How Liens On Settlement Proceeds  Are Affected?

Liens On Settlement Proceeds – How they affect your settlement proceeds

Here is an over of Liens On Settlement Proceeds:

General Rule: An attorney cannot assist a client in unlawfully avoiding statutory liens or court orders involving the funds. And, If the lawyer is a party to the agreement (LOP) giving rise to the claim, the lawyer must comply with the lawyer’s agreement.

Ethical vs. Legal Duties: In personal-injury cases, a lawyer has an ethical duty to abide by the lawyer’s own agreements (Letters We Write) and may have both an ethical and legal obligation to comply with agreements made by the lawyer on the client’s behalf and as the client’s agent. (LOPs).

  • A lawyer also has an ethical obligation to advise the client to comply with legally binding agreements the client has made.
  • Additionally, a lawyer has an ethical duty to fully inform a client of the potential effect of signing any agreement reviewed by the lawyer.
  • Finally, a lawyer has an ethical duty not to bind the client to a disadvantageous agreement without consultation and agreement. [i.e. No “post services” LOPs].


LIENS: Some claims are based on statutorily created liens over which neither the client nor the lawyer has any direct control. The claim exists whether or not the client consents. Examples of such liens are Medicare or Medicaid liens, Social Security liens, and liens under state Hospital lien laws. In representing the client, the lawyer has an obligation to know and apply the law. The lawyer also has an obligation to inform the client of the impact of the law on the client’s potential recovery so the client is fully informed in considering a potential settlement. The lawyer could potentially place the client at grave risk if this type of claim is ignored. The client, and even the lawyer in some cases, may be civilly or criminally liable if such liens are ignored or if there is any concealment or false statement of facts made in connection with enforcement of such liens. A lawyer who knowingly assists a client in unlawfully avoiding such liens is violating his or her ethical obligation to follow and uphold the law.

COURT ORDERS: Some claims are based on the actions of courts or administrative bodies. These may be court orders directed to the client, or possibly to the lawyer, regarding such funds. The lawyer’s obligations, as well as the client’s, are similar to the situation involving statutory liens with an emphasis on the lawyer’s duty to become fully familiar with the status of the law as applied to the particular client.

LOPs / DOCTOR’s:  Most other claims are based upon interests created by private contract between the client and others, or between the lawyer and others. Some agreements are based on an agreement of a lawyer as agent of the client [LOP’s]. Problems may arise when one party claims a contract exists, while the other party denies all or some of the claimed terms of the purported contract.  A lawyer has an ethical duty to urge the client to abide by the client’s lawful contracts, but at the same time has an ethical duty to assist the client, by all legal means, to reject or avoid contracts that are not legally enforceable against the property in the lawyer’s possession. [i.e. – No legal obligation for balance a/k/a “balance billing” when PIP insurance reduces doctor’s invoice – except 20% copay.  See PIP Statute FS §627.736(5)(a)5. Which provides “If an insurer limits payment as authorized by subparagraph 2., the person providing such services, supplies, or care may not bill or attempt to collect from the insured any amount in excess of such limits, except for amounts that are not covered by the insured’s personal injury protection coverage due to the coinsurance amount or maximum policy limits.”]

There is no clear legal definition of a “letter of protection.” The term means different things to different medical providers, to different lawyers, and to different clients. The term is applied loosely to include assignments, a term which itself has many definitions. The documents involved often refer to liens although there is rarely any statutory or judicial basis for the use of such term, and there is almost always a lack of any information as to how such claimed liens can be perfected or enforced except through litigation.

LOP issues: A) To what extent is the lawyer a party to the agreement? Obviously, a lawyer has an ethical duty to comply with the lawyer’s own lawful contracts freely entered into, absent some lawful defense. The lawyer, of course, may be a direct party to the agreement. The lawyer may be a party as the agent of the client, disclosed or undisclosed, apparent or actual, limited or general.  B) If only the client is a party to the agreement, the lawyer must consider the terms of the agreement, whether the agreement is enforceable, and whether the client wants to contest the agreement.


What can a lawyer’s office do to resolve a dispute between the client and a medical provider? The comment to Rule 5-1.2 is instructive:

The lawyer’s ethical duty turns on whether or not the lawyer owes a legal duty to the third person. Where the lawyer owes a legal duty to the third person, the lawyer must, under Rule 5-1.1(e) and (f), notify the client and third person of the receipt of the funds or property, but the lawyer must retain the disputed funds or property in trust until the dispute is resolved. Any undisputed funds must be distributed to the appropriate person.

It should be noted that in contingency fee cases no distributions can be made until the client signs the closing statement as required by Rule 4-1.5(f)(5). In the event of a dispute over whether a third person should be paid, the attorney should do a partial closing statement disclosing what undisputed amounts are being distributed and disclosing what is being held in trust pending resolution of the dispute. Whether the lawyer owes a legal duty to a third person is a legal question outside the scope of an ethics opinion and therefore is not determined in this opinion.

Compiled: 03/2012 by Jeffrey D. Soud, Esq. using Florida Bar Ethics Opinion 02-4, April 2, 2004