LIENS ON AUTOMOBILE CLAIMS
By Michael S. Fields
A. Introduction
In the past 15 years, lien claims on personal injury cases have become a major concern to the trial lawyer. One thing is certain, all liens must be disposed of at the conclusion of the case. The same rules apply whether the injury is suffered by an automobile incident or in some other manner.
1. State Bar Action
The California State Bar has disciplined attorneys over the years for intentional non payment of a legitimate lien. Any complaint of the non payment of a known lien by an attorney will probably trigger an investigation. Upon notice of non payment of a lien claim, the State Bar will seek information whether money has been deposited into a client trust account and the current status of that deposit. Such concerns by the State Bar are likely to trigger a client trust account audit.
Most commonly, the complaint to the State Bar will come from a former client who expected a lien to have been paid or by a medical provider who had an expectation of bill payment. The State Bar takes these complaints seriously, and the investigation commences.
Under the American Bar Association Rule 1.15 of the Model rules of Professional Conduct, an attorney has an ethical duty to honor liens of third parties: …a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and upon request by the client or third person, shall promptly render a full accounting regarding such property. Model Rule 1.15 subdivision (d). A similar Rule of Professional Conduct is found in Rule 4-100 and the Standards promulgated by the State Bar. See in the Matter of Riley (Review Dept. 1994) 3 Cal State Bar Ct.Rpt. 91, 114 and Formal Opinion No. 1988-101 of the State Bar of California Standing Committee on Professional Responsibility and Conduct.
2. Educating the Client
Many clients do not understand the lien laws, and they may resist honoring a lien claim by an insurance company or HMO that has provided medical coverage under a contract of insurance. It is, therefore, vital that the client is aware of the potential lien claim throughout the process of the litigation. Suggestions to educate the client are:
a. Retainer contract language - it is essential that the retainer contract has a provision that acknowledges the potential lien claim, the need to satisfy the lien claim from the case recovery and the attorney ‘s duty to pay outstanding medical bills and liens. In this writer=s retainer contract, the following language is provided:
Client authorizes ATTORNEYS to pay directly from CLIENT ‘s share of settlement or recovery any outstanding medical bills and/or liens.
b. Review insurance company lien or reimbursement language - Early in the case, have the client bring their medical payment insurance policy, HMO contract or health insurance benefit book. The lien notice or reimbursement provision will most likely be set out. Whether or not alien or reimbursement requirement is in the contract, the attorney should resolve the claim. By showing the client the agreement language, the client will have an understanding of their contractual requirements. A copy of the relevant provision should be copied and given to the client.
c. Statutory requirements - There are several statutes that have provisions for a lien or reimbursement at the conclusion of a case. At the outset, the client should be made aware of these statutes. It is best to make a copy of the statute and give a copy of it to the client at the time the retainer contract is executed. These statutory lien requirements will be discussed later in this handout.
d. Lien notification - Lien notification by a medical provider or insurance carrier may require the client and the attorney to sign and acknowledge future payment. Other notices may merely state the contractual requirements, and such notices give the client and attorney further information to satisfy the lien or reimbursement claim. Such notices provide another opportunity for the client to be educated on a lien claim and the obligations to pay that claim at time of the case resolution. The attorney should highlight its file to this lien claim, so at time of payment there is a return address and file number for the payment of the claim.
e. Case resolution breakdown authorization - At time of settlement or other case resolution, the monetary breakdown should itemize every bill and lien claim to be satisfied from the monetary recovery. The client should read and understand how the monetary recovery is to be distributed, the lien payment and whether there was a negotiated lien reduction.
f. Cover letter to lien claimant at conclusion of case - should detail the payment of the lien claim, the amount of payment being made from the client trust account, and that the client has no further obligation to satisfy any balance owing. A copy of this letter must go to the client so that the client is assured that proper payment has been made and the amount retained in the client trust account has been properly distributed. Any negotiated savings on a lien claim must immediately be paid to the client.
B. Federal Statutory Lien Claims
Under federal law, there are several statutes allowing a claim for reimbursement of medical bills. The ones known to this writer are set out below:
1. Veteran Administration - Medical care provided by the Veteran ‘s Administration
is required to be reimbursed under the Medical Care Recovery Act, 42 U.S.C. ” 2651 – 2653. Contact the Department of Veterans Affairs, Regional Counsel, 11000 Wilshire Boulevard, Los Angeles, California 90024; (310) 268-3800. There is some room for negotiation, but they will want to see if other lien holders made reductions.
