When a lawyer's work gets a client's no-fault insurer to pay the client's hospital bill, can the lawyer charge the hospital a fee even though the hospital is not the lawyer's client?
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This page answers the general question as of 1982. Ezel answers yours: whether it's allowed on your facts, under the current Michigan Rules of Professional Conduct, with citations.
Plain-English summary
A client injured in an auto accident retained a lawyer on contingency to recover no-fault benefits. In one situation, the client's insurer voluntarily paid no-fault damages, including reimbursement for hospital-advanced medical expenses, on the lawyer's claim submission. In another, the insurer initially denied coverage and the lawyer obtained benefits, including hospital expenses, only after considerable negotiation and submission of evidence. The lawyer asked whether the lawyer could charge the hospital a fee where the insurer's payments benefited the hospital.
The opinion grounded its answer in MCPR DR 2-106, which barred illegal or clearly excessive fees, and in the principle that a lawyer's right to a fee rests on a lawyer-client relationship, which is a contractual undertaking. It concluded that for benefits the insurer paid voluntarily, where no express lawyer-client relationship existed between the hospital and the lawyer, charging the hospital a fee was clearly unethical. It drew a distinction for "involuntary" payments, meaning where the carrier denied a proper claim and the lawyer's considerable professional effort produced the recovery. In that case the hospital appeared as a third-party beneficiary of the lawyer's work, and the opinion concluded it would not be unethical to charge the hospital a reasonable fee even without an express agreement, provided the lawyer first notified the hospital in writing of the contemplated action likely to benefit it and gave it a reasonable opportunity to advise that it wished to pursue its interests without the lawyer's help. Failure to respond could be treated as acquiescence, supporting the fee on an employment or third-party-beneficiary theory; in any controversy, the lawyer bore the burden of proving the right to a fee.
Currency note
This opinion was issued in 1982 under the former Michigan Code of Professional Responsibility (MCPR), which the Michigan Supreme Court replaced with the Michigan Rules of Professional Conduct effective October 1, 1988, and amended further thereafter. The disciplinary rule it construes (MCPR DR 2-106) is no longer in force, and Michigan no-fault law has since changed. Treat this page as historical context, not current guidance. Verify against current rules and statutes before relying on any specific rule or requirement mentioned here.
Common questions
Q: Can a lawyer charge a hospital for no-fault money the insurer paid on its own?
A: The opinion concluded no. Where the insurer paid voluntarily and no lawyer-client relationship existed between the hospital and the lawyer, charging the hospital a fee was clearly unethical.
Q: When could the lawyer charge the hospital?
A: The opinion concluded a lawyer may charge a reasonable fee where benefits were obtained involuntarily, meaning after the carrier denied a proper claim and the lawyer's considerable effort secured the recovery, making the hospital a third-party beneficiary.
Q: What must the lawyer do first before charging in the involuntary situation?
A: The opinion concluded the lawyer must first notify the hospital in writing of the contemplated action likely to benefit it and give it a reasonable opportunity to decline the lawyer's assistance.
Q: Who has to prove the lawyer is owed a fee?
A: The opinion concluded that in any controversy over the fee, the burden of proof to establish the right to collect rests with the lawyer.
Background and rules framework
The opinion applied MCPR DR 2-106, the predecessor of today's Michigan rule on fees (the analogue of Model Rule 1.5), barring illegal or clearly excessive fees, and rested on the contractual nature of the lawyer-client relationship as the foundation of the right to charge a fee.
Citations and references
Rules of Professional Conduct (as cited):
- MCPR DR 2-106 (illegal or clearly excessive fees)
See also
- Mich Ethics Op. RI-304: contingent fee for a conservatorship partly paid from a facility's recovery
- Mich Ethics Op. RI-296: charging fees on withdrawal and grievance responses
- Mich Ethics Op. RI-293: third-party payment of a client's fees with conditions
Source
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
C-226
September, 1982
SYLLABUS
It is unethical for a lawyer to charge a hospital a fee for medical payments voluntarily paid by a client's no-fault insurance carrier under circumstances where no lawyer-client relationship exists between the hospital and the lawyer.
It is not unethical for a lawyer to charge a hospital a reasonable fee for medical payments involuntarily paid by the client's no-fault insurance carrier even if there is no express lawyer-client relationship between the hospital and the lawyer, provided that the hospital is first notified in writing of the lawyer's contemplated legal action, giving the hospital a reasonable opportunity to advise the lawyer that it wishes to pursue its interests in the matter without the assistance of the lawyer's legal service.
References: MCPR DR 2-106.
TEXT
A client injured in an automobile accident consults and retains a lawyer to recover no-fault damages on a contingency fee basis. One of two situations may arise. First, upon the submission of the appropriate claim by the lawyer, the client's insurance carrier may voluntarily pay no-fault damages, including reimbursement for medical expenses advanced by the hospital on the client's behalf, by draft payable to the client, the lawyer and the hospital, or some combination thereof. Alternatively, the client's insurance carrier may initially deny coverage. However, following considerable professional service on the client's behalf by way of negotiations and submission of documentary evidence to support the legitimacy of the claim, the lawyer is successful in obtaining benefits, including reimbursement of hospital expenses incurred on behalf of the lawyer's client.
In the event the no-fault insurance carrier makes payments on the claim, some of which payments enure to the benefit of the hospital, the lawyer asks whether the lawyer may charge the hospital a lawyer fee for the services undertaken.
MCPR DR 2-106 states:
"(A) A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee."
While the committee has no authority to express opinions on substantive or procedural aspects of the law, the committee recognizes that the establishment of a lawyer-client relationship is a contractual undertaking. Accordingly, it is fundamental that the lawyer's right to charge a fee for services is founded in the establishment of a lawyer-client relationship.
It is clearly unethical for a lawyer to charge the hospital a fee for medical payment voluntarily paid by the client's no-fault insurance carrier, under circumstances where no express lawyer-client relationship exists between the hospital and the lawyer.
However, there is a distinction between benefits "voluntarily" paid and benefits "involuntarily" paid. "Involuntary" is understood to mean a situation where the insurance carrier has denied the rights to benefits after submission of a proper request for payment, and the lawyer is compelled to extend considerable professional service on the client's behalf, which efforts result in the payment of damages by the carrier, including a recovery for expenses incurred by the hospital on the client's behalf.
In the case of involuntary payment, the hospital assumes the appearance of a third-party beneficiary of the lawyer's time and effort. In this case it would not be unreasonable or unethical to permit the lawyer to charge the hospital a reasonable fee in the absence of an express lawyer-client agreement, provided that the hospital is first notified in writing of the lawyer's contemplated legal action which is likely to benefit the hospital, and the hospital is given a reasonable opportunity to advise the lawyer that it wishes to pursue its interests in the matter without the lawyer's assistance.
Failure of the hospital to respond to the notice may be interpreted as its acquiescence in the lawyer's representation of the hospital's interests, establishing the lawyer's right to a reasonable fee either on the basis of an employed lawyer-client relationship or a third-party beneficiary theory.
In the event of a controversy between the hospital and the lawyer over the lawyer's claim for compensation, the burden of proof to establish a right to collect a fee properly rests with the lawyer.
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