Synopsis: Attorneys representing personal injury plaintiff's must take the proper steps to see that various liens against settlement or judgment proceeds of the client's case are satisfied. If the attorney does not, he or she could find themselves personally liable for the satisfaction of such liens.

Attorneys representing claimants are generally aware that a settlement or judgment recovery in a personal injury suit is frequently subject to various claims by third parties. Hospitals, insurance companies, and governmental agencies often expend money or services on behalf of the injured party. These institutions very likely will seek satisfaction of those debts through the enforcement of liens. Consequently, a claimant's attorney must be aware of who holds liens against the proceeds of the settlement or judgment and provide for their satisfaction accordingly. Failure to do so could result in the attorney being held personally liable for payment. With that concern in mind, it is important for attorneys dealing in personal injury practice to be familiar with the various state and federal laws and regulations relating to liens against settlement or judgment proceeds. This article will attempt to identify the primary types of liens which may be applicable to the proceeds of a personal injury recovery and to outline the essential features of each such lien. A thorough compilation of the numerous federal and state liens is set out in Missouri Litigation Settlements (MoBarCLE ed. 1991), Chapter 9, Liens, Subrogation, and Assignments, by Mark Turley.

A careful lawyer will take precautionary measures to ensure every possible lien is known at the outset so all parties involved are aware of how much money is already "spoken for." Generally, the client has the information about who provided or paid for medical care as a result of an injury. However, it can become confusing when more than one insurance company is involved or if the government and the insurance companies are entangled together. For instance, Medicare liens require no notice and thus the attorney could be left to discover these claims after paying out settlement proceeds. Interviewing the claimant about all policies he or she holds and then following up with letters to those companies concerning the benefits they provide is one way to help ensure that all liens and non-lienable claims are uncovered. It has also proven to be politic to make certain that the client understands at the outset that any recovery may be subject to outstanding liens.

When exploring the subject of liens in personal injury cases, it is important to understand the meaning given to the concepts of lien, subrogation, and assignment. These three terms convey similar ideas, but are not identical. "Lien" has been defined as "[a] claim, encumbrance, or charge on property for payment of some debt, obligation or duty" and a "tie that binds property to a debt or claim for its satisfaction."1 A lien is a charge imposed upon specific property, whereas an assignment is "the act of transferring to another all or part of one's property, interest, or rights."2 "Subrogation" has been defined as "[t]he substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities."3

There are two general rules which must be considered. First, there is the age-old legal principle that a cause of action for personal injury is not assignable but is personal to the injured party.4 Another familiar principle is that a cause of action cannot be split.5 Having set out the broad general principles, we can begin by exploring the many and various exceptions to these two general principles under Missouri law.

The established Missouri legal principle that a personal injury claim is not assignable was reinforced in Travelers Indemnity Co. v. Chumbley.6 The Missouri Court of Appeals for the Southern District held that an insurance company did not acquire a right of subrogation in the insured plaintiff's personal injury claim. The insurance company argued that its rights were based on conventional subrogation found in a clause in the insurance contract. The court held that the insurer's rights were based on an assignment of a part of the plaintiff's cause of action. The court refused to permit the insurance company's action based on the assignment.

Subrogation has been permitted, however, with regard to property damage claims. In General Exchange Ins. Corp. v. Young,7 the Supreme Court of Missouri held that an insured's property damage claims can be subrogated to the insurer. The insured's personal injury claim is held to be separate and not assignable. Allowing an insurance company to be subrogated as to a property damage claim only, while the insured remains the owner of his personal injury claim, was held not to constitute an impermissible splitting of the insured's cause of action.

Despite giving lip service to the hoary legal shibboleth that a personal injury claim is not assignable, Missouri courts have in fact approved many liens or charges upon a personal injury recovery. In Chumbley,8 the Missouri Court of Appeals for the Southern District restated the general rule that a personal injury claim is not assignable. Since then, however, Missouri courts have approved a number of exceptions to the general rule based on state statutory provisions and federal law relating to medical and other benefits.

An issue which will arise in virtually every case involving a lien or charge against a recovery is the relationship between the particular lien or charge and the statutory lien that an attorney has for legal fees and expenses. As a general rule, an attorney's lien takes precedence over other statutory liens against a recovery by way of settlement or judgment. Similarly, many lien statutes provide for a sharing of the obligation for attorney's fees between the claimant and the lienholder. Consequently, a lienholder cannot generally waltz in when a claimant and his attorney have finally produced proceeds from a claim after years of effort and expenditures and recover under a lien, without an obligation to prorate attorneys' fees with the successful claimant. However, as will be seen below, certain federal statutes provide for collection of monies paid out to injured parties without regard for the costs of creating the fund of recovery.

