80-F-1 - Structured Settlements

FORMAL ETHICS OPINION 80-F-1

This Ethics Committee of the Disciplinary Board of the Supreme Court of Tennessee has been requested to consider the propriety of structured settlement offers by insurance carriers or their attorneys to plaintiff's attorneys. The issue for consideration is:

May a plaintiff's attorney consider an offer of settlement from a defendant's insurance carrier which is couched in the following format:

  1. Settlement of $10,000 cash attorney fee, $5,000 cash to client plus $450 per month for 50 months, for a total of $37,500;
  2. Settlement of $10,000 cash attorney fee, $10,000 cash to client plus $325 per month for 50 months, for a total of $36,250;
  3. Settlement of $28,000 cash.

The fee arrangement with the client of a contingent one-third of the recovery in example three would result in the attorney receiving $9,333.33 and the client receiving $18,667.64. The conflict of interest that arises from the fee interest potential of structured settlements is so inherently conducive to divided loyalties as to amount to a conflict of interest with the client. Such an arrangement is also in violation of DR 5-107 of the Code of Professional Responsibility, which forbids acceptance by a lawyer of compensation for his legal services from one other than his client.

It is the opinion of the Committee that any arrangement by which the opposing party participates in the setting of the fee charged by the attorney to his client conflicts with the language and intent of DR 5-107 and EC 5-22 of the Code.

This 5th day of September, 1980.

ETHICS COMMITTEE:

Randall Burcham
W. H. Lassiter
George E. Morrow

APPROVED AND ADOPTED BY THE BOARD