lawyer in agreeing to indemnify the defendant regarding liens could potentially set up an impermissible conflict of interest situation.  The opinion concluded as follows:

“We therefore conclude that counsel to a settling plaintiff may not enter into a hold harmless/indemnity agreement for the benefit of settling defendants because such an agreement would both violate the prohibition against financial assistance under Rule 1.8(e) and create an impermissible conflict of interest in violation of Rule 1.7(a).”

In my opinion, the broad indemnification clauses being requested today by defendants regarding healthcare liens are completely inappropriate.  In addition, there typically is no consideration for such agreements and they are included after conclusion of settlement negotiations.  Inclusion of such a clause in the settlement agreement can set up a situation where a plaintiff lawyer may be exposed to a malpractice claim if there was ever a subsequent indemnification action since the client was not paid anything for that additional obligation and it probably wasn’t a negotiated term of the settlement.  While it is certainly improper for a lawyer to personally guaranty the indemnification obligation the plaintiff may agree to as part of a settlement, it may just be a bad idea to agree to such language in a release period. 

To view the full opinion click HERE