2. Employee Retirement Security Act (ERISA) - medical benefits provided by an
employer ‘s insurance company, falling under the federal ERISA laws, have a requirement for reimbursement. The question of ERISA reimbursement has been a source of confusion to the trial attorney, and there have been several recent cases on the issue. The CAALA Listserv has provided a source of conversation regarding this issue, and three CAALA member Listserv contributors, Ronald Dean, Nigel Whitehead and Arash Homampour, have provided valuable insight to this issue. This section has borrowed from their wisdom.
In 2002, the United States Supreme Court confirmed that ERISA plans cannot file a federal action to compel its insureds/beneficiaries to reimburse the ERISA plan for medical benefits paid as a result of an injury caused by a third party. Any attempt to enforce a plan with reimbursement language is unenforceable in federal court. See Great-West Life & Annuity Ins. Co. v. Knudson (2002) 534 U.S. 204, 221.
A 1996 California court ruled that ERISA preempts any state court law allowing for reimbursement or lien claim recovery. See Jefferson-Pilot Life Ins. Co. v. Krafka(1996) 50 Cal.App.4th 190, 194 [57 Cal.Rptr.2d 723]. The belief that there is federal preemption was solidified by the Jefferson-Pilot case, but subsequent 9th Circuit cases have held that state court contract actions are appropriate for recovery of lien benefits paid under ERISA. (See discussion below.) These new cases may be in conflict with the Jefferson-Pilot preemption ruling, but most likely state courts will allow the contract actions. In fact, a recent California case allowed an ERISA plan participant to bring a state court action for breach of contract against medical providers. See Benitez v. North Coast Women ‘s Care Medical Group, Inc. (2004) 106 Cal.App.4th 978 [131 Cal.Rptr.2d 364].
Recovery may be denied when the ERISA employee is required to sign a separate reimbursement agreement. FMC Medical Plan v. Owens 122 F.3d 1258, 1259, 1262 (9th Cir. 1997). When the reimbursement provision is renamed, seeWestaff (USA) Inc. v. Arce 298 F.3d 1164, 1166 (9th Cir. 2002). See also Fifield Manor v. Finston (1960) 54 Cal.2d 632, 636-637 [7 Cal.Rptr. 377] and Truck Ins. Exch. v. County of Los Angeles (2002) 95 Cal.App.4th 13, 21 [115 Ca.Rptr.2d 179], when an insurance company attempts reimbursement
Attorney fees may be recoverable by the insured ‘s attorney for any failed attempt by the ERISA carrier for reimbursement. Carpenters Health and Welfare Trust for Southern California v. Vonderharr 384 F.3d 667 (9th Cir. 2004), where the court found that the trust burdened the beneficiary with unnecessary litigation. See also Van Gerwen v. Guarantee Mutual Life Co.214 F.3d 1041, 1045(9th Cir. 2000) and Westaff (USA) Inc. v. Arce 298 F.3d 1164, 1166-1167 (9th Cir. 2002).
Before being too ecstatic about not having to reimburse an ERISA carrier ‘s claim, look at Providence Health Plan v. McDowell 361 F.3d 1243 (9th Cir. 2004), which allowed for common law contract law to apply. See also Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot & Wansbrough 354 F.3d 348 (5th Cir. 2003); Primax Recoveries, Inc. v . Young 83 Fed.Appx. 523 (4thCir. 2003); and Administrative Committee of Wal-Mart Stores Inc. v. Varco 338 F.3d 680 (7th Cir. 2003).
In Providence Health Plan, the court found that state law for lien reimbursement was a remedy allowed under Great-West Life & Annuity Ins. Co., and there was no ERISA preemption for recovery under basic contract law. It was a matter of state contract law. If state law applies, then the beneficiary may be able to assert the make whole doctrine, allowed in some courts. (See Make Whole section of this handout.) The Providence Health Plan court found, Because this is merely a claim for reimbursement based upon the third-party settlement, it does not relate to the plan [citation omitted.]. It should be noted that the breach of contract action involved the original contract plan and an executed promise to pay by McDowell’s tort action attorney.
