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How to Cut a Check for Hospital Liens

hospital bill.jpgDoes an insurance carrier comply with the Tex. Prop. Code Ann. §§ 55.001-007 when it issues a check in settlement of a personal injury claim to the claimant and the hospital jointly? A recent case out of Corpus Christi answers this question.

The Case

McAllen Hospitals, L.P. v. State Farm Cnty. Mut. Ins. Co. of Texas, 13-11-00330-CV, 2012 WL 5292926 (Tex. App.-Corpus Christi 2012, reviewed granted).

The Facts

Melinda Hernandez and Jose Gil sustained injuries in a car wreck in Hidalgo County. Both received treatment at McAllen Medical Center d/b/a Edinburg Regional Medical Center ("MMC") which totaled $1,281.00 and $53,564.00 for Hernandez and Gil, respectively. Pursuant to § 55.005 of the Texas Property Code, MMC secured liens over these hospital bills by filing written notice of the liens with the Hidalgo County Clerk's Office to attach the proceeds of any possible settlement obtained by Hernandez and Gil for their personal injuries.

After treatment at MMC, Hernandez and Gil filed bodily injury claims with the responsible party's insurance carrier, State Farm, and eventually reached mutually-agreeable settlements. The settlement amounts were $2,100.00 and $5,200.00 for Hernandez and Gil, respectively. State Farm was aware that a Notice of Lien was filed by MMC. When settlement finalized, State Farm issued the settlement drafts in the following manner: (1) payable to Hernandez and MMC, jointly, for the sum of $1,281.00; and (2) payable to Gil, Gil's wife, Rafaela Balderas, and MMC, jointly, for the sum of $5,200.00.

Both Hernandez and Gil deposited the checks in their respective banks, without MMC's endorsement. Both banks negotiated the checks and cashed them.

MMC subsequently filed suit against a number of defendants, including State Farm, alleging that State Farm violated the Texas Hospital and Emergency Medical Services Lien statutes for settling Hernandez and Gil's claims without resolving MMC's liens.

State Farm filed a Motion for Summary Judgment which sought a declaration as a matter of law from the trial court that State Farm fulfilled its obligations under the Hospital Lien statute by issuing and delivering co-payable settlement drafts to Hernandez and MMC, as joint payees, and to Gil, Balderas, and MMC, as joint payees. The trial court heard State Farm's Motion for Summary Judgment and noted that State Farm fully discharged its obligation to protect MMC's liens. MMC appealed the trial court's decision to the court of appeals.

The 13th Court of Appeals affirmed the trial court's decision. In the Appellate Court's decision, it indicated that State Farm's duties under Chapter 55 were satisfied by naming MMC and both claimants as joint payees on the settlement check. State Farm cited Richards v. Am. Nat. Prop. & Cas. Co., 195 S.W.3d. 758, 761 (Tex. App.-Beaumont 2006, no pet.) in support of their motion. In Richards, the Court held that, even if a settlement check was made payable solely to the injured party, the injured party could not cash a check without first paying the lien because the lien attaches to the settlement proceeds. Id. State Farm also cited Benchmark Bank v. State Farm Lloyds, 893 S.W.2d. 649, 649-50 (Tex. App.-Dallas 1994, no writ). In that case, Benchmark Bank never received payment for a property damage loss, and the Court held that, "Payment to and possession of a draft by one joint payee is constructive possession by the other joint payee."

The Court of Appeals concluded that State Farm's inclusion of MMC as a co-payee was an effort to comply with the statutes and obtain a valid release. The duty then shifted to Hernandez and Gil to obtain MMC's endorsement on the settlement checks and then satisfy the lien amounts.

What to Take Away?

The best course of action to take by insurance carriers, who are aware of a valid hospital lien, is to make a lien holder aware of what is going on when a settlement is reached. It is wise to contact the lien holder and get their approval before a settlement check is issued. Another safe bet, if possible, is to simply issue two checks-one to the Claimant and one to the lien holder. By doing this, you avoid any potential legal action by the lien holder.

Additionally, do not forget to include some type of identification language in the Settlement Release Agreement noting that the claimant(s) will be liable for any future legal action taken against the insurance carrier and its insured(s) for non-payment of a valid lien.

What to Watch Out For?

MMC has filed another appeal to the Texas Supreme Court and the Texas Supreme Court recently decided to hear the case. We will continue to watch this case develop and keep you updated.

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