Utah Ethics Opinion 18-4

You probably know about the ethics rule that prohibits lawyers from trying to prospectively limit their liability to clients (or at least I hope you do!).  You can find it in your state’s version of Model Rule 1.8(h).

In an interesting twist, the Utah Ethics Advisory Committee recently opined that it’s permissible to include a provision in a retainer agreement requiring the client to indemnify the lawyer against third party claims against the lawyer arising from the client’s own “behavior or negligence.”

Narrow reading — but not alone

The Utah committee said that an indemnification provision against liability, loss and expense to the lawyer caused by third-party claims arising from client’s conduct “is not specifically prohibited by the rules.”

While Utah’s Rule 1.8(h) (identical to the Model Rule) bars prospective limitation of liability to a client for malpractice, the committee said, “it does not address the specific question of whether an attorney may include an indemnification provision for claims brought by third parties.”  Therefore, such a provision “is not prohibited on its face.”

Third-party indemnification provisions might be helpful in representations involving opinion letters — for example, providing a legal opinion on behalf of a lessor, which is to be given to and relied on by the lessee.  The lawyer would be benefitted by being able to seek indemnification from the lessor client against later claims by the lessee.

Few state ethics committees seem to have addressed the issue of third-party indemnification.  But the New York State Bar Association, in a 2013 opinion, has approved the concept in the context of opinion letters.  And a 2005 Oregon opinion advised that a lawyer asked to investigate a client’s employee could seek indemnity from the client against subsequent claims by the employee against the lawyer.

Insurance deductible?  Not so fast

What about using such an indemnification provision to hold a client responsible for the lawyer’s malpractice insurance deductible if the client unsuccessfully sues the lawyer for malpractice?

The Utah committee also considered that question, and concluded that Rule 1.8(h) doesn’t expressly bar that scenario, because “requiring payment for an unsuccessful malpractice claim, on its face, does not limit liability for malpractice.”  But trying to use indemnification to extract payment from the client for your malpractice insurance deductible may be misconduct under other rules, said the committee.  Rule 8.4(d) bars engaging in conduct that is “prejudicial to the administration of justice.”  An agreement that would make a client (or, by then, presumably a former client) responsible for paying your deductible after the client loses a malpractice case against you, could “have a chilling effect on a client’s pursuit of a malpractice claim and would thus be prejudicial to the administration of justice,” the committee advised.

Client communication

In any event, client communication is key.  To say the least, “the average client may not understand what indemnification is or in what specific circumstances it could be applied.”  Sophisticated clients might, but your best bet is clear explanation and understanding.  Model Rule 1.4(b) (“Communication”) requires you to “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”

That would seem to apply to the client’s decision to agree to indemnify you for anything.

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