1. Attorneys' Liens

One lien which is applicable to all claims filed in Missouri courts is the attorneys' lien. Attorneys' liens upon a client's cause of action are provided for by law under § 484.130, RSMo 1986. The lien attaches at the commencement of an action in court or upon the filing of an answer containing a counterclaim.9 Settlement between the parties is not sufficient for the attaching of a lien in the absence of a court action.10 The Missouri statute also specifically authorizes contingent fee contracts in personal injury and certain other claims.11 Contingent fee agreements must be reduced to writing.12 Representing a client on an oral contingent fee basis is considered a violation of an attorney's ethical duties.13 To place an attorney's lien upon a client's claim, written notice is required informing the defendant that the attorney has an interest in the claim.14 Furthermore, the attorney must state the percentage of the contractual contingency fee in the body of the notice.15 Although it may come as a surprise to many attorneys, it does not appear that a statutory attorney's lien is applicable in the absence of a court action upon a claim or counterclaim.16

Another area of concern for attorneys is the issue of out-of-pocket expenses. It has been held that an attorney's lien includes proper and legitimate out-of-pocket advances for the costs of litigation. The Missouri Court of Appeals for the Western District, in Ganaway v. Department of Social Servs.,17 stated an attorney is entitled to a lien for any legitimate expenses incurred by the attorney in the prosecution of the action, not necessarily limited to taxable items of costs and disbursements, but including any expenditures which have properly been made in furtherance of the action.18 The court distinguished the case of Koch-Laumand Contracting, Inc. v. May Dep't Stores Co.,19 which was thought by some to provide precedent that expenses are not lienable. The court distinguished the Koch-Laumand Contracting case on the grounds the case dealt with the definition of "legal fees" in a contract action and not with the construction of § 484.130, the attorneys' lien statute.20

Another all-too-frequent problem comes up when the claimant desires to exercise his or her right to terminate the services of the attorney handling a claim on a contingent fee agreement. The courts struggled with this problem for years, but the issue was apparently resolved in Plaza Shoe Store, Inc. v. Hermel, Inc.21 The Court held that an attorney working on a contingent fee contract who is discharged by the client without cause is entitled to recover the reasonable value of his services, as measured by his normal hourly rate and the amount of hours put into working on the case, not to exceed the contracted fee, upon the happening of the contingency.22 In other words, the discharged attorney has a continuing lien on the cause of action of his client for his reasonable hourly wage, which is only payable upon settlement or satisfaction of a judgment.23 Absent a recovery by or on behalf of the client, the discharged attorney has no right to receive the hourly compensation under Plaza Shoe Store, Inc. v. Hermel.24

However, International Materials Corp. v. Sun Corp., Inc.25 further refined an attorney's recovery. The attorney is entitled to recover a fee for those services which confer a benefit upon the client. The client should be charged a fee only if the services unjustly enrich the client.26 The value of the services rendered is determined and an appropriate recovery is obtained.

As set out below, state and federal lien statutes generally provide that attorneys' liens for legal fees and expenses take precedence over other statutory liens. The attorneys' lien protects the attorney's contractual position when a recovery is made for a client. The remaining liens which will be discussed protect the interests of third parties to the action. A question of interest with respect to each such lien is the way in which it relates to the attorneys' lien.

2. Hospital Liens

Sections 430.230 and 430.235, RSMo 1986, provide that a Missouri hospital or clinic, supported in whole or in part by charitable contributions, may acquire a lien for the reasonable cost of services upon the personal injury claim of a person admitted to the hospital and treated for such injuries. The lien is limited to $25.00 per day and the reasonable cost of necessary x-ray, laboratory, operating room and medication service.27 The statute specifically provides that a hospital has no lien against "anyone coming under the workers' compensation law in this state."28 In order to be valid, written notice must be given containing a prescribed set of informational details.29 The notice must be sent by registered mail30 to the tortfeasor, the injured person, and to his attorney.31

Under § 430.250, RSMo 1986, any person who makes payment in compensation to an injured party without satisfying an outstanding and perfected hospital lien remains liable to the lienholder hospital for a period of one year. This language appears to apply the lien, to the tortfeasor and his attorney rather than the claimant's attorney. A hospital is entitled under the statutory scheme to be paid the amount of its lien or as much of the lien amount as can be satisfied out of 50 percent of the monies due to such patient under any final judgment or compromise or settlement agreement after first paying the amount of the attorneys' liens, then paying the federal and Missouri workers' compensation liens, and any other prior liens that have priority.32

Another area of concern is the attachability of a hospital lien to wrongful death payments. In American Family Mutual Ins. Co. v. Ward,33 the Supreme Court of Missouri held that the hospital lien statute does not cover the proceeds of a wrongful death claim. In this case, the Court observed that under § 430.230 the lien attaches to the claims of a "person admitted" to the hospital. The Court distinguished a personal injury claim from a wrongful death claim where the action is, by definition, not an action by the injured party.34 The Court held that the wrongful death action is a separate and distinct claim by the survivors for their own damages due to the death of the hospital patient.35 Therefore, the hospital lien did not attach to the proceeds of a wrongful death settlement.36

A popular misconception among lawyers seems to be that there is a "medical lien" which covers all health care providers, such as hospital bills, physicians' fees, and medication costs. As seen above, however, there is no general lien for medical expenses or services. The only such lien under Missouri law is the hospital lien, discussed above. However, while there may be no enforceable lien for most medical expenses, it would still seem to be a sound idea to try to account for such claims prior to paying out the proceeds of settlement. Although the attorney would have no personal liability for failure to satisfy doctor bills or other outstanding medical bills, the client would still face the liability. It is no doubt better practice for the attorney to try to settle all outstanding medical bills prior to paying out the proceeds of settlement. Experience demonstrates that health care providers are frequently willing to discount their bills at settlement.

