The Professional Ethics Committee of the State Bar of Texas recently issued Opinion 613. The opinion addresses the Texas Department of Insurance Commissioners Bulletin #B-0035-10 which states the following:
The Department strongly encourages all insurance companies issuing settlement payments, payable to both the insurance claimant and the claimant’s representative, to provide written notice to the claimant at the same time payment is made to a claimant’s representative. Such notice should state the amount and method of the payment and the name and address of the party to whom the payment is made…
The Department urges all parties and persons participating or engaged in the resolution of claims to use every prudent effort, including but not limited to Payee Notification, to eliminate…instances of the misdirection, misapplication or improper use of insurance settlements.
The bulletin was issued at the request of State Bar officials, and specifically notes that it is addressed to attorneys as well as other insurance industry participants. The bar's client security fund has apparently had to pay significant sums where certain lawyers have failed to pay client settlement funds received from insurance companies. See At State Bar's Urging, Texas Department of Insurance Issues Bulletin Encouraging "Payee Notification" to Prevent Misuse of Personal-Injury Claimants' Settlement Funds.
Payee notification is direct contact with the party who should receive the settlement. Texas Disciplinary Rule of Professional Conduct 4.2, however, prohibits lawyers from directly contacting someone represented by counsel or from encouraging anyone else to do so. Accordingly, Ethics Opinion 613 concludes that lawyers may neither notify the plaintiff receiving a settlement directly when they are represented by counsel nor encourage insurance companies to do so, whether the lawyer is representing the insurer or not.
The TDI bulletin uses the terms "strongly encourages" and "urges" to describe the request that all parties use methods, including payee notification, to assure lawyers do not misappropriate settlements. From the lawyer's standpoint, the disciplinary rules should govern over the mere urging of the TDI Commissioner.
It should be noted that the ABA has promulgated a model rule authorizing payee notification.