How to Evaluate Liens In Personal Injury Cases

At one time or another most personal injury lawyers have had to deal with liens asserted by insurers seeking to recoup money spent for an injured plaintiff’s medical treatment. These purported liens can substantially increase the exposure of a defendant in a personal injury case by permitting plaintiff’s attorney to introduce evidence of medical specials at the time of trial. They can also hurt the plaintiff by placing a large obstacle in the way of a settlement when liability is questionable. All personal injury attorneys, both plaintiff and defense, should know how to determine when such liens are valid. The recent case of White Consolidated Industries, Inc. v. Lin,(i) provides practitioners with a helpful analysis with which to evaluate such liens.

The White Consolidated Industries case arose out of a medical malpractice claim filed by Carmen Cruz and her husband against Pei Lin, M.D. Mrs. Cruz was an employee of White Consolidated Industries and received health benefits through the company. White’s health plan included a subrogation clause which required Mrs. Cruz to repay her employer money it had paid for medical expenses when another party, such as a tort feasor, was responsible for the injuries that necessitated the medical expenses.

In order to recover $180,000 it had spent for Cruz’s medical treatment, White attempted to intervene in Cruz’s medical malpractice action against Dr. Lin. The trial court denied White’s intervention, citing New Jersey’s collateral source rule, N.J.S.A. 2A: 15-97. At trial, the Cruz’s were awarded $325,000 against Dr. Lin, but this amount did not include medical expenses.

White filed a separate subrogation action against Dr. Lin and ultimately prevailed. The Appellate Division held that White’s lien for medical expenses was valid because its ERISA health plan was self insured and therefore exempt from State law. Therefore, New Jersey’s collateral source rule did not apply. Why did the court reach this result?
The Collateral Source Rule

In order to determine if a health insurance lien is valid under New Jersey Law, a lawyer must begin the analysis as did the court in White Consolidated Industries, with New Jersey’s collateral source rule, N.J.S.A. 2A:15-97. This statute states, in part,

"[I]f a plaintiff receives or is entitled to receive benefits for the injuries allegedly incurred from any other source other than a joint tort feasor, the benefits, other than workers’ compensation benefits or the proceeds from a life insurance policy, shall be disclosed to the court and the amount thereof which duplicates any benefit contained in the award shall be deducted from any award recovered by the plaintiff . . ."

The New Jersey Supreme Court has interpreted this statute to bar health insurers from seeking subrogation against a tort feasor or reimbursement from an insured who has successfully sued. Perreira v. Rediger.(ii) Therefore, a practitioner should begin an analysis with the presumption that any lien asserted by a health insurer is invalid, unless the insurer can prove an exception to this rule. Below are exceptions to the collateral source rule that result in valid liens against personal injury recoveries.

Statutory Exceptions

The first exceptions to the collateral source rule are found in the plain language of the statute itself. N.J.S.A. 2A:15-97 specifically excludes from the collateral source rule workers’ compensation liens and liens created by life insurance policies in wrongful death cases. Therefore, a lien asserted by a workers’ compensation insurance carrier or a life insurance company would generally be valid.

When a workers’ compensation lien or life insurance lien is asserted, it is important for plaintiff’s attorney to introduce evidence at trial of the underlying charges upon which the lien is based. In the case of workers’ compensation liens, it is important to get an itemized listing of all medical expenses and to make sure the medical experts who will be testifying have reviewed the charges to determine whether they were reasonable, necessary and related to the subject accident. It may also be helpful for plaintiff’s attorney to subpoena the workers’ compensation adjuster to testify that the charges were authorized and paid according to the carrier’s customary rate.

The ERISA Self-Funded Health Plan Exception

Another exception to the collateral source rule is the employer self-funded ERISA health plan. ERISA (Employee Retirement Income Security Act of 1974) is a federal law that sets minimum standards for most employer-sponsored health plans. ERISA’s demur clause preempts New Jersey’s collateral source rule when the plan in question is self funded by the employer.