In support of Providence Health Plan, the 9th Circuit recently remanded the matter of Carpenters Health and Welfare Trust for Southern California v. Vonderharr 384 F.3d 667 (9th Cir. 2004) to determine if there is a state claim for contract violation. The court stated, some common law reimbursement may survive ERISA ‘s preemptive force. Whether the contract enforcement is based upon the original ERISA agreement or the subsequent agreement executed by the employee/injured person’s attorney, is unclear. What is clear, the claim must be negotiated and never see your client again.
3. Medicare is an entitlement program that allows Social Security beneficiaries to have medical insurance. Persons involved in injuries and eligible for Medicare can have Medicare pay for the medical services rendered for the injury. Under Medicare, however, Medicare considers it to be a secondary payer, i.e., the primary payer would be medical payment insurance under, inter alia, an automobile policy, other health insurance, and third party liability claims. As to the latter, Medicare will pay the injury medical bills and hold the injured party accountable to repay Medicare upon recovery from the third party or the third party’s insurance carrier. Medicare has an automatic lien that is superior to any other lien claim. For an indepth reading on these issues, it is recommended that Medicare Secondary Payer Issues written by David L. McGuffey and Timothy L. Takacs, revised 2/13/04, be downloaded from the Internet under that title.
The Medicare Secondary Payer (MSP) program established by Congress allows for medicare to pay benefits for covered injuries that are caused by a third party. Medicare expects reimbursement, and provisions allow for recovery against the third party, if the injured insured does not pay. The client will probably be required to indemnify the third party for any monies paid to medicare after settlement and payment is made to the injured client. Yuk! See 42 U.S.C.
‘ 1395y(b) and Medicare regulations at 42 C.F.R. 411.20 et seq.
Medicare may be on notice of the potential third party claim by the way the medical provider codes the medical care on its report to Medicare; i.e., the code may indicate services for a trauma. Medicare may then notify the beneficiary of the obligation for reimbursement. The plaintiff’s attorney should determine whether Medicare is available and paying for the injured client’s medical bills. If so, Medicare should be notified by the plaintiff attorney of the third party claim. In various parts of the county, the benefits are coordinated and paid by an enterprise called Medicare Coordination of Benefits (COB). It is important that the attorney contact the responsible COB agency to determine if Medicare has paid for injury benefits and the amount of the Medicare lien. A central telephone number is 1-800-999-1118 x1x5.
Reasonable attorney fees and costs may be deducted from the Medicare reimbursement under 42 C.F.R. ’ 411.37, and there is an opportunity to obtain a waiver of the reimbursement requirements under certain conditions. Contact for a waiver must be made directly to Medicare, not to the COB. However, the COB can be a guide to obtaining a waiver by directing to the proper Medicare office. 42 C.F.R. ’ 411.28
Until Medicare provides a release of its statutory rights to reimbursement, all services paid by Medicare will continue and reimbursement will be sought. Get the Medicare release!
4. Medicaid is a welfare public assistance program, and it is means tested. Medical care for those who qualify in California is administered through the California Department of Health Services’ Medi-Cal program. All lien claims follow the Medi-Cal rules set out elsewhere in this handout.
C. California Statutory Liens
1. Emergency Room and Hospital Liens - Civil Code ’ 3045.1 et seq., allow a
statutory lien for services provided by an emergency room facility and for follow-up hospital care. Whether the follow-up medical care must be immediate after the emergency room service is unclear in the statute. In Newton v. Clemons (2003) 110 Cal.App.4th 1 [1 Cal.Rptr.3d 90], the court found a county lien against a settlement was based upon Civil Code ’ 3045.1. It held a gap in the treatment by the county did not mean the care was not ongoing, as required by the statute. Note that a partial satisfaction of the lien by the injured person does not satisfy the plaintiff’s obligation for the entire bill. Newton, Id. p.16.
Civil Code ’ 3045.3 requires the lien to be effective only if Aa written notice is properly served on the third party insurance carrier. Careful reading of this statute is important. Whether the plaintiff’s attorney has an affirmative duty to notify the medical facility of the third party case is debatable.
