Adding Another Curve in the Road to Settlement

Author: Leslie Price

It is time to once again update your standard settlement agreement for personal injury claims. Where does the time go?  Carriers, self-insureds and their counsel will no doubt be adding another clause to what is typically an overly long standard agreement. Why, pray tell, would you want to do that?

The answer lies in the very recent First District Court of Appeal decision in Karpinski v. Smitty’s Bar, Inc. (Filed April 12, 2016) 2016 WL 1445338. In a nutshell, the decision opens the door in litigated claims for plaintiffs to require payment of the full settlement amount even where there are unresolved liens.  The door can be closed by inserting a clause in the settlement agreement making payment contingent on resolution of all liens.  However, that may not be the best answer in all cases and almost certainly will not reduce the all-too-common post-settlement brouhaha over lien resolution.

The Settlement Agreement Should Address Resolution Of The Liens

In Karpinski, the parties settled their case at mediation on March 20, 2014. There were both Medicare[i] and California Victims of Crime program[ii] liens on the settlement.  Five weeks after mediation, Plaintiff Karpinski and his attorney signed a formal “Settlement Agreement and Release of All Claims.” Done deal, right? Not this time.

Plaintiff’s counsel insisted the settlement check be issued to him and his client alone before resolving the liens.  They refused the carrier’s offer to issue checks naming both Plaintiff and the lien holders.  The carrier balked at making payment, no doubt concerned about the exposure to additional liability to the lien claimants should Mr. Karpinski or his attorney fail to honor their agreement to resolve the lien claims.  Plaintiff countered by filed a motion for entry of judgment under Code of Civil Procedure Section 664.6.[iii]

Defendant opposed the motion arguing the liens should have been resolved before payment was required.  The Trial Court disagreed, noting while the Settlement Agreement obligated Plaintiff and his counsel to resolve the liens, there was no requirement that he do so before receiving payment.  Defendant appealed, contending “the trial court erred when it granted Karpinski’s motion to enforce the settlement because satisfaction of the outstanding medical liens is a condition precedent to payment of the settlement and Karpinski has failed to resolve the liens.”

Defendant argued it must protect the statutory liens as the statutes expressly make Defendant liable if Plaintiff and his attorney fail to uphold their end of the bargain.  Understandable given paying “double” or amounts in excess of policy limits is a complete anathema to insurance carriers.  The Court of Appeal noted Defendant did not raise the legal issue of conditions precedent in the Trial Court but addressed the issue anyway.  The Court of Appeal first looked to the Settlement Agreement and confirmed it lacked any provisions which either expressly or impliedly required the liens be resolved before payment. The Court of Appeal next determined in this case only, under the circumstances, the Plaintiff was not obligated to honor the lien of the California Victims of Crime Board.

It Ain’t Over Till It’s Over[iv]

That finding left only the issue of the Medicare lien to be addressed. The Court acknowledged Medicare’s right to pursue Defendant or its insurer directly if Plaintiff were to fail to honor the lien but noted no California case had addressed the issue of whether Plaintiff was obligated to resolve the lien before payment.  Guidance was sought by reference to a Georgia case, Hearn v. Dollar Rent A Car, Inc. (Ga.Ct.App.2012) 726 S.E.2d 661, 668.  There, the Hearn Court agreed with a Connecticut decision[v] concluding there was no authority for private parties to assert the interests of Medicare by including their name on a settlement check without express authority to do so, and an insurer had met its obligation to Medicare simply be requiring Plaintiff to honor the lien in a settlement agreement.  In affirming the judgment, the Court of Appeal pointed to the remedy provided by the indemnity clauses[vi] in the Settlement Agreement and concluded, if this was a concern, the agreement should have expressly required either Plaintiff resolve the liens before payment or the lien claimants be added as payees to the settlement checks. 

Really?  We recently heard something about naming the lien holder on the check as suggested by the Karpinski Court.  In County of Santa Clara v Javier Escobar (2016) 244 Cal.App.4th 555, 198 Cal.Rptr.3d 646, the Sixth District Court of Appeal held the Defendant could not avoid being included in a lawsuit filed by the County Hospital lien holder under Government Code Section 23004.1 after judgment was entered by arguing it had issued a check to both the plaintiff and lien holder. “But it does not follow that the Legislature meant to permit judgment debtors like Fresh Express to wash their hands of the matter by simply turning the funds over to the injured plaintiff.” Id. at p. 576.  Interplead the disputed funds and maybe it is almost over? Id. at pages 576-577.

Conclusion

A “standard” settlement agreement or release of all claims in a personal injury matter should contain a clause making the resolution of all known liens a condition precedent to payment of the proceeds to the claimant.  This is not to say the clause should be written in stone and cannot be, or should not be, removed during negotiations.  For example, when there is a claim involving a catastrophic injury and a relatively low policy limit removal of the clause may be the better course if the claimant’s attorney requires the clause be removed as a condition of settlement.

Even if this decision is later “de-published,” it will not be surprising to hear argument the law requires payment of the settlement before the lien issues are resolved.  The Karpinski decision makes it clear this is an issue to be negotiated and included in the release or settlement agreement if it is of concern.  Defense counsel and claims adjusters cannot stick their heads in the sand and hope it will go away.  Raise the issue up-front and address when and how the lien will be resolved in the final settlement agreement.   Let the games continue.

ABOUT THE AUTHOR: Leslie M. Price is an Associate at Tyson & Mendes. Mr. Price specializes in personal injury and general liability litigation. Contact Leslie at 858.263.4099 or lprice@tysonmendes.com.

[i] Medicare Secondary Payer Act (MSP Act); 42 U.S.C. § 1395y(b)(2)(B)(i) & (ii).

[ii] Government Code section 13963.

[iii] CCP Section 664.6 is a summary procedure for enforcing settlement agreements if certain criteria are met.

[iv] Apocryphal quote attributed to N.Y. Mets manager Yogi Berra before the Mets went from last place on July 31, 1973 to first place on the last day of the regular season.

[v] McBride v. Brown (2011) WL 1566002

[vi] Five in all! Still, who can count on being indemnified by anyone so brazen as to stiff Medicare?

 

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