3. Workers' Compensation Liens

A familiar and frequently encountered lien is the lien provided under Missouri law to workers' compensation insurers. Many is the personal injury claim that has been eaten up by a workers' compensation lien. Under § 287.150.1, RSMo Supp. 1997 (effective on August 28, 1993), "the employer shall be subrogated to the right of the employee" when the employee has a cause of action against a third-party tortfeasor.37 The statute provides that "any part of the recovery paid to the employee or his dependents . . . [after the employer's subrogation interest has been satisfied] shall be treated as an advance payment by the employer on account of any future installments of compensation . . ."38 The statute does protect the employee's attorney by providing that any recovery is subject to being prorated, stating that the employer is required to pay its "proportionate share of the expenses of the recovery, including a reasonable attorney fee."39

It is also important to note that an employer's right to subrogation is governed by the law of the state where the benefits are contracted. In Perry v. Carter,40 the Missouri Court of Appeals for the Southern District held that where benefits were contracted under Georgia law, the benefits were to be paid out according to Georgia law. Since Georgia law provided no right of subrogation for the employer, the compensation insurance carrier had no right of subrogation to recover the benefits paid to the employee under that state's statutory workers' compensation scheme.

The statute has also been amended in 1993 to clarify its applicability to wrongful death recovery. Prior to the 1993 amendments, an employer's subrogation rights were not limited to the amount of the wrongful death proceeds attributed to dependents of the decedent employee who had, in fact, received benefit payments under the workers' compensation statute. The 1993 amendments clarify the situation by providing that the subrogation right of the employer attaches only to that part of the wrongful death proceeds which are apportioned to a dependent who has received workers' compensation benefits as a dependent.41

The 1993 amendments also provide that, with respect to any recovery by the employer in a suit against a third party, any excess recovery over what was paid out in benefits must be apportioned between the employer and the employee (or his or her dependents), as provided for in §§ 287.150.2 and .3. This eliminates the possibility that the employer will gain a windfall recovery over and above actual benefit payments.

The 1993 amendments also limit the employer's subrogation interest to a sum equal to what the employee could recover against the third party.42 In such a case, the employer stands in the shoes of the employee but will not have its subrogation interest reduced proportionally to the comparative fault found on the part of the employee.43 The 1993 revisions to § 287.150 set out the formula for dividing attorney fees and expenses when comparative fault is found.44

However, when comparative fault does not enter the picture, the distribution of the proceeds made against a third party tortfeasor is governed by the formula set out in Ruediger v. Kallmeyer Bros. Service.45 The formula is as follows:

If an employee files suit against a third-party tortfeasor and obtains a settlement or other recovery, the employee is obligated to protect the employer's right of subrogation.47 To the extent the employee obtains a recovery, "he becomes a trustee of an express trust for the benefit of the employer to the extent of the employer's proportionate share of the recovery."48

4. Medicaid Liens

Medicaid is a government program set up to provide medical care to persons eligible due to financial need. The Medicaid program is administered by the individual states under applicable provisions of federal law.49 Under Missouri law, Medicaid is administered by the Division of Medical Services of the Department of Social Services.50 If a Medicaid recipient recovers from a third-party tortfeasor on any liability claim for an injury for which Medicaid has paid benefits, the Department of Social Services can assert a lien for moneys expended.51

Recently, the Missouri General Assembly passed legislation amending the procedure used by the Department of Social Services to enforce its rights against a recovery due to a Medicaid lien. The new statute provides for the negotiation of the final amount of a Medicaid lien.52 Prior to this enactment, the government had been unwilling to take a reduced amount to satisfy a Medicaid lien.53

Due to this rigidity and the possibility that Medicaid liens, among others, would speak for every last penny of judgment, many injured parties opted not to pursue the long road of recovery against a responsible third party. The former uncompromising attitude on the part of Medicaid officials, presumably thought to aid in full Medicaid recovery, actually hindered potential claimants and has likely cut down on the level of recoupment attained through Medicaid liens.54

The new legislation also provides for the Department of Social Service's responsibility for their pro rata share of attorneys' fees.55 Under the new law, an attorneys' lien has priority over a Medicaid lien.56 In the event that the Department of Social Services and the plaintiff cannot come to an agreement, any party may petition the court.57 The court then considers the financial aspects of the case, including medical costs, attorneys' fees, various statutory liens and the plaintiff's personal situation, in deciding whether or not the Medicaid lien should be reduced.58

5. Medicare Liens -- the "Super Lien"

The federal government has a right of subrogation for medical care payments made under the Medicare Act as set out in 42 U.S.C. § 1395y(b)(2)(ii).59 Because of the unlimited scope and reach of the lien provided for Medicare payment recovery, the lien has been denominated as the "Super Lien."60 The statute provides that payments may not be made "with respect to any item or service to the extent that -- payment has been made or can reasonably be expected to be made promptly . . . under a workmen's compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance."61 Payments made under Medicare are conditioned on reimbursement when payment "has been made or can . . . be expected to . . . be made under [another source of benefits]."62

