Attorney's bid for fees from carrier axed for lack of client consent

In Texas, a claimant's attorney can pursue joint representation with a subrogated insurance carrier in a third-party action but can only recover attorney's fees from the carrier upon full written disclosure and consent from the claimant.

Case name: Gray Law LLP v. Transcontinental Insurance Co., No. 08-10379 (5th Cir. 02/18/09).

Ruling: The 5th U.S. Circuit Court of Appeals upheld the District Court's judgment for the insurance carrier, finding the law firm was not entitled to attorney's fees.

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What it means: In Texas, a claimant's attorney can pursue joint representation with a subrogated insurance carrier in a third-party action but can only recover attorney's fees from the carrier upon full written disclosure and consent from the claimant.

Summary: The claimant filed a medical malpractice action after suffering complications from surgery for a work-related injury. The carrier paid out workers' compensation benefits and filed to recover a third-party lien from the malpractice settlement. The claimant's attorney and the carrier agreed that the attorney would also represent the carrier. However, the attorney and the carrier were unable to agree on the terms of the arrangement for fees.

The attorney filed an action for breach of contract after the carrier refused to pay. The 5th Circuit found that while a contract had been formed, the attorney was not entitled to the fees because he neglected to inform the claimant of his intention to represent the carrier as well.

The court pointed out that an attorney may collect additional fees from a subrogated insurance carrier for his efforts in pursuing third-party claims. The law provides that an attorney who represents a claimant may also represent the subrogated carrier in pursuing the same action, but must make a full written disclosure to the claimant before employment with the insurance carrier. The purpose of this requirement is to ensure there is no conflict of interest. The claimant must acknowledge the disclosure and consent to the representation.

The 5th Circuit noted that the attorney had assisted the carrier's subrogation claim and he should therefore be entitled to fees with proper disclosure to the claimant. However, the court ruled the attorney did not properly inform his client of the potential arrangement the carrier. The court held that since the attorney did not make full written disclosure of his representation of the carrier to the claimant, the attorney could not collect attorney's fees from the carrier.

April 16, 2009

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