When a hospital agrees to accept payment from an injured person’s health carrier under a predetermined contract, the hospital cannot lien the third party case for the balance of the bill. Parnell v. Adventist Health System/West (2005) 35 Cal.4th 595.
2. Children Services Benefits provided by the state and county and paid pursuant to
Health and Safety Code ’ 123982 et seq., allows for an automatic lien on the proceeds of a third party recovery. Notice of the pending action and other notices are required to be given to the State Director of Health Services, similarly to the requirements under Medi-Cal, and to the local, county Children’s Services Department.
Unlike Medi-Cal liens, there is no reduction for attorney fees and costs, when there is a Children’s Services’ lien imposed under Government Code ’ 23004.1 and Health and Safety Code ’ 123982. See Tapia v. Pohlmann (1998) 68 Cal.App. 4th1126 [81 Cal.Rptr. 2d 1]
3. Medi-Cal Benefits are required to be reimbursed under Health and Safety Code ’
14124.70 et seq. Notice of the pending case to the State Director of Health Services (DHS) is mandatory. The DHS can recover the reasonable value of benefits paid. . . because of an injury for which another person is liable … by bringing its own action through the Attorney General against the third party tortfeasor or by asserting a lien in an action by the injured party against the tortious third party.
The DHS director has the power to compromise, settle or waive the departments’ lien claim. See ’ 14124.71, subdivision (b). When attorney fees are incurred by the injured beneficiary, in which DHS has established a lien claim, the DHS recovery is reduced by 25%. See ’ 14124.72, subdivision (d). A cost reduction is also allowed by that same code section. Section 14124.78 provides a limitation on the amount of recovery by DHS, . . . in no event shall the director’s claim exceed one-half of the beneficiary’s recovery after deduction for attorney’s fees, litigation costs, and medical expenses relating to the injury…
The DHS home page regarding medical care services states, . . . these deductions [for fees and costs] are in the nature of a contribution for the fees and costs incurred by the beneficiary and are not additional payments to the attorney. The lien reductions in recognition of these charges against the gross settlement are solely for the benefit of the beneficiary.
The code is quite clear that the DHS lien claim is recoverable, if the injured plaintiff, its heirs, guardian, etc., recovers specifically for the medical expenses. A wrongful death action, which does not attempt recovery for the medical bills incurred by the injured decedent, does not permit the DHS to lien the recovery. See the very new (August 1, 2005) California Supreme Court case of Fitch v. Select Products Company No. S116223, 2005 DJDAR 9211. The court held:
Because the damages awarded in a wrongful death action are compensation for the harm to the survivors rather than to the decedent, and because those damages do not include medical expenses incurred in treating the decedent, to allow DHS to recover the decedent’s medical expenses from the wrongful death damages would reduce those damages below the amount needed to fully compensate the survivors for the harm done to them. Id.
p. 9212
Note that an action by the estate for damages sustained by the decedent will bring a different result.
Similar reasoning can be found in the recent balanced billing or substitute billing decision by the California Supreme Court. In Olszewski v. Scripps Health(2003) 30 Cal.4th 798 [135 Cal.Rptr.2d 1] the court again strictly construed Welfare & Institute Code ’ 14124.70 et seq., when it found that a provider of medical services who contractually accepts the benefits provided under Medi-Cal cannot bring an action for the balance owing for the medical services provided to the plaintiff. (Under this code section the provider had to return the Medi-Cal payments before seeking the substitute billing.) Note that there is pending legislation that may modify the Olszewski rule. The new Medi-Cal information pamphlet states:
The filing of provider liens in third party actions is no longer allowed once the provider has billed and been paid by Medi-Cal. Welfare & Institute Code ’14124.791 is no longer in effect due to the 2003 Appellate Court ruling, Olszewski v. Scripps Health[The Olszewski court held this section and ' 14124.72 unconstitutional.]