The statute appears to give the government rights far in excess of traditional subrogation rights . The government has a right to recovery, through reimbursement, subrogation, or direct action from Medicare recipients, their attorneys, or third-party payors. This right exists even when no notice of the lien has been provided, if shown such parties are aware of Medicare's interest or "should be aware" of it.63 The government may waive repayment in certain circumstances if the amount involved or the possibility of recovery appears to make pursuit of the claim problematic.64

If Medicare pays the medical expenses for an injured party, in whole or in part, these payments are subject to recovery and suit may be filed to collect. The applicable regulations state that "[i]f the beneficiary or other party receives a third party payment, the beneficiary or other party must reimburse Medicare within 60 days."65 If reimbursement is not made within 60 days, interest may be charged.66 Personal injury claimants and their attorneys must satisfy Medicare's interest within 60 days of settlement even in the absence of a written notice of the lien.67 The Health Care Financing Administration (HCFA), which is responsible for administering Medicare, may initiate an action to recover benefits paid out whenever it learns that payment to the claimant has been made or could be made by a liability insurer.68

The government is subrogated to the rights of Medicare recipients against third-party tortfeasors for reimbursement of medical costs. Additionally, the government may bring a direct action against a third-party tortfeasor or against any entity (health care provider or physician) or primary plan which has been paid for such medical treatment.70 If a "primary plan" (group health plan, workers' compensation plan, automobile liability, or no fault insurance plan) fails to pay or reimburse, there is even a right to double damages.71

Unlike many other provisions of state and federal law, it appears that Medicare liens are not subordinated to attorneys' liens. Medicare regulations require that Medicare receive notice of settlements or judgments.72 The statute itself does not speak to the subject of attorneys' fees or liens. However, regulations specify that Medicare will follow the "fund doctrine" and reduce its recovery to allow for the costs of procuring the judgment or settlement.73 The current procedures applicable for Medicare intermediary carriers include attorneys' fees and expenses in the procurement costs, so that recovery will be reduced by that amount, provided that attorneys' fees and costs do not appear to exceed the prevailing standards in the area.74 However, the claimant attorney's fees and expenses are not free of the Medicare lien in the event that Medicare is not notified or paid its interest from a settlement or judgment.75 Additionally, Medicare's lien, like other federal liens, is superior to any other interest, including attorneys' liens, no matter who files first.76 The basic rule of thumb with respect to Medicare liens seems to be to provide timely notice to Medicare that an injury or death claim is being pursued.

6. The Federal Medical Care Recovery Act

Under the provisions of the Medical Care Recovery Act,77 the federal government is entitled to subrogation in cases where the government is authorized or required to provide medical care to persons injured, killed or given a disease by a third- party tortfeasor. Under this statute, the Veterans' Administration and the military services may recover for medical care provided to eligible personnel. Dependents' care and treatment would also be covered. Veterans' Administration subrogation rights are specifically addressed in 38 U.S.C. § 629(a)(1) and are similar to the government's rights under the Medical Care Recovery Act..

Under the Medical Care Recovery Act, the government is subrogated to the injured person's right to seek and recover the reasonable value of the medical care received.78 An injured person may be required to assign his claim or cause of action to the government "to the extent of that right or claim."79 The Medical Care Recovery Act is specifically tied to third-party tort liability.80 It has been held that the Act thus does not apply to workers' compensation claims.81 The statute provides that the government can intervene in any action brought for personal injury or death and that the government can file its own independent action if no action is commenced within six months by the party or parties entitled to file.82

The Medical Care Recovery Act does not provide for the recovery of attorneys' fees.83 It has been held that the federal government could recover the full amount paid out in benefits to a serviceman's wife where the government had no fee agreement with the wife's private attorney.84 The court held that the "created fund" doctrine would not be imposed on the recovery in the absence of statutory authority.85 The government may waive or compromise a claim under the Medical Care Recovery Act. To do so the government must find that collection would result in "undue hardship" to the person who suffered the injury.86

It has been held that the United States was not entitled, under the Medical Care Recovery Act, to the proceeds of an automobile accident victim's uninsured motorist benefits, for reasonable value of medical services provided to victims, where neither victim nor his insurer was liable in tort. The federal district court held that the uninsured motorist driving the other vehicle was the tortfeasor, rather than the victim or his insurance company.87

The Medical Care Recovery Act establishes the right of the government to recover against a third- party tortfeasor, and such right depends upon the actual definition of "insured" in the policy in question. Therefore, the government could not recover under the Act against a serviceman's automobile insurer for medical care and treatment furnished to the serviceman as a result of an automobile accident, since the insurer was not liable to the serviceman or to the government in tort, nor was government an "insured" under terms of policy.88

7. Employee Retirement Income Security Act (ERISA)

Congress enacted the Employee Retirement Income Security Act, or ERISA as it is commonly known, primarily to protect the interests of employees in employee benefit plans.89 ERISA has proven to have a far-reaching effect on many aspects of federal and state law to which, on the surface, it might seem to have no logical application. The settlement of personal injury claims is just one of those situations. Although the Act does not specifically prohibit or authorize the right of subrogation in personal injury cases, certain parts of the Act do affect the application of state anti-subrogation laws.

