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Draft LEO: Plaintiff is not required to indemnify liens

Issue arises often over Medicare

Trial lawyers are cheering and the defense bar and at least one corporation are booing a proposed Legal Ethics Opinion on lawyers’ obligations for unpaid liens in personal injury cases.

LEO 1858, as drafted, says it is unethical for a plaintiff’s lawyer to indemnify an insurance carrier against any unpaid liens; moreover, it says an insurance company lawyer is wrong even to ask for indemnity.

The issue arises in the unsettled area of Medicare lien practice, where insurance companies and lawyers on both sides of personal injury claims fear exposure for unpaid government obligations. As the federal bureaucracy assembles a regulatory structure to enforce its reimbursement rights, players in the personal injury field are exploring ways to avoid unexpected liability.

In one such effort, insurance companies have begun to demand indemnity from plaintiffs’ attorneys for any possible unpaid Medicare liens. “It is something our members are facing more and more,” said Jack Harris, executive director of the Virginia Trial Lawyers Association.

Plaintiffs’ lawyers have balked – one even obtained a circuit court order denying an insurer’s request for indemnity in a case involving Medicare payments for accident-related treatment.

In that 2010 case, Richmond Judge Walter W. Stout III ordered a plaintiff’s lawyer to set aside some of the settlement funds in escrow and to confirm payment of Medicare’s demand, but he refused to order the lawyer to indemnify the insurance company paying the settlement.

The proposed LEO would give comfort to the plaintiffs’ bar, but lawyers on the defense side say it ignores the nuances of the Medicare issue – indeed, the draft LEO does not even mention Medicare.

“I suggest that before the Virginia State Bar wades into this issue, it should investigate all issues involved,” wrote Richmond lawyer Michael R. Ward. Ward represented the insurance company seeking indemnity in the 2010 Richmond case, but he commented to the VSB on his own behalf as a personal injury practitioner.

Ward said many settlement agreements already impose lien payment duties on the plaintiff’s lawyer. “This LEO threatens all of these,” he said.

Also opposing the conclusion of the draft LEO were the Richmond law firm of Sands Anderson and Norfolk Southern Corporation. A memorandum from Sands Anderson concluded indemnification by plaintiffs’ counsel would create no new ethical conflicts because of the existing common law duty to pay third parties with legitimate claims. “The requirement for indemnification only makes that duty explicit,” the Sands Anderson memo read.

Similarly, Norfolk Southern complained the draft LEO speaks of “liens” in a general sense, without acknowledging federal laws and regulations expressly obligating plaintiffs’ lawyers to ensure repayment of government benefits. Norfolk Southern urged recognition of those obligations in the language of the LEO.

The Virginia Association of Defense Attorneys chimes in to an extent, saying the LEO ignores the difficulties of settling cases when Medicare is involved. Nevertheless, the VADA concedes a plaintiff’s lawyer cannot be made to indemnify an insurer for potential lien liability.

The VADA’s comment points out the difficulties of settlement when Medicare has paid doctor bills. Medicare will not specify its final demand for reimbursement until there has been a final settlement. That policy puts parties in a “Catch-22 situation” of either not settling or facing the risk of exposure to an “unknown and potentially significant” obligation.

The plaintiff is in a better position to judge the risk, argues the VADA. “[D]efendants are often left in the dark regarding a very crucial piece of the settlement puzzle,” read the VADA comment.

While the VADA concurred with the proposed LEO, the group urged cooperation to find ways to make the settlement process work. The VADA comment suggested written promises, such as a letter of protection, might serve a similar purpose.

The defense lawyers’ statement said all parties should “work together to figure out a payment structure that works for everyone so there is true meeting of the minds and an enforceable settlement.”

The LEO gets nearly unqualified endorsement from the VTLA. Harris wrote that demands for indemnity put the plaintiff’s lawyer in an “untenable position.” The VTLA welcomed the conclusion that such language cannot ethically be included in a settlement agreement.

VSB officials say the comments will be considered by the Standing Committee on Legal Ethics when it meets in July.

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