C-226

September, 1982

SYLLABUS

It is unethical for a lawyer to charge a hospital a fee for medical payments voluntarily paid by a client's no-fault insurance carrier under circumstances where no lawyer-client relationship exists between the hospital and the lawyer.

It is not unethical for a lawyer to charge a hospital a reasonable fee for medical payments involuntarily paid by the client's no-fault insurance carrier even if there is no express lawyer-client relationship between the hospital and the lawyer, provided that the hospital is first notified in writing of the lawyer's contemplated legal action, giving the hospital a reasonable opportunity to advise the lawyer that it wishes to pursue its interests in the matter without the assistance of the lawyer's legal service.

References: MCPR DR 2-106.

TEXT

A client injured in an automobile accident consults and retains a lawyer to recover no-fault damages on a contingency fee basis. One of two situations may arise. First, upon the submission of the appropriate claim by the lawyer, the client's insurance carrier may voluntarily pay no-fault damages, including reimbursement for medical expenses advanced by the hospital on the client's behalf, by draft payable to the client, the lawyer and the hospital, or some combination thereof. Alternatively, the client's insurance carrier may initially deny coverage. However, following considerable professional service on the client's behalf by way of negotiations and submission of documentary evidence to support the legitimacy of the claim, the lawyer is successful in obtaining benefits, including reimbursement of hospital expenses incurred on behalf of the lawyer's client.

In the event the no-fault insurance carrier makes payments on the claim, some of which payments enure to the benefit of the hospital, the lawyer asks whether the lawyer may charge the hospital a lawyer fee for the services undertaken.

MCPR DR 2-106 states:

"(A) A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee."

While the committee has no authority to express opinions on substantive or procedural aspects of the law, the committee recognizes that the establishment of a lawyer-client relationship is a contractual undertaking. Accordingly, it is fundamental that the lawyer's right to charge a fee for services is founded in the establishment of a lawyer-client relationship.

It is clearly unethical for a lawyer to charge the hospital a fee for medical payment voluntarily paid by the client's no-fault insurance carrier, under circumstances where no express lawyer-client relationship exists between the hospital and the lawyer.

However, there is a distinction between benefits "voluntarily" paid and benefits "involuntarily" paid. "Involuntary" is understood to mean a situation where the insurance carrier has denied the rights to benefits after submission of a proper request for payment, and the lawyer is compelled to extend considerable professional service on the client's behalf, which efforts result in the payment of damages by the carrier, including a recovery for expenses incurred by the hospital on the client's behalf.

In the case of involuntary payment, the hospital assumes the appearance of a third-party beneficiary of the lawyer's time and effort. In this case it would not be unreasonable or unethical to permit the lawyer to charge the hospital a reasonable fee in the absence of an express lawyer-client agreement, provided that the hospital is first notified in writing of the lawyer's contemplated legal action which is likely to benefit the hospital, and the hospital is given a reasonable opportunity to advise the lawyer that it wishes to pursue its interests in the matter without the lawyer's assistance.

Failure of the hospital to respond to the notice may be interpreted as its acquiescence in the lawyer's representation of the hospital's interests, establishing the lawyer's right to a reasonable fee either on the basis of an employed lawyer-client relationship or a third-party beneficiary theory.

In the event of a controversy between the hospital and the lawyer over the lawyer's claim for compensation, the burden of proof to establish a right to collect a fee properly rests with the lawyer.