ERISA preempts the field in the regulation of employee welfare benefit plans, broadly defined in the Act as any fund or program by which an employer provides employees "through the purchase of insurance or otherwise," with "medical, surgical, or hospital care or benefit or benefits in the event of sickness, accident, disability, death or unemployment."90 The preemption clause91 is somewhat offset by the "saving clause" and the "deemer clause." The "saving clause" states that nothing in ERISA exempts state citizens from the state laws regulating insurance, banking, or securities,92 while the "deemer clause" states that no employee benefit plan shall be construed as being in the business of insurance or banking.93 Thus, ERISA and the doctrine of federal preemption has been used to invalidate state laws concerning employee benefit plans where the state law is deemed inconsistent with federal law.94

In Baxter v. Lynn,95 the Eighth Circuit considered the effect of ERISA on Missouri common law preventing subrogation by a health insurer. The court held that Missouri's common law prohibition against subrogation in personal injury actions could not withstand ERISA preemption even under the insurance "saving clause."96 The court remanded the case for a determination of whether the plan's subrogation provisions could be extended to cover a recovery under the uninsured motorist provisions of the policy covering the vehicle in which the plaintiff was riding at the time of the collision.97 In Davis v. Line Construction Benefit Fund,98 the district court held that the defendant fund could legitimately require the injured plan participant to execute an acknowledgment of the plan's subrogation rights prior to the plan paying the injured party's medical bills. The court noted the Summary Plan Description set forth the Fund's subrogation rights.99 The court stated that there was nothing in ERISA or in any applicable regulation which would have either sanctioned or prohibited the inclusion in an ERISA plan of a subrogation provision.100 The court held that ERISA preempted state law, which clearly would have prohibited subrogation as an invalid assignment of a cause of action, even though the court found no specific authorization for subrogation in ERISA itself.101

A health insurer cannot become subrogated to an insured's personal injury claim in Missouri, unless the insurance is an employee benefit plan under ERISA.102 In this day and age, many employees have employer-funded health insurance and such plans typically have subrogation clauses which override state prohibition of subrogation by virtue of ERISA. The careful attorney must determine the nature of the insurance coverage which has paid all or part of a personal injury claimant's medical expenses arising out of the event in question.103 If a health insurer is covered by ERISA, there could be rights of recovery by way of subrogation.

8. Federal Employees' Compensation Act

The Federal Employees' Compensation Act104 provides benefits for federal employees injured or killed in the scope of their employment for the federal government. The provisions of the Federal Employees' Compensation Act are similar to those contained in the Medical Care Recovery Act, discussed above, which provides for recovery based on injury to a military member. Under the statute, the Secretary of Labor may require an injured employee to assign his cause of action to the United States or to prosecute his cause of action for the benefit of the United States.105 If the government employee neglects or refuses to do so, compensation may be denied.106 The Secretary of Labor may prosecute the injured employee's cause of action and settle or compromise the action.107 The Secretary must deduct the expenses of collection and pay over any excess to the injured employee, who must credit the government against future payments due under the Act for the same injury.108 If the action is pursued by and in the name of the injured employee, the employee may deduct a reasonable attorney's fee from the settlement or judgment.109 The statute requires the injured employee to compensate the government for any past and future payments the government has made or will make.110

It has been held that the United States Department of Labor, which paid disability benefits to a post office employee, but which had no independent right of action because there had been no assignment to it from employee, and which would only have subrogation rights if employee's action against a third-party tort-feasor for injuries sustained in a fall while delivering mail was successful, was neither a necessary nor indispensable party in employee's negligence action.111

If the provision in the Federal Employees' Compensation Act for a beneficiary's assignment to the United States of any right of action arising out of injury or death for which compensation is payable is designed to create or condition a federal right of action, any irreconcilable conflict resulting from any provision of state law must be resolved in favor of the supremacy of federal law.112

9. Uninsured and Underinsured Motorist Coverage

Section 379.203.4, RSMo 1986, provides that an automobile liability insurer in Missouri who has paid benefits under the uninsured motorist provisions of an automobile liability insurance policy has a right "to the proceeds of any settlement or judgment resulting from the exercise of any rights of recovery of such person against any person or organization legally responsible for bodily injury for which such payment is made." In the case of Kroeker v. State Farm Mutual Auto. Ins. Co.,113 the court held that this statute gives the insurer a right of subrogation. In Reese v. Preferred Risk Mutual Ins. Co.,114 however, it was held that the statute provided only a right of reimbursement, as opposed to a subrogation right, since the term "subrogation" is not used in the statute itself. For a detailed discussion of both uninsured motorist and underinsured motorist subrogation principles, see the 1994 article, Settlement With the Tortfeasor in the UIM. Situation in the Journal of The Missouri Bar.115

An important distinction between subrogation and assignment is that subrogation presupposes actual payment and satisfaction of a debt or claim to which a party is subrogated, although the remedy is kept alive in equity for the benefit of the one who made payment under circumstances entitling him to contribution or indemnity, while assignment necessarily contemplates continued existence of the debt or claim assigned.116

The complicated issue of liens on personal injury settlements and judgments is very important to the claimant's lawyer. Negotiating final amounts of liens and other outstanding claims is essential to the best interests of the injured party. Liens, particularly state Medicaid and federal Medicare, can swallow up the entire amount of any settlement or judgment, eliminating any reason for the injured party to pursue the lawsuit. The Missouri General Assembly has assisted with this problem by allowing Medicaid officials to negotiate the final amount of the lien. Additionally, lienholders are also generally responsible for a portion of the attorney's fee for recovering the judgment, with certain notable exceptions. When practicing as a claimant's lawyer, it is essential to be aware of these liens and the problems and issues they present.

