When the victim recovers compensation from a dog bite claim, third parties usually assert a right to take part of that compensation. The third parties include doctors, hospitals, emergency room physicians and facilities, the vfictim's health insurance company, and governmental agencies. The claims invariably are based on rendering treatment to the victim or paying for such treatment. The claim itself might be based on a statute, a contractual lien, a right of subrogation, or a right of reimbursement. The bottom line for the victim is that these third party claims usually have to be paid, sometimes in full and other times in part. They come out of the victim's share of the settlement, not his attorney's share because, after all, the victim and not the attorney received the treatment.
Victims are understandably disappointed when they have to repay their own health insurance company. When a person buys insurance, the last thing that he expects is having to reimburse his insurance company for receiving the benefits that he paid high premiums to receive. It seems especially unfair because a dog owner is never required to reimburse his insurance company for anything. Experienced attorneys can sometimes find ways to reduce these third party claims.
The dog owner does not have to reimburse his homeowners or renters insurance company
The defendant's insurance company defends and indemnifies the defendant under some type of a third party liability coverage, whether it is homeowner insurance, landlord's insurance, commercial general liability insurance, or another kind of insurance. Liability insurance policies do not require any form of repayment by anyone; if the insurance company pays benefits under the policy, neither the defendant nor the victim have any obligation to repay the insurance company. Medical payments and property damage payments paid under the defendant's policy also do not require repayment. There are no exceptions to these rules.
The victim often has to reimburse his health insurance company
If applicable state law permits it, when a claim is resolved by settlement or judgment, the victim (not the dog owner) may be required to repay health insurance payments made under the victim's health insurance policy, or payments made by an HMO for the victim's treatment. This right of recovery is created by a section of the insurance agreement or HMO contract generally called the "third party liability provision." It also exists in the law of many states as a right of "subrogation" which is applicable to certain claims (but not all). "Subrogation is the insurer's right to be put in the position of the insured, in order to recover from third parties who are legally responsible to the insured for a loss paid by the insurer." Barnes v. Independent Auto. Dealers of California (9th Cir. 1995) 64 F.3d 1389, 1392. "Where a subrogation provision exists, an insurer may recoup its payments directly from the tortfeasor or from the proceeds of the insured's action against a tortfeasor. " Pacific Gas & Electric Co. v. Superior Court (1994) 28 Cal.App.4th 174, 183.
Liens given by contract to doctors
Often the patient gives his doctor a document called a "lien" or an "authorization to pay health care provider" which the victim's attorney often countersigns. A "lien" on a dog bite case is like a mortgage on a house. The holder of the lien is entitled to get paid when money comes in on the case, just like the holder of the mortgage gets paid when the house is sold. Doctors usually are the lien holders. Doctors frequently treat an injured person without knowing exactly when they will get paid. That is one of the ethical rules of medicine: to treat the sick for free if necessary. However, doctors are entitled to be paid for their services. When the patient is discharged, the bills start coming. Some victims have insurance, some have plenty of money, but others have neither.
The victims who have neither insurance nor money present an obvious problem to their doctors. To solve that problem, a doctor might agree to wait for payment until the case is settled or money comes in from some source prior to settlement. That agreement is "secured" by a lien on the case. The lien is a written document that contains provisions such as the following:
- The victim acknowledges that medical services were rendered in connection with an incident on a certain date.
- The victim acknowledges that he or she is responsible for payment.
- The victim represents that he or she is making a claim against the responsible party.
- The doctor states that he or she is willing to not send the matter to collection, and wait until money comes in from the responsible party.
- The victim agrees that his or her attorney shall be irrevocably instructed to pay the doctor out of the proceeds of the claim.
- The attorney agrees to honor the lien and pay the doctor accordingly.
By law in most states, an attorney who was notified of the doctor's lien is required to pay the doctor when funds come in from the case. So, that is how doctors frequently get paid.
Liens avoid having to pay bills right away
If a victim has neither insurance nor money in the bank, it is important that the victim find a doctor who will "take a lien." This is a shorthand way of saying that the doctor will not insist upon immediate payment, but will wait until the case is settled, in exchange for a lien signed by the patient and his or her attorney. When choosing a doctor, ask his or her nurse whether they will "take a lien." You can say, "Will the doctor accept a lien?" If the doctor's office says "Yes, we take liens," then expect to have to sign a lien form when you fill out the usual paperwork at the doctor's office. The form probably will cover the points written above. Don't be surprised if the answer is "No!" There is no law that requires a doctor to take a lien. However, you can assume that, if a doctor does not take a lien, he or she also does not handle these kinds of cases. That implies that this doctor would not be the best for your claim, because doctors have to have extra skills and experience -- and a different kind of attitude -- to help a victim during the course of a claim.
