I settled a client's personal injury case and the client has unpaid medical bills, but no lien was filed. I told the hospital it would be paid from the recovery. Do I have to notify and protect the hospital under Rule 1.15?

Plain-English summary

The inquiring attorney represented a client in a personal injury matter and asked, under Rule 1.15(a) and (b), whether the attorney could forward the settlement money to the client knowing the client had outstanding medical expenses. Neither the hospital nor the surgeon had asserted a lien. The client was in dire need of funds, and the attorney believed the client would not pay the medical providers if given the money. When the hospital telephoned to check on the case, the attorney told it that payment of the outstanding bills was contingent upon a "successful" outcome; the attorney believed that, given the injury and the client's inability to work, the net recovery could not be viewed as a successful recovery.

The Panel set out Rule 1.15 ("Safekeeping Property"). Rule 1.15(b) requires a lawyer in possession of funds in which a client or third person has an interest to promptly notify that person and to promptly deliver any funds the client or third person is entitled to receive. Rule 1.15(c) requires that where the lawyer and another person both claim an interest, the property be kept separate until an accounting and severance of interests, and that any disputed portion be kept separate until the dispute is resolved. The Panel also quoted the Comment noting that third parties such as creditors may have just claims and that a lawyer should not unilaterally arbitrate a dispute between client and third party.

Applying these provisions, the Panel found that the attorney undertook a duty to the hospital when he or she made assurances of payment upon a successful outcome, creating reliance by the hospital. Because the attorney had notice of the outstanding bills and had promised to pay them from the settlement proceeds, the attorney was obligated under Rule 1.15(b) to promptly notify the hospital upon receipt of the funds. The Panel added that if the client refuses to disburse the funds, the attorney should counsel the client regarding the obligation to protect the hospital's interest, and that if the client disputes the amount owed or the attorney's authority to have undertaken the obligation, the disputed portion should be held in escrow pending resolution, arbitration, or interpleader.

Currency note

This opinion was issued in 1994 (Opinion 94-46, issued July 27, 1994), after the Rhode Island Supreme Court adopted the Model Rules of Professional Conduct effective November 15, 1988, and it applies Rule 1.15 as originally adopted. The Rhode Island Supreme Court later revised the Rules of Professional Conduct in 2007 as part of the nationwide Ethics 2000 process, which amended Rule 1.15. 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 mentioned here.

Common questions

Q: If no lien is filed, can I just pay the settlement to my client and let the client handle the medical bills?

A: On these facts the Panel said the attorney had undertaken a duty to the hospital by assuring it of payment, so Rule 1.15(b) required prompt notice to the hospital upon receiving the funds rather than simply disbursing to the client.

Q: What created the lawyer's obligation to the hospital?

A: The Panel found the attorney undertook a duty when he or she promised payment contingent on a successful outcome, creating reliance by the hospital; combined with notice of the bills, that triggered the Rule 1.15(b) notification duty.

Q: What happens if the client and the hospital dispute the amount owed?

A: The Panel stated the attorney should counsel the client on protecting the hospital's interest, and that a disputed portion should be held in escrow pending resolution, arbitration, or interpleader.

Background and rules framework

The opinion interprets Rhode Island Rule of Professional Conduct 1.15 (safekeeping property), the analog of Model Rule 1.15. Rule 1.15(b) imposes duties to notify and promptly deliver funds to a client or third person entitled to them; Rule 1.15(c) requires that property claimed by both the lawyer and another be kept separate, with disputed portions held until the dispute is resolved. The Panel treated the attorney's assurance of payment as the source of the hospital's cognizable interest.

Citations and references

Rules of Professional Conduct:

• MR 1.15 / RI RPC 1.15(b), (c) (safekeeping property; duty to notify third persons with an interest and to hold disputed funds separate)

See also

• RI EAP Opinion 94-42: no client list to the firm's bank under Rule 1.6
• RI EAP Opinion 94-33: waiving costs against a client's recovery under Rule 1.8(e)

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2094-46.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

ETHICS ADVISORY PANEL
OPINION #94-46 REQUEST #513
Issued July 27, 1994

The inquiring attorney requests an opinion regarding the obligations imposed upon his/her situation pursuant to Rule 1.15(a) and (b). The attorney asks whether an attorney who represents a client in a personal injury matter can forward money recovered in the settlement to the client knowing that the client has outstanding medical expenses. The attorney states that neither the hospital nor the surgeon asserted a lien. The attorney knows that the client is in dire need of funds and believes that the client will not pay the medical care providers if the money is provided to him/her. The hospital telephoned the attorney regarding the status of the case. The attorney informed the hospital that the payment of the outstanding bills was contingent upon a "successful" outcome. The attorney believes that given the severity of the injury and the client's inability to work, the net amount of the recovery cannot be viewed as a successful recovery.

When a lawyer is in possession of funds or property of others, Rule 1.15 entitled "Safekeeping Property" applies. The Rule states in pertinent part as follows:

(b) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third persons, shall promptly render a full accounting regarding such property.

(c) When in the course of representation a lawyer is in possession of property in which both the lawyer and another person claim interests, the property shall be kept separate by the lawyer until there is an accounting and severance of their interests. If a dispute arises concerning their respective interests, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved.

Subsection (b) imposes a duty on a lawyer who is in possession of funds in which a client or third person has an interest to promptly notify the client or third person. The Rule also requires a lawyer to forward to the client or third person any funds that the client or third person is entitled to receive.

In addition, the Comments to Rule 1.15 states that:

Third parties, such as a client's creditors, may have just claims against funds or other property in a lawyer's custody. A lawyer may have a duty under applicable law to protect such third party claims against wrongful interference by the client, and accordingly may refuse to surrender the property to the client. However, a lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party.

According to the facts provided, the attorney undertook a duty to the hospital when he/she made assurances of payment upon a successful outcome creating a reliance on behalf of the hospital. Since the attorney had notice of the outstanding medical bills, and made a promise to pay the bills from the proceeds of settlement the attorney is under an obligation to promptly notify the hospital upon receipt of the funds pursuant to Rule 1.15(b).

If the client refuses to disburse the funds to the hospital, the attorney should counsel the client regarding his/her obligations to protect the interest of the hospital. If the client disputes the amount owed to the hospital or the authority of the attorney to have undertaken the obligation to the hospital then the disputed portion should be held in escrow pending a resolution, arbitration or interpleader.