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Ethical Concerns & Malpractice Liability

The ABA Model Rules and Ethical Obligations to Advise the Personal Injury Client

            Unfortunately for many injury victims, their personal injury lawyers are fantastic at obtaining great monetary results in the litigation and consulting with them on the value of their case but when it comes time to properly protecting them financially post-settlement or recovery they often fail to offer any advice at all.[1]  For personal injury victims there is usually a focus on the dollar amount of the recovery rather than how the recovery can be structured to provide protection to the disabled injury victim.[2]  The concentration of substance over form by the lawyer handling the physical injury suit can prove to have devastating consequences for an injury victim.  A disabled injury victim can mismanage their personal injury recovery and lose the public benefit eligibility they desperately need.[3]  The question therefore arises does a lawyer have an ethical obligation to advise a client a disabled client regarding the form of their recovery?  Does the lawyer have an ethical duty to explain the impact of a personal injury recovery on public benefits and techniques to protect eligibility?  Below I examine the ethical rules, statutes and case law in an attempt to shed some light on potential answers to these questions.

There are four provisions within the ABA Model Rules of Professional Conduct that are particularly relevant to the personal injury lawyer’s advisement obligations when it comes to consulting on the form or structure of disabled injury victim’s recovery.  Rule 1.4 (b) provides:  “A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions . . . .”[4]  Rule 1.3 states: “A lawyer shall act with reasonable diligence and promptness in representing a client.”[5]  The commentary warns: “A client’s interests can be adversely affected by the passage of time.”[6]  1.2 (a) admonishes that:  “A lawyer shall abide by the client’s decisions concerning the objectives of representation . . . and shall consult with the client as to the means by which they are to be pursued.”[7]  Rule 1.2 also says “a lawyer shall abide by the client’s decision whether to settle a matter.”[8]  Finally, Rule 2.1 indicates:  “In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client’s situation.”[9]

            Many personal injury practitioners seem to believe that advice regarding financial matters and techniques to preserve public benefit eligibility crosses the line between legal and “financial” advice.  However, as I will discuss more thoroughly below, these issues touch on the law and do create an obligation on the part of the personal injury practitioner to properly advise the client regarding their implication as to the form or structure of the recovery.  If you take the Model Rules together with the legal malpractice case law discussed below, it is this author’s opinion that the personal injury lawyer must address the financial implications of the settlement and impact on public benefit eligibility with the injured client to enable the client to make an informed decision about the form of the settlement.  Allowing a disabled client to take the personal injury recovery in a single lump sum without any advice on the impact of that decision would set up a situation where the client could be adversely impacted by the passage of time. 

Malpractice Liability for Failing to Advise Injury Victim Clients

                The Grillo[10] case from Texas is the most widely publicized legal malpractice settlement involving liability for failing to counsel a minor client on the form of a personal injury settlement.  Christina Grillo was born with Cerebral Palsy, cortical blindness and quite a few other medical problems.[11]  Her parents instituted a medical malpractice action alleging her medical problems were due to negligent medical care during delivery in a Texas Hospital.  The medical malpractice case was settled for $2.5 million.[12]  The settlement was placed into the court registry.[13]  The interest earned from the investments in the trust was taxable and the child lost her Medicaid eligibility since no special needs trust was established.[14] 

The personal injury lawyers who handled the case were later sued for legal malpractice for their handling of the settlement.  According to the lawyer representing Christina Grillo in the legal malpractice action, Kevin Isern, the personal injury lawyers representing Christina “didn’t offer a structured settlement to the child and “[t]hey had the money deposited into the registry of the court . . .  and she lost Medicaid.”[15]  Having the money placed in the court registry meant Christina Grillo could not have a tax-free structured settlement and all of the accrued interest was taxable.  Isern pointed out that “[i]n a structured settlement, that does not occur.”[16]  He also pointed to the fact that the lawyers also failed to set up a special needs trust which would have preserved her Medicaid eligibility.[17]  Finally, Isern pointed out that in the Grillo case “[y]ou have a child who has all these needs, requires 24-hour care and has no government assistance to help pay for it.  She got taxed on all the money she gained.”[18]

The Grillo legal malpractice case was settled by the personal injury firm that handled the medical malpractice action on behalf of the minor and by the guardian ad litem (“GAL”) who had represented the minor’s interests when the settlement was approved. [19]  The personal injury firm settled the legal malpractice action for its handling of the medical malpractice settlement for $1,600,000.  Interestingly, the suit against the GAL was settled for $2,500,000.  For attorneys that serve as guardian ad litems with any frequency, it is attention grabbing that the GAL wound up with the largest share of the liability in terms of the gross settlement amount.  However, it sends a clear warning message to personal injury lawyers as well as guardian ad litems about their obligations to properly advise a client about the financial options they have and preservation of public benefits. 

The only other reported decision regarding suit over failing to give advice about the form of settlement is the French v. Glorioso decision.[20]  In French, the injury victim, Karen French, was shot during a robbery attempt at a parking garage in New Orleans and was rendered a quadriplegic.[21]  She brought suit against the owners of the parking garage on a negligent security cause of action.[22]  At the time of the shooting she was covered by a group health care plan but subsequently lost the coverage and was dependent on Medicaid.  The case was settled in November of 1998.[23]  In July of 1999, French consulted an attorney about setting up a special needs trust.  The attorney advised her that she would lose her Medicaid eligibility since the settlement was deposited into the plaintiff attorney’s trust account.[24]  Following this discovery, French brought suit against the personal injury lawyer for legal malpractice, negligent misrepresentation, breach of contract and breach of fiduciary duty.[25] 

Ultimately the French case was not decided upon the merits of her claim against her personal injury attorney but instead on a personal jurisdiction issue.[26]  Ms. French hired a Texas lawyer to handle the claim who in turn associated with local Louisiana counsel since suit needed to be filed in Louisiana.[27]  The legal malpractice action was brought in Texas against the Louisiana attorney which raised personal jurisdiction issues.[28]  There appeared to be some factual dispute between French and her personal injury attorney over what had been recommended in terms of setting up a special needs trust but it again demonstrates the potential malpractice liability for failing to properly and fully advise clients about the impact of the settlement on their financial situation and public benefit eligibility.[29]

Finally, the American Bar Association released its report on the Profile of Legal Malpractice Claims in 2003 and personal injury lawyers made up the largest percentage of malpractice claims, twenty percent.[30]  Advice and settlement/negotiation made up over twenty three percent of the claims overall.[31]  When those two categories are combined they are tied for first in terms of the highest claims by type of activity in the study.[32]  While the report does not specify, it is logical to conclude that claims of failing to give advice about financial options, taxation of damages and preservation of public benefits would squarely fall within the purview of advice as well as settlement/negotiation malpractice claims.