Both plaintiff’s personal injury attorneys and defense counsel beware!
During settlement negotiations, defense counsel, their client, and the insurer will sometimes request or even insist that plaintiff’s counsel sign a settlement agreement requiring plaintiff’s counsel to indemnify and hold harmless the defendant, the defendant’s counsel, and defendant’s insurance carrier for any contractual or statutory reimbursement claims. Under this agreement, the plaintiff’s lawyer essentially acts as a personal guarantor of the client’s debts.
While the Professional Ethics Committee for the State Bar of Texas (“Texas PEC” or “Committee”) has not offered an ethics opinion on this form of settlement agreement before, several other jurisdictions and bar associations have addressed whether this form of agreement is permitted under the Professional Rules of Conduct. In considering this very question, the Texas PEC recently noted these jurisdictions unanimously agree it is an ethical violation for a lawyer to sign this form of settlement agreement. The Committee concluded that signing such an agreement would be an ethical violation.
A few consideration underly the Committee’s rationale: (1) A settlement agreement requiring counsel to personally indemnify, is prohibited pursuant to Texas Disciplinary Rule of Professional Conduct 1.08(d) because the agreement purports to be a form of financial assistance that is not a “reasonably necessary medical or living expense” as permitted by the Rules. (2) Requiring counsel to sign this agreement may also violate or create a potential conflict of interest under Rule 1.06(b)(2) because accepting liability on behalf of the client may be in the best interest of the client but would adversely affect the lawyer. (3) The agreement may also violate 1.02(a)(2) since the ultimate decision to accept is in the hands of the client and a lawyer may dissuade the client to accept given the condition of the settlement.
In addition to prohibiting lawyers from signing personal indemnity agreements, the Committee determined under Rule 8.04 an attorney (usually defense counsel) may not require or request opposing counsel to sign an indemnity agreement conditioned upon settlement as doing so would amount to knowingly inducing another attorney to violate the Rules.
This opinion, if adopted, will require changes by many defense counsel and insurance defense attorney’s form settlement agreements, and plaintiff’s personal injury lawyers may soon have an ethics opinion to point to for refusing to individually sign indemnity agreements.
The Committee will be accepting public comments on the proposed opinion through April 2, 2022 through the Texas Bar Association website at State Bar of Texas | PEC (texasbar.com).