The Settlement Offer With a Hidden Lien
Defense counsel sends plaintiff's lawyer, Chen, a written offer: "$40,000 to settle all claims, inclusive of all liens." Chen's client, a cyclist, incurred $22,000 in emergency-room charges; the hospital has asserted a statutory lien. Chen knows the lien exists but the offer is silent on whether the $40,000 is net to the client or subject to the lien. Chen's client, eager to settle, says "just take it." Unknown to Chen, the hospital's lien may be unenforceable because the treatment was covered by the client's health insurer, which paid a discounted amount. The offer expires in five days. Chen has not yet told the client about the lien ambiguity.
1. What must Chen do before accepting, and what does the duty to communicate require?
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Chen must communicate the offer and its material terms to the client (Rule 1.4) and explain the lien ambiguity: whether the $40,000 is gross or net, and that the hospital may claim up to $22,000. The client's "just take it" was not informed consent to an ambiguous deal. Chen should clarify with defense counsel in writing whether the figure is inclusive of liens and obtain the client's informed decision. Chen may not accept an offer whose net value to the client is unclear without explaining the risk. If the client still wants to accept, Chen should document the client's informed choice and, if feasible, negotiate a hold-harmless or clarify lien responsibility.
2. May Chen rely on the possible unenforceability of the lien to advise acceptance without investigating?
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No. Competence (Rule 1.1) and diligence (Rule 1.3) require Chen to investigate the lien's validity before advising. A lawyer may not assume a lien is unenforceable based on speculation. Chen should contact the hospital or insurer, confirm whether the health plan paid and whether the lien was properly asserted, and determine the actual exposure. Advising the client to accept on an unverified assumption could expose the client to a later claim by the hospital and expose Chen to a malpractice or disciplinary complaint. If time is short, Chen should seek a brief extension rather than gamble with the client's funds.