ERISA does not, however, preempt state laws that regulate insurance companies. Therefore, when a health insurance company asserts a lien in a New Jersey personal injury case, the lien is invalid because of New Jersey’s collateral source rule. The reason this does not apply to plans that are self funded by employers is because such plans are not deemed to be insurance, due to the fact that the employer pays for all of the treatment, rather than it being paid for by an insurance company. This position is supported by the Supreme Court decision of FMC Corp v. Holliday (iii). See also 29 U.S.C. §114(b)(2)(B). It was this Supreme Court case, together with the case of United Foods & Commercial Workers & Employers, Arizona Health & Welfare Trust v. Pacyga (iv), that the court in White Consolidated Industries relied upon in determining that White’s health insurance lien was valid.

The court in White Consolidated Industries determined that the plan in question was self insured and therefore exempt New Jersey’s collateral source rule, despite the fact that White had hired Prudential Insurance Company to administer the plan and to provide some health benefits to its employees who lived outside of New Jersey. The deciding factor for the court seemed to be that White alone was responsible to pay employees’ medical treatment. Prudential merely processed employees’ claims and negotiated prices with health care providers. White remained entirely responsible for the risk of payment of actual benefits.

Medicare Liens

Another type of lien that bears mentioning, but which was not addressed by the court in White Consolidated Industries, is the lien for health benefits paid by Medicare. Medicare regulations are yet another example of federal law preempting state law. A lien asserted by Medicare is generally valid. However, a plaintiff’s attorney should request an itemized statement from Medicare and examine the statement to determine that all charges are related to the subject injury.

Whether or not a plaintiff’s attorney receives notice of such a lien they should make an inquiry to Medicare regarding such a lien, if the client is sixty-five years of age or older, or is on Social Security Disability for twenty-four months or longer.

Medicare lien information can be obtained by writing to Medicare, Subrogation Department, 730 Chestnut Street, Chattanooga, Tennessee, 37402.

Conclusion

Whether the lien being asserted is from workers’ compensation, a self-funded ERISA plan, or from Medicare, the personal injury practitioner should advise the lien holder of New Jersey’s collateral source rule and the Supreme Court’s decision in Perreira (v) and require the lien holder to provide proof that its lien is exempt from New Jersey’s collateral source rule. The personal injury attorney should also demand a careful itemization of the treatment for which the lien holder is seeking reimbursement. A detailed itemization will prove that the lien being asserted has not been inflated with expenses unrelated to the subject litigation. Also, without a detailed itemization (and careful preparation of counsel’s medical expert to establish that the charges are reasonable, necessary and related to the subject accident), an injured plaintiff could be responsible for such expenses without the ability to prove the charges at trial.

When contacted by an entity asserting a lien, the knowledgeable practitioner should consider advising the lien holder that it should hire its own counsel to intervene in the personal injury lawsuit. This approach is supported by the Appellate Division’s statement in White Consolidated Industries that, “Judicial economy would have suggested disposition of White’s claim in the underlying [medical malpractice] action.” (vi)

About the Author

Kevin T. Kutyla, Esq. is a partner in the firm Gruber, Colabella, Liuzza, Kutyla & Ullmann, with offices in Newton and Hopatcong, New Jersey. His practice concentrates in the areas of Workers’ Compensation and Personal Injury law in all the northern counties of New Jersey. Mr. Kutyla is an approved mediator under the Superior Court’s mediation program and regularly serves as a court-appointed arbitrator in civil cases.


i - White Consolidated Industries, Inc. v. Lin, 372 N.J.Super. 480 (App. Div. 2004).
ii - Perrerira v. Rediger, 169 N.J. 399 (2001).
iii - FMC Corp v. Holliday 498U.S. 52 (1990).
iv - United Foods & Commercial Workers & Employers, Arizona Health & Welfare Trust v. Pacyga, 801 F.2d 1157 (9th Cir. 1986).
v - Perreira v. Rediger, supra.
vi - White Consolidated Industries, supra at 483.