The risk of future liability exposures due to MSP issues have caused insurers and defense counsel to resort to various different stratagems in an effort to ensure that Medicare liens will be satisfied without subsequent risk to the settling parties. Among these stratagems is a demand that the plaintiff’s attorney agree to indemnify the defendant and its settling insurers for any ensuing liens due to the plaintiff’s failure to pay them out of the settlement proceeds. The willingness of plaintiff’s counsel to agree to such proposals or the ability of defense counsel to advance them has been significantly compromised by a series of recent state bar ethics opinions, however.

In the most recent such opinion, the Virginia State Bar has approvedLegal Ethics Opinion 1858 which concludes that a plaintiff’s lawyer may not ethically agree to indemnify a defendant’s insurer for future claims resulting from the plaintiff’s failure to satisfy liens which he is obligated to pay from the settlement proceeds because such an undertaking would, in effect, obligate the lawyer to pay the client’s debts in violation of Rule 1.8(e) of the Rules of Professional Responsibility and would create a conflict of interest between the plaintiff and his lawyer pursuant to Rule 1.7(a) as the lawyer’s personal interest in avoiding liability for the debts of his client may be at odds with his client’s desire to settle the case. The Ethics Committee further found that it was a violation of Rule 8.4(a) for defense counsel to include such a provision in settlement agreements owing to the fact that it created an inducement to the plaintiff’s lawyer to violate Rules 1.7(a) and 1.8(e).

The Virginia opinion is in accord with several other recent state or local bar ethics opinions, including Formal Opinion 2010-3 of the New York City Bar Association and Opinion 2010-154 of the Board of Professional Responsibility of the Supreme Court of Tennessee. Similar opinions that seem less specific to Medicare lien issues have also been adopted by Ethics Boards in Arizona, California, Florida, Illinois, Indiana, Kansas, Missouri, North Carolina, South Carolina, Vermont and Wisconsin.