Strategies, Challenges, and Answers

Accepting A Release Signed By The Attorney And Not The Claimant Presents Risks

settlementThe world is always in motion. And so are the people who inhabit it. Any more, people change homes and cars and jobs as often as they change their shirts.

Plaintiffs’ attorneys occasionally encounter the problem of a lost client. They often learn that the client is missing when the insurance company extends an offer to settle. After the offer comes in, the Plaintiff’s attorney reaches out to the client to discuss the offer. It is then that the injured claimant cannot be found.

In an attempt to address this problem, some inventive Plaintiff’s attorney devised what seemed to be a reasonable solution. That attorney included in the retainer agreement a provision that allowed the attorney to accept a reasonable offer in behalf of the client, even without the client’s approval. The provision also gave the attorney authority to sign the release in behalf of the missing client and to hold the funds of settlement in the attorney’s trust account until the claimant could be found.

Having encountered a release signed by the Plaintiff’s attorney rather than the claimant, a defense attorney questioned whether such a practice was ethical. The State Bar of Nevada Standing Committee on Ethics and Professional Responsibility addressed the issue.

In its Formal Opinion 35, December 11, 2006, the Committee said that the decision to settle belongs to the client and not the attorney and for an attorney to settle without consultation of the client is a violation of Nevada Rule of Professional conduct 1.2(a). A copy of the Opinion can be found here. The opinion cites a number of cases that support this proposition.

i. In re Lansky, 678 N.E.2d 1114 (ln. 1997). A contingent fee agreement stating that “[The Clients] hereby authorize our attorney to settle this matter for any amount he determines is reasonable without further oral or written authorization” is held by the Indiana Supreme Court to violate the comparable Indiana rule.

ii. In re Grievance Proceeding, 171 F. Supp. 2d 81 (D. Conn. 2001). A fee agreement delegating all settlement authority to the attorney is held by the U.S. District Court to violate the comparable Connecticut rule.

iii. In re Lewis, 463 S.E.2d (Ga. 1995). A fee agreement granting the attorney “full power and authority to settle, compromise, or take such action as he might deem proper,” and to “execute any and all instruments” and receive the settlement proceeds is held to violate the comparable Georgia rule and to merit an 18-month suspension.

Thus, if the attorney signs the release instead of the client, the legal efficacy of a settlement can be questioned. In other words, if a claimant later learns that the attorney settled his case, there is no doubt that attorney has acted inappropriately. But the claimant may well seek to undo the release and re-expose the insured to risks that a valid settlement would have avoided. If you are an adjuster, my recommendation is to postpone settlements until the signature of the claimant can be obtained.

If you have questions about the efficacy of a settlement, please contact Mike Mills at 702-240-6060 x114. I hope to provide answers to your questions.

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