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Settlement Agreements Requiring the Financial Assistance of Counsel: A New York City Bar Association Formal Ethics Opinion


Eric Friedman
(212) 382-6754
Kathryn Inman

Settlement Agreements Requiring the Financial Assistance of Counsel:
A New York City Bar Association Formal Ethics Opinion

New York, November 5, 2010 – A plaintiff’s counsel may not agree to hold a defendant harmless from claims arising out of the defendant’s payment of settlement consideration, and the defendant’s counsel may not ask plaintiff’s counsel to provide such financial assistance, according to a New York City Bar Association Formal Ethics Opinion.

The Committee addressed the situation where, before entry of final judgment in personal injury litigation, plaintiffs often seek financial assistance from workers compensation carriers, Medicaid, Medicare, or private insurance coverage. These entities may be entitled to be reimbursed by the plaintiff for any payments made to her in the event she obtains a damages award or settlement payment at the conclusion of the litigation, and therefore may seek to recoup any amount paid to plaintiff by defendant.
Defendants and their counsel who settle such cases generally are aware that payments made under the parties’ settlement agreement may be subject to the liens or claims of plaintiff’s insurance providers or other creditors and may demand, as protection against potential liability, that their settlement agreement stipulate that the settling plaintiff hold defendants harmless from any claims made by insurers or other creditors by reason of the settlement payments. Defendants may also demand that plaintiff’s counsel personally guarantee her client’s indemnification obligation and hold defendants harmless from any third party claims.
The Committee found that Rule 1.8(e)(1) of the New York Rules of Professional Conduct (the “Rules”) bears directly on the question of whether, and to what extent, an attorney may provide financial assistance to a client in connection with pending or contemplated litigation. The rule provides that “While representing a client in connection with contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to the client, except that . . . a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter….”

The Committee found that, “Under this Rule, 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).”

An agreement by plaintiff’s counsel to indemnify defendants for third party claims arising out of settlement payments also implicates Rule 1.7(a)(2), which provides, in pertinent part, that: “a lawyer shall not represent a client if a reasonable lawyer would conclude that . . . there is a significant risk that the lawyer’s professional judgment on behalf of a client will be adversely affected by the lawyer’s own financial, business, property or other personal interests.” A conflict may arise if plaintiff’s counsel is asked, as part of a settlement, to indemnify the defendant against liability to third parties for settlement payments made to plaintiff.
In light of the Committee’s 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).

The opinion may be read here.

About the Association
The New York City Bar Association (, since its founding in 1870, has been dedicated to maintaining the high ethical standards of the profession, promoting reform of the law and providing service to the profession and the public. The Association continues to work for political, legal and social reform, while implementing innovative means to help the disadvantaged. Protecting the public’s welfare remains one of the Association’s highest priorities.