North Carolina Trial Law Blog

It appears there are two substantial questions here: 

• How does the settlement affect the client?
• How does it affect the attorney?

Let’s assume none of the providers submit to the health plan before the settlement.  Let’s also say that none of the providers have medical liens (NCGS Sect. 44-49 & 50). 

Here is the Statute (broken into sections) and MY interpretation:

§ 135-40.13A. Liability of third person; right of subrogation; right of first recovery

Whenever the Plan pays benefits for hospital, surgical, medical, or prescription drug expenses, with respect to any Plan member, the Plan shall be subrogated, to the extent of any payments under the Plan, to all of the Plan member's rights of recovery against liable third parties, regardless of the entity or individual from whom recovery may be due.

ANALYSIS:  At this point the Plan has paid no bills, though the lien says “whenever” which could mean even after a settlement.  “To the extent of any payments under the plan”:  at this point there are no payments, so it seems that there is currently no subrogation.    Also, the subrogation is to “all of the Plan members rights of recovery against liable third parties”.  If you have a settlement, there are no further rights against a third party so at that point the Plan can not be “subrogated” to anything.  The last part that says “regardless of the entity or individual from whom the recovery may be due” is a bit problematic to me.  It seems that it is further defining “third parties” from the previous clause, saying that it doesn’t matter who that third party may be.  So could that third party be the client?  I don’t think the client could be a third party in this instance, so I’m choosing to basically ignore that last part.

The Plan member shall do nothing to prejudice these rights.

ANALYSIS:   Well, I don’t think taking the settlement can prejudice rights that are not currently in existance because the plan has not paid anything yet.

The Plan has the right to first recovery on any amounts so recovered, whether by the Plan or the Plan member, and whether recovered by litigation, arbitration, mediation, settlement, or otherwise.

ANALYSIS:   Again, even though the lien means that the Plan takes FIRST, at this point they don’t have a right to take anything because they have not paid anything.

If the Plan is precluded from exercising its right of subrogation, it may exercise its rights of recovery to the extent allowed by law.

ANALYSIS:  I don’t exactly know what this means.  I don’t see the plan as being “precluded” because, again, at this point the have nothing to subrogate. I actually think this line is basically meaningless.

If the Plan recovers damages from a third party in excess of the claims paid, any excess will be paid to the member, less a proportionate share of the costs of collection.

ANALYSIS:  If the plan steps into the place of the Plaintiff, they pay anything above the Plan lien to the client, MINUS atty fees for them (nice that they get paid but we don’t, huh? At least until the new version of the lien is signed by the Governor)  This does not affect your situation.

In the event a Plan member recovers any amounts from a third party to which the Plan is entitled under this section, the Plan may recover the amounts directly from the Plan member.

ANALYSIS:  This is the most troubling section to me in regard to your client. This section does not put any qualifying language on “plan member recovers any amounts” as to the timing of those amounts recovered. This seems to authorize the plan to attempt to collect directly from the member (which is basically what “lien” means).  It seems the worst case scenario for your client is that this section authorizes the Plan to attempt to collect from your client at any time.

The Plan has a lien, for the value of claims paid related to the liability of the third party, on any damages subsequently recovered against the liable third party.

ANALYSIS:  Ok, we know this is a lien statute.  “Related to” is the language that means that “unrelated” medical bills can not be part of the lien, basically the causation element to the subrogation.  “…on any damages subsequently recovered against the liable third party” is interesting to me.  This may be what protects your client from retroactive collection efforts. 

I would rearrange the sentence for better understanding:  For the value of claims paid related to the liability of the third party, the Plan has a lien on any damages subsequently recovered against the liable third party. 

I would want to read this as saying:  1)  The Plan must pay the claim. 2)  Only when the claim is paid does a lien then arise,  3)  If the lien is then created by the payment of the claims, “the Plan has a lien on any damages subsequently recovered.”  Thus, the lien is only on damages recovered AFTER the lien arises, hence the use of the words “subsequently recovered”, i.e recovered AFTER the lien arises.

If the Plan member fails to pursue the remedy against a liable third party, the Plan is subrogated to the rights of the Plan member and is entitled to enforce liability in the Plan's own name or in the name of the Plan member for the amount paid by the Plan.

ANALYSIS:  This is basically reiterating the definition of subrogation. If the Plan member does not pursue the case, the Plan can step into the shoes of the Plaintiff (or sue in their own name) and pursue the matter against the liable third party.

CONCLUSION:

Issue One:  Can the lawyer give the money to the client?  Answer:  To me, it appears that yes you can, and in fact, must if the client so instructs you and there are no liens.   

Issue Two:  Does the Plan have a lien if the Providers file after the disbursement has been made to the client if there was no payment by the Plan before or at the time of disbursement?

Answer:  Based upon my interpretation of the statute, especially the section that says “The Plan has a lien, for the value of claims paid related to the liability of the third party, on any damages subsequently recovered against the liable third party.”  The Plan only has a lien on proceeds that are recovered AFTER the Plan makes a payment.

I would advise my client that it is possible that the Plan might try to sue them, and that the statute is not absolutely clear, but there is certainly a good argument that the lien would not allow recovery after the attorney had made a settlement. I would also advise the client that the Plan might deny payment to the providers after the settlement has been accepted, but that would have to be based upon some language in the contract between the providers and the Plan.  The Providers might still sue the client for the medical bills if the Plan refuses to pay, but again, that suit would, to some degree, be controlled by the language of the contract between the client and the Plan, and also the Plan and the provider.

I’m very interested in any feed back on the interpretation of the above statute in this circumstance.  Email privately if you want to [email protected] or post here.

Chris Nichols

www.NicholsTrialLaw.com