Liens can result in reductions
If a victim uses liens to delay paying his or her doctors, there may be an additional advantage: the victim's attorney often can obtain a discount off the doctors' charges. See, when the attorney settles the case for the client, the client does not receive the total amount of money, because the attorney receives a fee. Often that fee is one-third of the settlement. Therefore, the client receives only 66 cents on the dollar. In other words, the cost of the settlement was 33 cents on the dollar.
Now, why should the doctor get paid 100 cents on the dollar, when the victim is getting only 66 cents? It was the victim who hired the attorney, and the victim who perhaps put time and energy into assisting the attorney to collect the money. Isn't it fair to require the doctor to pay his or her proportionate share of the attorney's fee? In other words, shouldn't the doctor receive only 66 cents on the dollar?
Courts and legislatures have answered this question different ways. The answer is that the entire amount has to be paid if the lien is by the federal government or military. The answer is that it probably has to be paid in full if the lienholder is a hospital or emergency physician, or even a private medical practice in some states. Under some circumstances, however, the answer is that the victim will get a reduction, such as where the lien is from certain government agencies (i.e., MediCal in California), from private insurance, or the victim has received so little money that he cannot be said to have been "made whole" by the recovery. Therefore, one of the reasons to engage an experienced attorney is that, when the attorney settles the case, he might be able to obtain reductions of bills sent by lien holders.
How liens affect a settlement
Liens do not change the gross amount of money that a victim will get in settlement. If a case is worth $75,000.00 and there are liens totaling $25,000.00, the gross settlement still will be $75,000.00. However, the net settlement will be affected. Here's how:
- From the $75,000.00, the attorney will take his or her fee. If it's a one-third fee, then the attorney will take $25,000.00.
- That leaves $50,000.00. If there were no liens, then the victim would receive the entire $50,000.00.
- The attorney will attempt to convince the doctors to reduce the $25,000.00 in medical bills to only $17,000.00 (see the prior section if you don't know why).
- The liens totaling $17,000.00, have to be paid out of the $50,000.00. As a result, there will be only $33,000.00 for the victim.
Does that seem fair? At first you might say "No." However, it is quite fair. Remember that the victim received $25,000.00 in medical treatment without ever having to pay a dime! Well, those doctors have to get some money for their services, right? Since the victim did not have insurance, the doctors have to be paid out of the settlement. In such a case, the victim should be happy that doctors will render their services "on a lien."
Are third party claims always legal?
Third party claims are not always legal. In other words, just because a hospital or insurance company asserts a claim, that does not mean the victim must pay it. The answer depends on state law. The law might be statutory or created in court decisions. For example, in Parnell v. Adventist Health System/West, 34 Cal.4th 595 (Cal. Sup. Ct., 2005), the California Supreme Court held that a California law which gives hospitals the right to assert a lien against the third party claims of injured people did not permit a hospital to recover more than the negotiated amount received under the agreement with the victim's health plan. In that case, the hospital accepted the amount set forth in the patient's health plan, but later asserted a lien against his settlement or judgment in his third party claim. The patient sought relief from the courts, and won.
In some states, it is not legal for insurance companies to take any part of the settlement or judgment won by the companies' customers. Many feel that this should be the law throughout the USA.
Payments made by employers are governed by statutes like California Labor Code sec. 3860, subdivision (b), which requires reimbursement and is not subject to reduction except where attorneys fees and costs are involved. (Gapusan v. Jay (1998) 66 Cal.App.4th 734 , 78 Cal.Rptr.2d 250.)
Insurance companies never tell injured people that the right of recovery, however so created, is subject to exceptions:
- In most cases, no repayment is required unless and until the victim receives money by settlement or judgment. The exception is where the "lien" or "authorization to pay health care provider" explicitly requires payment even if no money is received by the victim.
- California, certain other states, and federal common law forbid insurance company reimbursement unless the victim has been "made whole" by the size of the recovery. (See below.)
- Some states forbid reimbursement or subrogation under some circumstances. For example, Illinois does not allow an insurance company to obtain reimbursement from a minor's bodily injury claim. (Estate of Woodring v. Liberty Mutual Fire Insurance Co. (1979) 389 N.E.2d 211, 71 Ill.App.3d 158.)
- When repayment is required, the victim's attorney usually is successful in obtaining a reduction of the amount that must be repaid, for the simple reason that the insurance company has profited from the attorney's services in obtaining the settlement or judgment, and therefore fairness dictates that the insurance company must give the victim a credit equal to the attorney's fee (and a proportionate share of the costs of recovery). Another reason would pertain to liability: if the chance of proving liability is only 50%, then the claim might settle at 50% of its value, and therefore the insurer should reduce its lien by the same 50%.
The "made whole rule"
The "made whole rule" is a feature of state common law and federal common law, and in some states is codified in the statutes (see, for example, OCGA § 33-24-56.1, which is the statutory enactment of the "made whole rule" in the State of Georgia). The rule says that an insurer cannot recover payments made to the victim unless the latter has been "made whole."
