The Ohio Supreme Court held that an insurer who settles a personal injury claim with an accident victim has no duty to issue payment directly to the victim’s former lawyer pursuant to a charging lien.
In the underlying personal injury matter, an automobile accident victim hired a law firm to represent him. The victim and his law firm entered into a contract that granted the law firm a charging lien on the proceeds of any insurance payment, settlement, judgment, or verdict that might be obtained in the victim’s favor. The law firm then began negotiations with the alleged tortfeasor’s insurer. No lawsuit was filed regarding the personal injury claims. However, the victim decided to discharge the law firm and negotiate a settlement with the insurer on his own, which he succeeded in doing. Although the law firm gave the insurer notice of its charging lien, the insurer paid the settlement proceeds directly to the victim, and the victim did not pay the law firm. The law firm then filed suit against the victim, the alleged tortfeasor, and the insurer.
A charging lien is an attorney’s lien on a claim that the attorney has helped their client collect, such as by obtaining a judgment or settlement. A New York court characterized the charging lien as a device to protect counsel against “the knavery of his client”. Many states have enacted statutes that govern charging liens, but in Ohio charging liens are recognized and enforced under the common law. The court’s decision in Kisling therefore turned on interpretation of Ohio common law.
The insurer argued that an action on a charging lien is an action in rem, i.e. that the law firm had a cause of action against the fund that included the settlement proceeds, not a cause of action against the insurer. The court agreed, but it noted that the law firm could have an action against the insurer if the insurer ever controlled the fund. Citing an Ohio Supreme Court decision from 1904, the court held that a settlement fund comes into existence at the moment the release and the money are exchanged, meaning the fund never existed while the settlement proceeds were in the insurer’s control. As a result, the law firm could not maintain an action against the law firm.
In Ohio, at least, the court’s decision in Kisling means that insurers cannot be sued by the former lawyers of tort victims in order to recover fees from settlement funds. Notably, however, other states treat charging liens differently. In Florida, for example, the charging lien is effective against any person who, at the time notice of the lien is given, holds money or property that becomes proceeds of a judgment (such as an insurer who later pays a settlement). Thus, while the Kisling decision may simplify payment of settlements for insurers in Ohio actions, insurers should remain diligent in determining the effect of charging liens elsewhere.