To notice DHS of the third party action and to determine the Medi-Cal lien, contact the DHS at:
Department of Health Services
Recovery Section/Personal Injury Unit
P. O. Box 997425, MS4720
Sacramento, California 95899-7425
(916) 650-0490; Fax (916) 9560-6581
It should be noted that Medi-Cal lien rights are superior to all lien claims, except those of the federal Medicare program. Welfare & Institute Code ’ 1424.74(e)
Medi-Cal can only recover the amount it has paid. In Moore v. KaiserFoundation Health Plan, Inc., Medi-Cal had paid monthly premiums for the plaintiff’s capitate medical care at Kaiser. In a malpractice action by plaintiff, Medi-Cal liened the claim. The court held Medi-Cal’s statutory lien was limited to only the monthly premiums paid by Medi-Cal. See Moore v. Kaiser Foundation Health Plan, Inc., (1997) 57 Cal.App4th 134 [66 Cal.Rptr.2d 784]. It is unclear whether new Civil Code ’ 2040, discussed elsewhere in this handout, has application here.
4. County Health Facility Benefits Provider is given a subrogation lien right under
Government Code ’ 23004.1 for services provided an injured plaintiff. Additionally, the code allows subrogation against the third party tortfeasor recovery directly against the tortfeasor. Whether the plaintiff has a duty to notify the county is unclear. Note, however, that the statutory language limited these liens to judgment and not settlement. See Mares v. Baughman (2001) 92 Cal.App.4th 672 [112 Cal.Rptr.2d 264] and Newton v. Clemons (2003) 110 Cal.App.4th 1 [1 Cal.Rptr.3d 90]. There is pending legislation to change the statute to include settlement.
Note that attorney fees and costs are not deductible from the county lien claim. (See section on Common Fund Doctrine for case citations.)
5. Workers‘ Compensation Benefits - The Labor Code allows for a lien or
subrogation by the insurance carrier under Labor Code ” 3601 and 3850 et seq. Notice to the carrier or employer is mandatory under the code sections.
6. Victims of Violent Crimes - statute provides for a lien of all benefits paid.
Government Code ’ 13963 et seq. allows for lien on any judgment, award or settlement.
D. Contractual Provisions
It is essential that the contractual reimbursement provision be read by the attorney and the client. Not all such provisions are equal.
These contractual lien provisions must be honored, and the attorney owes a fiduciary duty to the lien claimant once there is knowledge of the lien claim. There need not be a signature of the attorney to bind the attorney to the lien claim payment requirements. See Kaiser v. Aguiluz (1996) 47 Cal.App.4th 302 [54 Cal.Rptr.2d 605] However, compare the Aguiluz case to cases involving automobile reimbursement provisions in Farmers Insurance Exchange v. Zerin (1997) 53 Cal.App.4th 445 [61 Cal.Rptr.2d 707] and Farmers Insurance Exchange v. Smith(1999) 71 Cal.App.4th 660 [83 Cal.Rptr.2d 911]. The latter found the attorney to not be a collection agent for the insurance company. The injured plaintiff’s attorney’s failure to pay the lien claim from the case proceeds will not release, however, the client from such obligation of payment. APay the $2.00!”
A nonowner passenger in an automobile who suffers injury is obligated to repay the automobile insurance company providing medical payments under the automobile insurance policy for that injury. The passenger receives the benefits of the contract and is held to pay the detriment of the contract. See Mercury Casualty Company v. Sharla Rae Maloney (2003) 113 Cal.App.4th 799 [6 Cal.Rpt.3d 647].
Insurance policy provisions for reimbursement of medical benefits after recovery from a third person have been upheld in Lee v. State Farm Mut. Auto Ins. Co. (1976) 57 Cal.App.3d 458 [129 Cal.Rptr. 271]; West v. St. Farm Mut. Auto Ins. Co.(1973) 30 Cal.App.3d 562 [106 Cal.Rptr. 486]; Kardly v. State Farm Mut. Auto Ins. Co. (1989) 207 Cal.App.3d 479 [255 Cal.Rptr. 40]; Prudential Property & Casualty Ins. Co. v. San Francisco County Sup. Ct. (1995) 36 Cal.App.4th 275 [42 Cal.Rptr.2d. 227]; and Zubia v. Farmers Ins. Exch. (1993) 14 Cal.App.4th 790 [18 Cal.Rptr.2d 65]. Note that Lee, supra, allows for reduction of attorney fees and costs from the reimbursement lien claim.