"It is a general equitable principle of insurance law that, absent an agreement to the contrary, an insurance company may not enforce a right to subrogation until the insured has been fully compensated for [his or] her injuries, that is, has been made whole." Sapiano v. Williamsburg Nat. Ins. Co. (1994) 28 Cal.App.4th 533, 536.
Thus, when an insurer elects not to participate in the insured's action against a tortfeasor, the insurer is entitled to subrogation only after the insured has recouped his loss and some or all of his litigation expenses incurred in the action against the tortfeasor. (Plut v. Fireman's Fund Ins. Co. (2000) 85 Cal.App.4th 98, 104-105; 16 Couch, Insurance, supra, § 61:47, p. 130; Ortiz v. Great Southern Fire & Cas. Ins. Co. (Tex. 1980) 597 S.W.2d 342, 343-344 [citing cases from several jurisdictions]; Texas Farmers Ins. Co. v. Seals (Tex.Ct.App. 1997) 948 S.W.2d 532, 533-534; Motor Club Ins. Ass'n v. Bartunek (1995) 3 Neb.Ct.App. 292, 293-296 [526 N.W.2d 238, 240-241].)
However, some companies, such as Kaiser, have clauses in their agreements that override the "made whole rule." (See Kaiser Foundation Health Plan, Inc. (1993) 17 Cal.App.4th 1284, cited in Sapiano, supra, 28 Cal.App.4th at p. 538; the plan in that case explicitly provided: "Health Plan (or its designee) shall be entitled to the payment, reimbursement, and subrogation as provided in this Section C(1) regardless of whether the total amount of the recovery of the Member (or his or her estate, parent or legal guardian) on account of the injury or illness is less than the actual loss suffered by the Member (or his or her estate, parent or legal guardian).") Furthermore, the "made whole rule" does not apply to liens granted to providers of emergency medical care (see California Civil Code sec. 3045.1).
The law of the state where the victim lives must be researched thoroughly because some states have statutes that are very specific. An example is Georgia, which has a detailed law governing all aspects of reimbursement by insurance companies. (OCGA § 33-24-56.1.) The Georgia law effectively prevents reimbursement except by the government. For a nationwide survey of the "made whole rule," see The Made Whole Doctrine in All 50 States by Mattthiesen, Wickert & Lehrer, S.C.
Repayment to TRICARE
TRICARE is a program of medical assistance that covers veterans, their spouses and their children. It will pay the costs of medical treatment for covered dog bite victims. Sometimes it is the primary insurer, while other times it is not. (See Juan Sosa for Lawyers Mutual, Medical and Personal Injury Traps, pp. 16-17.)
When the liable party pays a settlement, TRICARE is entitled to reimbursement. Its basic policy is to demand 100% of the amount it paid out. TRICARE refuses to pay its portion of the attorneys fees and costs required to obtain the settlement, however. This is obviously unfair and one federal case ruled against TRICARE, forcing it to reduce its remibursement to only 75% of the amount it paid out. (Mosey v. United States (D. NV 1998) 3 F. Supp. 2d 1133.) So who bears the burden of TRICARE'S free ride? The answer is, attorneys. Lawyers are not permitted to base a contingency fee on the gross amount received, but must first deduct the amount of the repayment to TRICARE and then calculate the attorneys fees on the net which remains.
How does this affect a client? In a case where the medical bills are high, the attorney's incentive to put the same amount of work into a TRICARE client is reduced because the repayment to TRICARE might consume the majority of the settlement, meaning that the lawyer will receive less than half of the legal fees. This might sound like a great deal for clients but it has the effect of ensuring that the worse they are injured, the smaller the legal fees will be, and therefore the smaller the effort that can be made to win the case.
Repayment to Medicare and other governmental programs and agencies
The victim must repay Medicare and most similar public aid programs. However, they usually will reduce their bills. For example, MediCal is not allowed to take more than one-half of the recovery. However, certain government agencies do not reduce their bills. For example, the federal government refuses to do so. This should be changed because it is very unfair to victims who are federal employees and members of the armed forces. Also, in principle it is patently unfair because the government, which has more money and more lawyers than anyone, gives itself a "free ride" on the coattails of the victim and his lawyer, in that the government doesn't pay one penny for the time, inconvenience, effort and costs of collecting the victim's funds.
Payment to hospitals and physicians
Although the rights of hospitals are a bit different from the rights of insurance companies, they share a common element, namely that the hospital's right of payment also may establish a lien on the settlement or judgment. A hospital frequently is required by law to provide medical services to victims without advance payment or even the making of payment arrangements. To assist hospitals in collecting amounts owed to them for providing treatment, therefore, the laws of many states give hospitals a statutory lien on settlements, judgments and any other kind of payments to the victim when the latter makes a claim. In most states, however, these liens are subject to technical requirements pertaining to form and notice, and are limited in amount (i.e., in California, Civil Code section 3045.1-3045.6.)
Physicians who render services under a health care plan also have a lien that in most states is subject to similar technical requirements and monetary limitations. (I.e., in California, Civil Code section 3040.)