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Liability of Lawyer For Non-Payment of Personal Injury Lien in Missouri and Illinois

Can a medical provider sue a lawyer for non-payment of personal injury funds? In Missouri they generally cannot, however they may in Illinois.

The plain language of the Missouri lien law places the insurance company on the hook for non-payment of liens, not the attorney. Further, courts have ruled that an attorney for the injured person is “neither liable to the injured person for the injuries sustained, not personally compensating the client when forwarding settlement payments, [therefore] Section 430.250 is inapplicable to attorneys representing an injured client.” Truman Med. Ctrs., Inc. v. McKay, 505 S.W.3d 799 (Mo. Ct. App. 2016).

While not having legal liability, lawyers in Missouri do have an ethical obligation to honor liens. Some of these ethical duties stem from maintenance of the client trust account.

In maintaining client trust account, lawyers must follow the rules set out in Rule 4.-1.15(d) and Rule 1.14(e). Rule 4.1.15(d) states that “upon receiving funds or other property in which a client or a third person has an interest, a lawyer shall promptly notify the client or third person.” It goes on to say that the lawyer “shall promptly deliver fund to the client or third person” unless directed otherwise by the client.

The second applicable ethics duty is set out in Rule 4.1.15(e). “When in the course of representation, a lawyer is in possession of property in which two or more persons (one of whom may be the lawyer) claim interests, the lawyer shall keep the property separate until the dispute is resolved.”

Comment 8 in the rules goes on to say “[8] Rule 4-1.15(e) also recognizes that third parties may have lawful claims against specific funds or other property in a lawyer's custody, such as a client's creditor who has a lien on funds recovered in a personal injury action. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client. In such cases, when the third-party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client until the claims are resolved. A lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party, but, when there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute.

The lawyer must listen to their client if the client does not want them to pay but must not release those funds to the client until the dispute has been resolved. The implication from Comment 8 is that the proper thing for a lawyer to do in the event of a dispute is 1.) hold the funds in trust account, 2.) file a Motion to Adjudicate Lien with the court, 3.) pay according to the court’s order.

The ethics rules and caselaw make clear that a lawyer cannot guarantee payment of liens in a settlement. The client can, but the lawyer cannot. MO Informal Opinion 125 – violates ethics rule 4-1.8(e).

Attorney ethics rules in Missouri prohibit lawyer from releasing disputed lien funds.

What is unclear is how a third party could report an attorney for violation of these ethics’ rules. The Missouri bar typically only allows clients to bring bar complaints. A lien holder would not have standing to bring an ethics complaint. The client would have to file the complaint before the bar would investigate. If the attorney complies with the client’s directions in dispersing the settlement, the client is unlikely to file an ethics complaint.

Illinois Advisory Opinion No. 06-01 says that Rule 1.8(d) prohibits a lawyer from personally guaranteeing payment of a lien because it constitutes “the provision of financial assistance to [the] client.” Under Rule 1.15(b), “a lawyer representing a plaintiff has an obligation to segregate the settlement funds over which a third party has a claim, to notify persons who have an interest in those funds (including lien/subrogation claimants, and then distribute the funds owed to said persons.”

Illinois has much harsher penalties for a lawyer’s failure to pay lienholders. “Failure to segregate the funds and then distribute them results in the lawyer being directly liable to the third-party subrogation claimant.” Western States Ins. Co. v. Olivero, 283 Ill. App. 3d 307, 670 N.E. 2d 333, 218 Ill. Dec. 836 (3d Dist. 1996).

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Lawyers must handle personal injury liens carefully.

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