## Facts

- Michael E. Koval was injured at work while using equipment allegedly manufactured or distributed by Simon Telelect, Inc.
- Koval and his spouse sued the manufacturer and others in a federal products-liability action.
- Koval’s employer, Henkels & McCoy (H&M), and its workers’ compensation carrier, Liberty Mutual, paid benefits and asserted statutory lien rights against any third-party recovery.
- During mediation in the federal case, an attorney appearing to represent H&M and Liberty Mutual agreed to a settlement that reduced the lien interests.
- The mediation terms required party participation with settlement authority and stated no party would be bound until a written settlement agreement was signed.
- H&M later asserted the attorney (and Liberty Mutual) lacked authority to compromise H&M’s lien and refused to sign the settlement documents.
- The federal district court certified questions to the Indiana Supreme Court concerning (a) whether the attorney’s settlement could bind H&M and (b) what qualifies as court-ordered “protection” of an employer’s workers’ compensation lien in a third-party settlement.

## Issues

1. When an attorney settles a claim without the client’s consent, under what circumstances is the settlement binding on the client as to third parties?
2. For a third-party settlement affecting an employer’s workers’ compensation lien, does a court order “protect” the lien if it merely preserves the employer’s right to sue its insurer or attorney for any impairment of the lien?

## Decision

- The court held that retaining an attorney does not, by itself, authorize the attorney to compromise or settle a client’s claim.
- A settlement binds the client only if the attorney had express, implied, or apparent authority, or acted within the attorney’s inherent agency power.
- The court held that ADR proceedings conducted in connection with a pending civil action (including court-related mediation) are treated as proceedings “in court” for purposes of the attorney’s inherent authority analysis.
- On lien protection, the court held that merely preserving an employer’s potential claim against its own agent for lien mishandling is not “protection by court order” of the employer’s lien.
- The court required a court-ordered mechanism that reasonably assures reimbursement of the lien itself (e.g., secured distribution or comparable protection), not a substitute remedy through later litigation.
- The court answered the certified questions and returned the matter to the federal district court to apply these legal rules to the disputed facts (including any waiver of the mediation writing requirement).

## Legal Principles

- An attorney has no automatic authority to settle solely from the fact of representation; settlement requires express, implied, apparent authority, or action within inherent agency power.
- Apparent authority depends on the client’s manifestations to third parties that reasonably support belief in the attorney’s authority; retention alone is insufficient.
- Inherent agency power may permit attorney action binding the client in litigation-related proceedings; court-connected ADR is treated as “in court” for this purpose.
- Under Indiana workers’ compensation lien law, “protected by court order” requires a court-ordered arrangement that secures the employer’s reimbursement interest in the settlement proceeds.
- A court order that leaves the lien unsecured while reserving a separate claim against an insurer or attorney does not satisfy statutory lien protection.

## Conclusion

The court clarified that client consent (or recognized agency authority) is required to bind a client to a settlement, extended the inherent-authority analysis to court-related ADR proceedings, and held that statutory workers’ compensation liens must be secured by a court-ordered reimbursement mechanism rather than by preserving only a later claim against an employer’s agent.


Koval v. Simon Telelect, Inc., 693 N.E.2d 1299 (Ind. 1998)