An insurance company or health care provider providing medical benefits cannot require an assignment of benefits or be subrogated into the matter without statutory authority. See Block v. Cal. Physician‘s Services (1966) 244 Cal.App.2d 266 [53 Cal.Rptr. 51]. Statutes that do allow for subrogation are Civil Code ’ 3045.1 et seq., regarding statutory hospital liens; Labor Code ’ 3856, for workers’ compensation benefit reimbursements; Government Code ’ 23004.1, for services provided at a county facility; and Government Code ’ 13963, for victims of violent crimes.
Language in an insurance policy may be deceiving. For example, a provision allowing for subrogation without the requirement of allowing interpleading into litigation, is merely a lien on the claim. Lee v. State Farm Mut. Auto Ins. Co. (1976) 57 Cal.App.3d 458 [129 Cal.Rptr. 271]. Reimbursement provisions are also lien claims, and they need only be paid if there is recovery. Health Net, in its reimbursement section of its handout states, AHNL’S legal right to reimbursement is called a lien. The difference between the terms lien, subrogation and reimbursement were adeptly discussed in a November 2003 Forum article by Michael J. Fitzpatrick entitled Liens vs. Subrogation vs. Reimbursement.
Individual contracts to pay for medical services will probably have a provision requiring payment regardless of whether or not there is recovery from the third party tortfeasor. This relationship is creditor-debtor between the medical provider and the injured client. The payment of only a portion of this lien claim may not release the injured client of paying the balance owing, unless it is so specified the agreement to reduce the lien.
E. Common Fund Doctrine
Attorney fees and costs may be deductible from the carrier’s claim for reimbursement. Civil Code ’ 3040 subdivisions (c) and (f) provide such deduction for HMO and other health care insurance providers, including health care services provided on a capitation basis. Note that statutory lien claims under workers’ compensation benefits (Insurance Code ” 3601 and 3850 et seq.), Medi-Cal benefits (Welfare and Institutions Code ’ 14124.70), and hospital service liens (Civil Code ’ 3045.) et seq. are controlled under those specific statutes and not under Civil Code ’ 3040. (See section below for further discussion of Civil Code ’ 3040.)
Case law allowing for reduction of attorney fees and costs can be found in Quinn v. State of California (1975) 15 Cal.3d 162 [124 Cal.Rptr. 1] for workers’compensation; Kaiser Foundation Health Plan, Inc. v. Aguiluz (1996) 47 Cal.App.4th 302 [54 Cal.Rptr.2d 665]; Farmers Ins. Exch. v. Zerin (1997) 53 Cal.App.4th 445 961 Cal.Rptr.2d 707]; Farmers Ins. Exchange v. Smith (1999) 71 Cal.App.4th 660[83 Cal.Rptr.2d 911]; Summers v. Newman (1999) 20 Cal.4th 1021 [86 Cal.Rptr.2d 303].
The common fund doctrine has no application when dealing with medical facilities providing charitable medical benefits under Government Code ’ 23004.1. Lindsey v. County of Los Angeles (1980) 109 Cal.App.3d 933 [167 Cal.Rptr. 527]. TheLindsey decision was upheld in the California Supreme Court case of City and County of San Francisco v. Sweet (1995) 12 Cal.4th 105 [48 Cal.Rptr.2d 42]. See alsoLovett v. Carrasco (1998) 63 Cal.App.4th 48 [73 Cal.Rptr.2d 496].
F. Statutory Reduction of Contractual Liens
Through the wonderful leadership of CAOC and its staff, the 2000 Legislature passed a bill that controls the contractual lien claims of health care insurers. Civil Code ’3040 became effective on January 1, 2001.
Many health care insurers put these provisions with their reimbursement provisions, but many do not notify the injured beneficiary of its terms. It is therefore essential that we attorneys understand the lien restrictions and benefits promulgated by section 3040. This code section has no application to contracted liens with individual medical providers or providers who render medical service where there is no insurance coverage. For an in-depth reading on this topic, see New Ways to Cut health Insurer Liens, Scott H.Z. Sumner, Forum March 2001.
1. Application to HMOs and Insurers - subdivision (a) sets forth the entities bound by the act, and it sets lien limits based upon whether the beneficiaries are noncapitated or capitated
Noncapitated beneficiaries receive itemized bills for services. The carrier pays all or a portion of the itemized bill to the medical provider. The act limits the lien for noncapitated services to the amount actually paid by the HMO or insurance carrier. ’ 3040, subd. (a)(1).