1 Black's Law Dictionary 922 (6th ed. 1990).

2 Id. at 119.

3 Id. at 1427.

4 See Kramer v. Lapse, 94 S.W.2d 1090, 1094 (Mo. App. E.D. 1936).

5 See General Exch. Ins. Corp. v. Young, 212 S.W.2d 396, 400-01 (Mo. 1948).

6 394 S.W.2d 418 (Mo. App. S.D. 1965).

7 212 S.W.2d 396 (Mo. 1948).

8 394 S.W.2d 418 (Mo. App. S.D. 1965).

9 Section 484.130, RSMo 1994 ("From the commencement of an action or the service of an answer containing a counterclaim, the attorney who appears for a party has a lien upon his client's cause of action or counterclaim, which attaches to a verdict, report, decision or judgment in his client's favor, and the proceeds thereof in whosesoever hands they may come; and cannot be affected by any settlement between the parties before or after judgment."); see also Reed v. Garner Indus., Inc., 832 S.W.2d 945 (Mo. App. E.D. 1992).

10 Section 484.140, RSMo 1994.

11 Section 484.140, RSMo 1994 ("[I]t shall be lawful for an attorney at law . . . to contract with his client for legal services rendered or to be rendered him for a certain portion or percentage of the proceeds of any settlement of his client's claim or cause of action. . . .")

12 Missouri Court Rules Rule 4 (West 1997).

13 Id.

14 Section 484.140, RSMo 1994 ("[U]pon notice in writing by the attorney who has made such agreement with his client, served upon the defendant or defendants, or proposed defendant or defendants, that he has such an agreement with his client, stating therein the interest he has in such claim or cause of action, then said agreement shall operate from the date of the service of said notice as a lien upon the claim or cause of action. . . .")

15 Id.; see also Passer v. U.S. Fidelity & Guaranty Co., 577 S.W.2d 639 (Mo. banc 1979).

16 Section 484.140, RSMo 1994; see also Orr v. Mutual Benefit Health and Accident Assoc., 207 S.W.2d 511 (Mo. App. W.D. 1948) (insured's attorney who was employed on a contingent fee contract had no lien against the insurance company settling with its insured prior to any suit being filed).

17 See Ganaway v. Department of Social Servs., 753 S.W.2d 12 (Mo. App. W.D. 1988).

18 Id. at 14.

19 623 S.W.2d 52 (Mo. App. E.D. 1981).

20 See Ganaway, 753 S.W.2d at 15.

21 636 S.W.2d 53 (Mo. banc 1982).

22 See Id.

23 See Id.

24 See Id.

25 824 S.W.2d 890 (Mo. banc 1992).

26 Id. at 896.

27 Section 430.230, RSMo 1994 ("Every public hospital . . . shall have a lien upon any and all claims, counterclaims, demands, suits, or rights of action of any person admitted to any hospital, clinic or other institution and receiving treatment, care or maintenance therein for any cause including any personal injury . . . for the cost of such services, computed at reasonable rates not to exceed twenty-five dollars per day and the reasonable cost of necessary X-ray, laboratory, operating room and medication service . . . .")

28 See Id.

29 Section 430.240, RSMo 1994 ("No such lien shall be effective, however, unless a written notice containing the name and address of the injured person, the date of the accident, the name and location of the hospital and the name of the person or persons, firm or firms, corporation or corporations alleged to be liable to the injured party for the injuries received, shall be sent by registered mail with return receipt requested, to the person or persons, firm or firms, corporation or corporations, if known, alleged to be liable . . . .").

30 See Id.

31 See Id.

32 Section 430.250, RSMo 1994 ("Any person . . . making any payment to such patient or to his attorneys or heirs or legal representatives as compensation for the injury sustained, after the receipt of such notice . . . without paying to such hospital the amount of its lien or so much thereof as can be satisfied out of fifty percent of the moneys due to such patient . . . shall have a period of one year . . . from the date of payment to such patient or his heirs, attorneys or legal representatives, as aforesaid, be and remain liable to such hospital for the amount which such hospital was entitled to receive . . . .").

33 774 S.W.2d 135 (Mo. banc 1989).

34 See Id. at 137-38.

35 Id.

36 Id.

37 Section 287.150.1, RSMo Supp. 1996.

38 Section 287.150.3, RSMo Supp. 1996.

39 Id.; See also Ruediger v. Kallmeyer Bros. Service, 501 S.W.2d 56, 57 (Mo. banc 1973) (quoting Mo. Rev. Stat. § 287.150 (1969)).

40 620 S.W.2d 50 (Mo. App. S.D. 1981).

41 Section 287.150.2, RSMo Supp. 1996 ("[T]he employer shall receive or have credit for sums paid or payable under this chapter to any of the dependents of the deceased employee to the extent of the settlement or recovery by such dependents for the wrongful death. Recovery by the employer and credit for future installments shall be computed using the provisions of subsection 3 of this section relating to comparative fault of the employee.").

