Can a lawyer for an injured servicemember sign the Army's agreement to protect the government's medical-cost recovery out of any personal injury settlement?

Plain-English summary

Lawyer A represented a military member injured in an automobile accident. The Army asked the lawyer to sign a proposed representation agreement protecting the government's costs of paying the member's medical benefits. The agreement acknowledged that the government's interest was not a lien but an independent cause of action, was voluntary (either party could terminate), did not require the lawyer to sign or to pay the Army's medical bills from any settlement, and noted that 42 U.S.C. § 2652(c) bars any government action from denying the injured person recovery for damages not covered by the government's claim. The question was whether, where third-party liability is questionable and available liability coverage is very limited relative to total damages, the lawyer may sign the agreement.

The committee concluded that, on these facts, the client has nothing to gain and much to lose, and signing would create a conflict under Rule 1.7(a)(2). Rule 1.7(a) bars representing a client where the representation involves a concurrent conflict of interest, and Rule 1.7(a)(2) finds such a conflict where there is a significant risk that the representation will be materially limited by the lawyer's responsibilities to a third person. The committee found that signing would likely lead to a difference in interests interfering with the lawyer's ability to represent the client, because limited recovery (from lack of coverage and questionable liability) means the client's net recovery would be significantly lower under the dual representation.

The committee noted the conflict is not absolute. There may be situations where signing does not compromise the client's interest, for example where liability is clear and insurance would easily cover the damages, so that including the government's independent claim might, in the lawyer's judgment, increase the total award or settlement by applying a multiplier to special damages. And under Rule 1.7(b), the lawyer may sign if the client gives informed consent, confirmed in writing, as defined in Rule 1.0(f).

In practice

Under this opinion, on the facts presented (questionable liability, limited coverage), a lawyer for the injured servicemember faces a Rule 1.7(a)(2) conflict if asked to sign the Army's cost-recovery agreement, because the government's independent claim would reduce the client's net recovery. The committee held the lawyer may sign only with the client's informed consent, confirmed in writing under Rule 1.7(b) and Rule 1.0(f). It noted that, on different facts (clear liability and ample coverage), signing might in the lawyer's judgment benefit the client.

Common questions

Q: Does signing the Army's medical-cost agreement create a conflict for the injury lawyer?

A: The committee concluded yes, under Rule 1.7(a)(2), where liability is questionable and coverage is limited, because the government's independent claim would materially limit the representation and lower the client's net recovery.

Q: Can the lawyer sign with the client's permission?

A: Yes. The committee stated that under Rule 1.7(b) the lawyer may sign if the client gives informed consent, confirmed in writing, as defined in Rule 1.0(f).

Q: Is there any situation where signing helps the client?

A: The committee noted that where liability is clear and insurance would easily cover the damages, including the government's independent claim might, in the lawyer's judgment, increase the total award by applying a multiplier to special damages.

Background and rules framework

The opinion applies South Carolina Rule 1.7 (conflict of interest; current clients), in particular Rule 1.7(a)(2) (material limitation by responsibilities to a third person) and Rule 1.7(b) (consent), together with the Rule 1.0(f) definition of informed consent. These correspond to Model Rules 1.7 and 1.0(e). The opinion also notes 42 U.S.C. § 2652(c).

Citations and references

Rules of Professional Conduct:

• MR 1.7 / SC Rule 1.7(a)(2), 1.7(b) (concurrent conflict of interest; informed consent)
• MR 1.0(f) / SC Rule 1.0(f) (definition of informed consent)

Statutes:

• 42 U.S.C. § 2652(c) (no government action shall deny the injured person recovery for damages not covered)

See also

• SC Bar Ethics Op. 05-08: Holding disputed settlement funds against a subrogation claim
• SC Bar Ethics Op. 05-14: Conflicts in a foreclosure with a lien on the same property

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-05-22/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 05-22

RULES 1.0(f) and 1.7

Facts
Lawyer A represents a military member who was injured in an automobile accident. The Army requests that the attorney sign the attached proposed representation agreement to protect the Army's costs incurred in paying the military member's medical benefits.

The Army acknowledges in the proposed representation agreement that the interest of the United States Government is not a lien but instead constitutes a cause of action which is independent from any personal injury action that may be asserted by the injured military member against a third party. It is clear from a review of the proposed agreement that the attorney is not required to sign the agreement, nor is the attorney required to pay out of the proceeds of any personal injury settlement the medical bills the Army incurred. The agreement itself states that "either party may terminate this agreement for failure to abide by the terms thereof." The agreement also states that it is a voluntary agreement, and the communication is clearly in the form of a request rather than a requirement.

Moreover, 42 USC §2652(c) provides that no action taken by the United States shall operate to deny to the injured person the recovery for that portion of his damages not covered hereunder.

Issue
In a situation wherein third party liability is questionable and the available liability coverage is very limited in relation to the total cognizable damages, may the attorney sign the agreement?

Summary
It appears the attorney's client has nothing to be gained by the attorney's signing the agreement and much to lose. Signing the agreement would create a conflict for the attorney under Rule 1.7(a)(2). However, the client could give informed consent, confirmed in writing, as discussed below.

Opinion
Rule 1.7(a) provides that “[e]xcept as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest.” Under Rule 1.7 (a)(2), a concurrent conflict of interest exists if “there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to . . . a third person….” It appears that in the situation provided by the inquirer, if the attorney were to sign the agreement, there is certainly a likelihood that a difference in interests will eventuate, which would interfere with the attorney’s ability to represent his client. There is a conflict because of the likelihood of limited recovery due to the lack of insurance coverage and questionable liability, which would create a situation where the client’s net recovery would be significantly lower due to the dual representation.

There may be situations when an attorney might properly decide in the exercise of his discretion that the agreement may be signed without compromising his client's interest. For example, in a situation wherein liability is clear and the amount of liability insurance would easily cover the amount of damages, the inclusion of the Government's independent claim for medical bills might, in the attorney's judgment, increase the total award or settlement for the military member under the concept of applying a multiple to special damages.

Also, under Rule 1.7(b), the attorney may sign such an agreement upon the client giving informed consent, confirmed in writing. See Rule 1.0(f) (defining “informed consent”).