Capitated beneficiaries receive medical benefits that have no specific itemized billing for the service. Kaiser beneficiaries fall into this category. When a lien request is made to Kaiser, for example, it utilizes billing codes for the serviced region. The act limits the lien for these services to the amount equal to 80 percent of the ususal and customary charge for the same services by medical providers that provide health care services on a noncapitated basis in the geographic region in which the services were rendered. ’ 3040 subd. (a)(2).
In dealing with the capitated lien, it should be argued that the lien is first reduced by 20% and then again reduced by the common fund discount for attorney fees and costs allowed by subdivision (f) of ’ 3040.
Subdivision (b) applies the above limits when the HMO or insurance carrier normally provides capitate service but pays a non capitated bill such as an outside emergency room bill.
2. A Maximum Lien Recovery is established when an attorney is engaged. Subdivision (c) states, A. . . the lien subject to subdivision (a) may not exceed the lesser of the following amounts:
(1) The maximum amount determined pursuant to subdivision (a) or (b), whichever is applicable.
(2) One-third of the moneys due the enrollee or insured under any final judgment, compromise, or settlement agreement.
When there is no attorney, the lien claim follows the same formula, but the lien claimant can never obtain more than 50% of the case result. ’ 2040, subd. (d)
3. Comparative fault deduction is allowed where the final Judgment includes a special finding by a judge, jury, or arbitrator, that the enrollee or insured was partially at fault… Note that a finding is required.
4. Common fund deduction for attorney fees and costs is allowed under subdivision (f).
The act specifically excludes application for workers’ compensation benefits, Medi-Cal benefits and hospital services pursuant to Civil Code ’ 3045.1 et seq.
G. Make Whole Rule
This rule basically states that before a lien claim can be equitable, the third party recovery must fully compensate the client for the total injury. Thus, if there is a policy limit recovery, for example, and it does not adequately pay for the entire injury claim, the client has not been made whole. A further reduction to the client’s recovery would be necessary to reimburse the lien claimant, and such reduction further reduces the whole recovery to the client. See Sapiano v. Williamsburg National Insurance Company (1994) 28 Cal.App.4th 533 [33 Cal.Rptr.2d 659]; and Samura v. Kaiser Foundation Health Plan, Inc., (1993) 17 Cal.App.4th 1284 [22 Cal.Rptr.2d 20]. There is no direct case in California on the make whole doctrine involving automobile medical payments coverage and the make whole doctrine, but see Rimes v. State Farm Mut. Auto. Inc. Co. 106 Wis.2d 263, 316 N.W.2d 348. For a comprehensive look at the doctrine, see CAALA=s Advocate Magazine, June 2001, The Make Whole Rule: The Best Kept Insurance Secret in California by CAALA member Penny Wheat.
Some insurance carriers are putting into their contract provisions that the carrier has priority rights to the recovery. See Samura v. Kaiser Foundation Health Plan, Inc., (1993) 17 Cal.App.4th 1284, 1289 [22 Cal.Rptr.2d 20]. Thus, the priority established by contract may preclude the make whole doctrine. The carrier would, contractually, be entitled to payment before the client receives distribution.
Since the holding of Samura, supra, the California Legislature passed controls on the amount of recovery allowed by medical care providers such as HMOs and for health services provided on a noncapitated and capitated basis. Civil Code ’ 3040, discussed above.
The issue of whether there should be a deduction of uninsured motorist benefits for previously paid medical payments is frequently raised. In Security National Ins. Co. V. Hand (1973) 31 Cal.App.3d 227, 231-232 [107 Cal.Rptr. 439], involving payment by a concurrent tortfeasor, the make whole doctrine was applied. See alsoCSAA v. Huddleston (1977) 68 Cal.App. [137 Cal.Rptr.] 690 United Pacific Reliance Ins. Companies v. Kelly (1983) 140 Cal.App.3d 72 [189 Cal.Rptr. 323] and Kelly v. Farmers Ins. Exchange (1987) 194 Cal.App.3d 1 [239 Cal.Rptr. 259].
H. Conclusion
The area of lien claims and lien reimbursement is vast. This handout and the oral presentation will not satisfy all questions. Hopefully, they will provide a start.