42 Section 287.150.1, RSMo Supp. 1996 ("[E]mployer may recover any amount which such employee or his dependents would have been entitled to recover. . .").

43 Id. See Rogers v. Home Indem. Co., 851 S.W.2d 672 (Mo. App. W.D. 1993).

44 See Ruediger, 501 S.W.2d at 59.

45 Id.

46 Id.

47 See Schumacher v. Leslie, 232 S.W.2d 913 (Mo. banc 1950).

48 Consolidated Freightways v. Batton, 673 S.W.2d 96, 98 (Mo. App. E.D. 1984).

49 See 42 U.S.C.A. §§ 301, et seq.

50 Sections 208.151-.159, 208.162, RSMo 1994 and Supp. 1996.

51 Section 208.215.8, RSMo Supp. 1996 ("The department of social services shall have a lien upon any moneys to be paid by any insurance company or similar business enterprise, person, corporation, institution, public agency or private agency in settlement or satisfaction of a judgement on any claim for injuries. . . .").

52 Senate Bill No. 869, revised § 208.215.11, RSMo 1996 (effective August 28, 1996).

53 Gary Witt & James P. Holloran, Reduction and Compromise of Medicaid Liens, New Legislation and Its Impact, The Missouri Trial Attorney, August 1996, at 1.

54 See Id.

55 See Id., see also § 208.215.11, RSMo Supp. 1996 ("The department shall pay its pro rata share of the attorney's fees based on the department's lien as it compares to the total settlement agreed upon.").

56 Section 208.215.12, RSMo Supp. 1996 ("[S]uch charge shall not be satisfied out of any recovery until the attorney's claim for fees is satisfied, irrespective of whether or not an action based on recipient's claim has been filed in court.").

57 Section 208.215.9, RSMo Supp. 1996 ("On petition filed by the department, or by the recipient, or by the defendant, the court, on written notice of all interested parties, may adjudicate the rights of the parties and enforce the charge.").

58 Id.

59 42 U.S.C.A. § 1395y (b)(2)(B)(ii) (West Supp. 1997) ("In order to recover payment . . . the United States may bring an action against any entity which is required or responsible under this subsection to pay . . . .").

60 See Timothy V. Hoffman & George L. Acosta, Beware of the "Super Lien": Medicare Payments' Effect on Personal Injury Cases, 81 Ill. B. J. 82 (1993).

61 42 U.S.C.A. § 1395y (b)(2)(A)(ii) (West Supp. 1997).

62 Id.

63 42 C.F.R. § 411.24(I)(2) (1997).

64 42 C.F.R. § 411.28(a) (1997) ("HCFA may waive recovery, in whole or in part, if the probability of recovery, or the amount involved, does not warrant pursuit of the claim.").

65 42 C.F.R. § 411.24(h) (1997).

66 42 U.S.C.A. § 1395y (b)(2)(B)(I) (West Supp. 1997) ("If reimbursement is not made to the appropriate Trust Fund before the expiration of the 60-day period that begins on the date such notice or other information is received, the Secretary may charge interest . . . .").

67 Id.

68 42 C.F.R. § 411.24(b) (1997) ("HCFA may initiate recovery as soon as it learns that payment has been made or could be made under worker's compensation, any liability or no-fault insurance, or an employer group health plan.").

69 42 U.S.C.A. § 1395y (b)(2)(B)(iii) (West Supp. 1997) ("The United States shall be subrogated . . . to any right under this subsection of an individual or any other entity to payment with respect to such item or service under a primary plan.").

70 42 U.S.C.A. § 1395y (b)(2)(B)(ii) (West Supp. 1997) ("[T]he United States may bring an action against any entity which is required or responsible under this subsection to pay with respect to such item or service . . . under a primary plan . . . or against any other entity (including any physician or provider) that has received payment from that entity with respect to the item or service . . . .").

71 42 U.S.C.A. § 1395y (b)(3)(A) ("There is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) . . . .").

72 42 C.F.R. § 411.25 (1997).

73 42 C.F.R. § 411.37 (1997); See also INA v. Norton, 716 F.2d 1112, 1115-16 (7th Cir. 1983).

74 See 2 Medicare and Medicaid Guide (CCH) ¶ 10.200.02, Medicare Carriers Manual, § 3340.6, Medicare Intermediary Manual, § 3419.7.

75 42 U.S.C.A. § 2651(a) (West Supp. 1997).

76 See St. Agnes Hosp. v. Jaekel, 616 F. Supp. 426 (E.D. Wis. 1985); Rybicki v. Hartley, 792 F.2d 260 (1st Cir. 1986); U.S. v. Lorenzetti, 467 U.S. 167 (1984); U.S. v. Rogers, 658 F.2d 296 (5th Cir. 1981); Haynes v. Rederi A/S Aladdin, 362 F.2d 345 (5th Cir. 1966).

77 42 U.S.C.A. § 2651 (West Supp. 1997).

