The role of Liens in Personal Injury Settlements
Health insurance liens can play a huge role in personal injury settlements and, in some instances, even prevent a settlement. A lien is the right of a health care insurer to assert an interest in the injured victim’s personal injury recovery, after the insurer has paid some of the medical bill,s related to the injuries sustained in the accident.
The law concerning the right to recovery typically depends on the type of lien that is being presented, but other factors come into play, such as the law of the jurisdiction, and type of claim (3rd party or 1st party).
A health insurer that pays for medical treatment related to injuries sustained in an accident can assert a lien on the recovery. This is often referred to as subrogation. Once the lien is presented to the injured victim’s attorney, the attorney must protect the lien, or they can be held personally responsible for the lien. It goes without saying that if no recovery is made from a third party, the lien does not need to be repaid.
When a recovery is made, the attorney must then deduct the amount of the lien from the funds that would otherwise go to the injured party. In Maryland a 1/3 reduction of the lien is allowed pursuant to Md. COURTS AND JUDICIAL PROCEEDINGS Code Ann. § 11-112, in consideration of the attorney fee, while Virginia simply does not allow subrogation of health insurance payments (see Title 38.2. § 38.2-3405) in personal injury actions.
Health insurance liens become difficult when ERISA plans are involved because they are federal plans and, in simplest terms, the federal law trumps state law. Thus, the 1/3 reduction is not mandatory. In fact, most ERISA plans are unwilling to budge much from full payment of their lien. In my experience, you can expect a fight for a reduction and certainly do not expect a 1/3 reduction, but more likely 1/4 or even 1/5.
It seems that most ERISA lien holders expect the attorney to simply roll over and pay the whole thing, while I firmly believe that is unfair, and as such have no problem taking the extra time to fight for at least some reduction. After all, that extra money could make a huge difference for our client.
Lastly, it is important for the attorney to pay attention to right to recovery in relation to 3rd vs 1st party claims. Essentially, a 3rd party claim would be against an individual, company or insurance company for someone who committed a tort against the injured party. A 1st party claim would be against the injured parties own insurance company, most often under an uninsured/underinsured motorist claim.
For example, the law in DC explicitly provides for 3rd party reimbursement for the District of Columbia for any workers’ compensation payments made to employees. No reduction for attorney’s fees or anything else is allowed. The law is found in 7 DCMR 143.6. In fact, this very unique statute allows them to even estimate more potential payments and recover in advance of those payments. It does, however serve as a good example to show the difference between 1st and 3rd party claims.
Since the language in the above statute is silent as to 1st party recovery, and specifically mentions only 3rd party recovery, the District is not entitled to any recovery for a 1st party claim. I recently had a specific instance where the District took a ridiculous position that, not only did they have a right to recover over $12,000 previously paid, but estimated potential payments of over $12,000 more, for a total in excess of $24,000. This would have left my client with less than $6,000 out of a $50,000 settlement.
Fortunately, I was able to point out that we made a 1st party claim, and after nearly a month of arguing back and forth, the District admitted that they did not have any right to recovery and my client was able to walk out with over $30,000, as opposed to less than $6,000.
For additional insight on liens, the Supreme Court recently considered related issues in U.S. Airways, Inc. v. McCutchen, which was decided on April 16, 2013.