Letters of Protection, Notice of Receipt of Trust Funds, and Disputes over Settlement Funds in Personal Injury and Other Matters

Hello everyone and welcome to this JACPA Ethics Alert.  Since I have been fielding questions on these issues recently, this Ethics Alert will briefly discuss the Rules Regulating The Florida Bar and issues and answers related to lawyers’ Letters of Protection (LOPs), notification of third party lien holders of receipt of trust funds, and disputes over disbursement of trust funds/settlement proceeds in personal injury/wrongful death and other matters.

As everyone may already be aware, LOPs are generally used to attempt to insure that third parties (primarily medical providers) continue to provide services to injured clients in personal injury matters.  On many occasions, a medical provider will not provide medical treatment unless the lawyer issues the LOP.  The Bar Rules related to receipt of trust funds, notification, and disputes over settlement proceeds are set forth in Chapter 5 of the Rules Regulating The Florida Bar (Rules Regulating Trust Accounts).

A lawyer who issues an LOP to a provider/third party lien holder is bound to the terms of that LOP, and the LOP is the lawyer’s promise to protect that provider’s billings related to the client’s injury.  Various issues and problems commonly arise regarding these LOPs and medical and other third party liens.

The first potential issue is related to the requirement that the lawyer notify all known lien holders when settlement funds are received by the lawyer.

Rule 5-1.1(e), Rules Regulating The Florida Bar states that “(u)pon 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.”  If the lawyer is aware of the existence or third party liens, whether or not they are subject to an LOP, the lawyer must “promptly” notify all known third party lien holders of receipt of the funds.

A second potential issue is related to the lawyer’s responsibilities when there is a dispute regarding the settlement proceeds and payment of liens (and also attorney’s fees).  The dispute may occur when the client instructs the lawyer not to pay the medical provider/lien holder or when there are insufficient funds in the settlement proceeds to pay off the liens, provide funds to the client, and/or pay the lawyer’s costs and fees.

Rule 5-1.1(f) Rules Regulating The Florida Bar states “(w)hen in the course of representation a lawyer is in possession of property in which 2 or more persons (1 of whom may be the lawyer) claim interests, the property shall be treated by the lawyer as trust property.”  This rule requires the lawyer to hold the disputed funds in trust until the dispute is resolved.

If the third party lien is not subject to an LOP and the client does not want the outstanding bill/lien to be paid from the settlement proceeds, the lawyer should have the client execute a document (either as part of the settlement/closing statement or preferably in a separate document) confirming that the client has instructed the lawyer not to pay the bill and will be responsible for payment of the outstanding debts on his or her own.

If the lien is subject to an LOP and the client does not want to pay the lien(s) from the settlement (or there are insufficient funds to pay the LOPs), the ownership of those funds are then in dispute.  If the lawyer is unable to resolve the dispute, the Comment to the Bar Rule states that the dispute can be interpleaded and the disputed trust funds placed into the registry of the court for resolution.  If the dispute is interpleaded and the funds are placed into the registry of the court, the lawyer is no longer responsible and the client and provider must then address the dispute with the court.      

Bottom line:  This is just a brief overview of the common issues and selected Bar Rules and is not comprehensive.  Lawyers who handle personal injury or other matters wherein trust funds are received and are subject to an LOP or third party liens and/or a dispute should be aware of and follow all relevant Bar Rules.

…and be careful out there!

My law firm focuses on review, analysis, and interpretation of the Rules Regulating The Florida Bar, advice and representation of lawyers in Bar disciplinary matters, defense of applicants for admission to The Florida Bar before the Board of Bar Examiners, defense of all Florida licensed professionals in discipline and admission matters before all state agencies and boards, expert ethics opinions, and practice management for lawyers and law firms.  If there is a lawyer or other Florida professional license involved, I can defend the complaint or help you get your license.
Advertisements

Leave a comment

Filed under Florida Lawyer Ethics and Professionalism, Lawyer Ethics and Professionalism

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s