78 42 U.S.C.A. § 2651(a) (West Supp. 1997) ("[T]he United States shall have a right to recover . . . from said third person, or that person's insurer, the reasonable value of the care and treatment so furnished, to be furnished . . . and shall, as to this right be subrogated to any right or claim that the injured or diseased person, his guardian, personal representative, estate, dependants, or survivors has against such third person to the extent of the reasonable value of the care and treatment so furnished [or] to be furnished. . . .")

79 Id. ("The head of the department or agency of the United States furnishing such care or treatment may also require the injured or diseased person, his guardian, personal representative, estate, dependents, or survivors, as appropriate, to assign his claim or cause of action against the third person to the extent of that right or claim.").

80 Id.

81 See Pennsylvania Nat. Mut. Casualty Ins. Co. v. Barnett, 445 F.2d 573 (5th Cir. 1971).

82 Id.

83 See United States v. Nation, 299 F. Supp. 266 (N.D. Okla. 1969).

84 Id. at 267.

85 Id.

86 See Hanley v. Condrey, 467 F.2d 697 (2d Cir. 1972).

87 See Government Employees Ins. Co. v. Andujar, 773 F. Supp. 282 (D. Kan. 1991).

88 See U.S. v. Government Employees Ins. Co., 330 F. Supp. 1097 (E.D. N.C. 1971).

89 42 U.S.C.A. § 2652(b) (West 1994) ("[T]he head of the department or agency of the United States concerned may . . . waive any such claim, in whole or in part, for the convenience of the Government, or if he determines that collection would result in undue hardship upon the person who suffered the injury. . . .")

90 29 U.S.C.A. §§ 1002(1) (West Supp. 1997).

91 29 U.S.C.A. § 1002(1) (West Supp. 1997).

92 20 U.S.C.A. §1144(a) (West 1985).

93 29 U.S.C.A. 1144(b)(2)(A) (West 1985).

94 29 U.S.C.A. 1144(b)(2)(B) (West 1985).

95 886 F.2d 182 (8th Cir. 1989).

96 Id. at 186.

97 Id. at 187-88; See Davis v. Line Construction Benefit Fund, 589 F. Supp. 146 (W.D. Mo. 1984); FMC Corp. v. Holliday, 498 U.S. 52 (1990).

98 589 F. Supp. 146 (W.D. Mo. 1984).

99 Id.

100 Id.

101 Id.

102 See The Travelers Indemnity Co. v. Chumbley, 394 S.W.2d 418 (Mo. App. S.D. 1965).

103 See, generally, Timothy E. Gammon & Richard Paul Wacker, The Validity of ERISA Subrogation Claims in Missouri (pts. 1-2), 46 J. Mo. Bar 511, 625 (1990).

104 5 U.S.C.A. § 8131 (West 1996).

105 5 U.S.C.A. § 8131(a) (West 1985) ("[T]he Secretary of Labor may require the beneficiary to -- (1) assign to the United States any right of action he may have to enforce the liability or any right he may have to share in money or other property received in satisfaction of that liability; or (2) prosecute the action in his own name.").

106 5 U.S.C.A. § 8131(b) (West 1985) ("A beneficiary who refuses to assign or prosecute an action in his own name when required by the Secretary is not entitled to compensation under this subchapter.").

107 5 U.S.C.A. § 8131(c) (West 1985) ("The Secretary may prosecute or compromise a cause of action assigned to the United States.")

108 Id. ("Any surplus shall be paid to the beneficiary and credited on future payments of compensation payable for the same injury. However, the beneficiary is entitled to not less than one-fifth of the net amount of a settlement or recovery remaining after the expenses thereof have been deducted.")

109 5 U.S.C.A. § 8132 (West 1985) ("[A] beneficiary entitled to compensation from the United States for that injury or death receives money or other property in satisfaction of that liability as the result of suit or settlement by him or in his behalf, the beneficiary, after deducting therefrom the costs of suit and a reasonable attorney's fee, shall refund to the United States the amount of compensation paid by the United States and credit any surplus on future payments of compensation payable to him for the same injury.")

110 Id.

111 See Hollingsworth v. Satterwhite, 723 P.2d 169 (Colo. Ct. App. 1986).

112 See Boeing Airplane Co. v. Perry, 322 F.2d 589 (10th Cir. 1963), cert. denied, 84 S.Ct. 516 (1964).

113 466 S.W.2d 105 (Mo. App. W.D. 1971).

114 457 S.W.2d 205 (Mo. App. E.D. 1970).

115 Leland F. Dempsey & Thomas R. Davis, Settlement With the Tortfeasor in the UIM Situation, 50 J. Mo. Bar 133 (1994).

116 Kroeker, 466 S.W.2d at 110.

Glenn E. Bradford is a 1972 graduate of the Tulane University School of Law, where he was a member of the Board of Editors of the Tulane Law Review. He practices in the firm of Glenn E. Bradford & Associates, P.C., in Kansas City, with emphasis on plaintiff's personal injury and criminal defense in federal and state court.

Amy Kiefer Hansen is a 1995 graduate of the University of Missouri-Columbia and currently is a third year law student at the University of Kansas. She served as a law clerk after her first year of law school with Glenn E. Bradford & Associates, P.C.

©1997, Glenn E. Bradford and Amy Kiefer Hansen

JOURNAL OF THE MISSOURI BAR
Volume 53 - No.4 - July-August 1997