State Bar of Arizona Ethics Opinions

99-01: Confidentiality; Disclosure; Fees; Taxation; Settlements

In personal injury cases, a lawyer should have insurance proceeds reported as paid in full to the firm, with the firm then issuing a 1099 form to the client to protect the confidentiality of the actual distribution, unless the client consents to such disclosure. [ER 1.6]



The inquiring attorney practices personal injury law.  He received correspondence from multiple insurance carriers indicating that, as a result of a recent federal statute, they would need certain information before they could issue a settlement check.  The insurance companies referenced the Taxpayers Relief Act of 1997, which purportedly requires insurance companies to report certain payments made to attorneys.  The insurance companies' letter stated:


. . . we need you to provide us with written notification as to how

the payments that we are making will be allocated between you and

your client so that we can issue each of you a separate check.  If you

do not provide us with this notification, we will be required to treat

the entire payment has (sic) having been made to you (or your firm). 

This means that we will need to file a Form 1099-B with the Internal

Revenue Service showing the gross amount paid to you or your law firm.


The letter goes on to state that the lawyer must provide the carrier with his or the firm's federal tax identification number or Social Security number.  It was also noted that failure to do so may require the withholding of 31% of the settlement amount.


The inquiring attorney is concerned with the ethical ramifications of revealing the distribution of the settlement proceeds to third parties.

Question Presented


May a lawyer ethically disclose, pursuant to a presumed legal obligation, the allocation of settlement proceeds between him and his client so that the net proceeds to the client and the amount of attorneys' fees are disclosed?


Applicable Ethical Rules


ER 1.6             Confidentiality of Information


(a)  A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraphs (b), (c) and (d) or ER 3.3(a)(2).


(b)  A lawyer shall reveal such information to the extent the lawyer reasonably believes necessary to prevent the client from committing a criminal act that the lawyer believes is likely to result in death or substantial bodily harm.


(c)  A lawyer may reveal the intention of his client to commit a crime and the information necessary to prevent the crime.


(d)  A lawyer may reveal such information to the extent that lawyer reasonably believes necessary to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceedings concerning the lawyer's representation.


Prior Relevant Ethics Opinions


Ariz. Op. 87-3

Ariz. Op. 92-4

Ariz. Op. 93-11

Ariz. Op. 94-11




For the purposes of this discussion it is assumed that the information under consideration is confidential and governed by ER 1.6.  The Committee presumes that the insurance company correspondence correctly states the legal obligations but this presumption should not be construed as a conclusion regarding the correctness of the statement.


The Preamble to the Rules of Professional Conduct states:  "A lawyer should keep in confidence information relating to representation of a client except so far as disclosure is required or permitted by the Rules of Professional Conduct or other law."  Similarly, the Comment to ER 1.6 states:  "A lawyer may not disclose such [confidential] information except as authorized or required by the Rules . . . or other law."


Based on the above, this Committee in Opinion 87-03 held that it was ethically permissible for a lawyer to disclose fee information (a cash payment of $10,000).  However, the opinion, with appropriate citations, also pointed out that "just because it is not ethically improper to reveal the [confidential information], the attorney is by no means ethically required to do so."  Op. at 3.


Other opinions of this Committee have upheld the confidentiality of a client's financial information.  Thus, a lawyer may not furnish to his own bank a list of accounts receivable that identify the name of the person owing on the account, the account balance and the age of the account (Opinion 92-04); a lawyer seeking to use a collection agency to collect past due accounts may give client fee information only after the consent of the client (Opinion 94-11); it is unethical for a lawyer to bring a criminal complaint against a client who paid his bill with a NSF check (Opinion 93-11) not unethical for lawyer to disclose client financial information to credit card company when client uses credit card to pay fees; disclosure is impliedly authorized (Opinion 89-11).



It is this Committee's opinion that the purposes of the statute must be met and whatever information is necessary to accomplish that purpose must be provided by counsel.  However, given the inherent confidentiality of client financial information the disclosure must be accomplished in the manner that best preserves client confidentiality.  In this case that can be accomplished by choosing the alternative of having the insurance company make the entire payment to the lawyer (or firm) with the firm issuing a 1099 form to the client, unless the client consents to disclosure of the amount the client and lawyer each actually will receive.

[1] Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings.  © State Bar of Arizona 1999

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