Can the lawyer appointed to represent a minor in a friendly suit to approve an injury settlement be paid directly by the defendant's liability insurer?

Plain-English summary

An insurance adjuster who had settled a minor's personal-injury claim with the unrepresented family would send the case to a lawyer to obtain court approval through a friendly suit, and would have the lawyer representing the minor and parents paid directly by the insurer so the negotiated settlement was not reduced. The inquiry asked whether the lawyer could accept that payment without violating the Rules of Professional Conduct.

The opinion concluded that the lawyer could. It relied on Rule 5.6, which allowed a lawyer to be paid by a source other than the client if (a) the client consents after full disclosure, (b) there is no interference with the lawyer's independent professional judgment or with the client-lawyer relationship, and (c) information relating to the representation is protected as required by Rule 4. The opinion emphasized, citing CPR 346, that a lawyer representing the minor and parents is bound by the duty of loyalty to represent the clients' best interests without regard to who pays for the services or the interests of that third party. If the lawyer reasonably believes the payment arrangement will adversely affect the representation, the lawyer must decline the employment, citing Rule 5.1(b)(1).

The second question, whether the lawyer could instead charge the family a flat rate that the insurer then adds to the settlement, was answered by reference to Opinion #1.

Currency note

This opinion was issued in 1994, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a liability insurer pay the lawyer who represents the minor in a friendly suit?

A: Yes. The opinion concluded that Rule 5.6 permits third-party payment of the lawyer's fee if the client consents after full disclosure, the lawyer's independent judgment and the client relationship are not impaired, and client information is protected.

Q: Does it matter that the payer is the opposing liability insurer?

A: The opinion required undivided loyalty. Citing CPR 346, it held the lawyer must represent the clients' best interests without regard to who pays or that third party's interests.

Q: When must the lawyer refuse the arrangement?

A: When it would compromise the representation. The opinion held that if the lawyer reasonably believes the payment arrangement will adversely affect the representation of the minor and family, the lawyer must decline the employment under Rule 5.1(b)(1).

Background and rules framework

The opinion applied North Carolina Rule 5.6, the third-party-compensation provision corresponding to Model Rule 1.8(f), which conditions outside payment on client consent, non-interference with the lawyer's judgment, and protection of confidential information under Rule 4 (the confidentiality rule corresponding to Model Rule 1.6). It also drew on the loyalty principle of CPR 346 and the decline-the-employment requirement of Rule 5.1(b)(1).

Citations and references

Rules of Professional Conduct:

• MR 1.8 (third-party payment of fees; subsection (f))
• MR 1.6 (confidentiality)
• North Carolina Rule 5.6; Rule 5.1(b)(1); Rule 4

Other opinions cited:

• North Carolina CPR 346 (loyalty without regard to who pays the lawyer)

See also

• NC Ethics Op. 2005 Formal Op. 12: payment of legal fees by third parties
• NC Ethics Op. RPC 170: joint representation of injured party and subrogated carrier
• NC Ethics Op. RPC 172: representation of an insured on a compulsory counterclaim

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-167/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Inquiry #1:

Attorney A frequently receives a case from an insurance adjustor who has negotiated a settlement of a minor's personal injury claim with the unrepresented family of the minor. Typically, the insurance adjustor will request that Attorney A obtain court approval of the settlement. Attorney A usually asks an attorney in private practice to represent the minor and his or her parents, if they also have a claim, in connection with a "friendly lawsuit" which is filed in the appropriate court for judicial approval of the minor's settlement. The attorney who is representing the minor is paid directly by the insurance company in order to avoid reducing the negotiated settlement amount. May the attorney who is representing the minor and the parents accept payment from the liability insurance company without violating any of the provisions of the Rules of Professional Conduct?

Opinion #1:

Yes. Rule 5.6 of the Rules of Professional Conduct allows a lawyer to be paid from a source other than the client provided the following conditions are met:

(a) The client consents after full disclosure;

(b) There is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and

(c) Information relating to representation is protected as required by Rule 4.

When a lawyer undertakes to represent a minor and his or her parents under the circumstances described in Inquiry #1, he is bound by the duty of loyalty to represent the best interests of his clients "without regard to who is actually paying for [his] services or the interests of such other third party or entity." CPR 346. If the lawyer reasonably believes the payment arrangement will adversely affect his representation of the minor and the minor's family, the lawyer must decline the employment. See Rule 5.1(b)(l).

Inquiry #2:

If it is unethical to accept a legal fee paid by the insurance company outside of the settlement, is it ethical for the attorney representing the minor and the parents to charge a flat rate to the family for his services in aiding the approval of the minor's settlement and then allow the insurance company to add the amount of that flat rate to the total settlement so that the amount received and retained by the minor and the parents is the same as the amount for which they originally negotiated?

Opinion #2:

See Opinion #1 above.