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Hold Harmless Agreements

I recently was asked by an insurance adjuster to sign a “hold harmless” agreement. This involved a settlement of a personal injury case, and by signing the hold harmless agreement, I would be personally guaranteeing that all liens and obligations of the client would be paid for. This brought to mind a similar argument my brother and I had with a lawyer some 20 years ago. At settlement, the attorney was insistent that we sign the hold harmless agreement to insure payment of bills and liens in behalf of the client. He told us “you are the only lawyers who refuse to sign and everyone else willingly signs the hold harmless agreements.” My brother who I practiced with, brought this to my attention, and my first reaction was that such a hold harmless agreement was unethical for us to sign, as it gave us a proprietary stake in the client’s case, something specifically, the ethical rule demanded that we not do. I was specifically referring to SCR 20:1.8 (3) (i), which states that “A lawyer shall not acquire a proprietary interest in the cause of action of subject matter of litigation the lawyer is conducting for a client.”

I suggested we write to the state ethics committee for an opinion on whether it is unethical for a lawyer in Wisconsin to sign such a hold harmless agreement. The answer is yes, it is unethical and further, it is arguably unethical for the lawyer to have suggested that we be required to sign such an agreement, and the ethics committee issued a written ethical advisory under E-87-11. The full decision follows:
E87-11 Settlements: Attorneys as parties to as guarantors against lien claims.
Question- Do any standards of professional conduct preclude attorneys from proposing, demanding and/or entering into settlement agreements that include indemnification and hold harmless provisions binding an attorney to personally satisfy any unknown lien claims against the settlement funds or property?
Opinion- Under both the Code of Professional Responsibility (repealed effective Jan. 1, 1988) and cited herein as “SCR 20.”) and the Rules of Professional Conduct for Attorneys (created effective January 1, 1988) and cited herein as Rules or “SCR 20:”}, inclusion of such indemnification and hold harmless provisions in settlement agreements is improper. Accordingly, lawyers may not propose, demand or enter into such agreements.

The primary ethical problem with conditioning a settlement agreement on a lawyer’s becoming a guarantor against lien claims is that the lawyer’s interests are placed clearly at odds with his or her clients. Although the US. Supreme Court’s holding in Evans v. Jeff D., 106 S. Ct. 1531 (1986), suggest that settlement proposals may sometimes legally and ethically drive such a potential wedge between attorney and client, this committee concurs with other bar association ethics committees in holding that it is unprofessional conduct to enter into or to propose such agreements, at least in contexts other than the 1976 Civil Rights Attorneys Fees Act, which was at issue in Evans, supra. See, e.g. District of Columbia Opinion 147 (1/24/85): New York City Opinion 82080 (reaffirming Opinion 80-94).

In addition, both the code and Rules narrowly circumscribe the extent to which lawyers may acquire a financial interest in representation for which they are responsible. See generally SCR 20.26 and SCR 20:1.8. Neither the Code nor Rules expressly or, in the committee’s opinion, implicitly sanctions the usage of such indemnification and hold harmless provisions. In summary, we conclude that a lawyer’s participating in settlement agreements incorporation such provisions would constitute a prohibited acquisition of a financial (although potentially negative) interest in the cause of action or subject matter of the litigation that the lawyer is conducting, as well as an improper advance of financial assistance to a client. See SCR 20:26 and SCR 20:1.8(e) and (j).

It took 25 years for this issue recently to arise in our office. Granted, the person suggesting it wasn’t an attorney, but rather, an insurance adjuster and wasn’t in the State of Wisconsin, but the point of the insurance adjuster “demanding” that I should personally promise to pay liens and obligations of the client, would run contrary to my ethical responsibilities to my client. I cannot and will not sign such a hold harmless agreement. I won’t be intimidated or pushed around by the insurance company adjuster anymore today, than the insurance defense attorney tried to do to us 25 years ago. Sometimes, you just have to stand up and fight back as hard as you can at the insurance company for trying to push you around.

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