A Hospital’s Ability To Enforce Perfected Liens: (October Litigation Quarterly 2009)

October 1, 2009 | Trevor Hawes

An Uncertain Future

If you manage liability claims, the following scenario plays out at least once or more times per year.  The new claim message comes across your computer screen.  It is a late reported claim with an injured party who was in a hospital for more than one month and for a significant period of that time, in an induced coma.  You then look to the notes on the liability facts, which unfortunately paint a picture of probable liability against your insured, with no presently known other parties against whom liability could be shared.  It strikes you that you wish you had eaten a better breakfast.  You flip next to the screen showing your applicable coverage limits … $25,000 per person/ $50,000 per accident.  But because you are keen to complex high risk claims, you see this new claim for what it represents, the unsavory trifecta of bad injuries, probable liability and low limits of coverage.  Your thought process proceeds forward on your good faith claims management mode and taking the actions necessary to get this claim to closure so that you can afford the best protection for your insured within his or her policy limits.  As you are busy developing your task list, the file comes to your desk with a handwritten note.  The note is on the personal stationary of the family of the claimant, apparently drafted by the hand of the injured party’s wife.  The note, a work of prose deserving a literary award, discusses the strife that the injured party’s family is experiencing and how just a modicum of assistance from the insurance company for the person who caused their breadwinning family member to be incapacitated for more than one month would go a long way to preventing a threatened foreclosure and would stop the credit card companies from calling day and night.  The final sentence on the note mentions the need for a settlement as soon as possible and a payment that would not require this poor family to have to negotiate the settlement check with the hospital as a payee.  After finishing the note, you realize it was probably better you did not eat breakfast.  You quickly turn to the public records website for the county where the hospital is located and find, much to your chagrin, that there is a recorded hospital lien of $285,000, and then think to yourself, “how are we going to be able to settle this claim, not include the hospital, but also get to a resolution without placing the insured in some sort of jeopardy?”

In the past, fact patterns like the one above, if noticed early, were handled with circumspect care.  It was not uncommon to see carriers double their per person policy limits, making a single policy limits payment to the injured party to fully and finally settle their claim against the insured, and concomitantly or subsequently making another policy limits payment to the hospital to settle the lien.  Various approaches were taken, jointly negotiating with the hospital and seeking approval to settle with the injured party while doubling the limits versus settling with the injured party and then dealing with the hospital.  Always, however, these settlements were high risk – wait too long and you may not be able to settle with the injured party or settle with the injured party too soon without obtaining authority from the hospital and the insured could face exposure of the entire hospital lien.  The doubling the limits approach has been an easier recommendation, and therefore, decision when the limits of coverage were minimal.  However, as the coverage limit went upwards from $25,000 to $100,000, $250,000 to $500,000, the decision became more difficult.

Dealing with hospital liens on personal injury presuit settlements in Florida has never been an easy prospect when the injured claimant is unrepresented.1 Hospital liens were traditionally the most dangerous type of collateral claim because the jurisprudence dealing with liens provided that a hospital, in a lien impairment action, could potentially seek not just the amount of available coverage, but the value of its entire lien.  When this exposure is added to the specter of attorney’s fees being potentially recoverable by the hospital pursuing a lien impairment action, the conventional wisdom ranked hospital liens as one of the most prickly considerations in high exposure claims.

Throughout Florida, hospital liens are a creature of special laws and ordinances, rather than a general law which operates uniformly throughout Florida.  As a result, the lien laws in Florida vary from county to county, resulting in a non-uniform patchwork of laws.  At last count there were twenty-one counties (out of sixty-seven in Florida) with lien ordinances on the books, representing a mix of special laws and those which have yet to reach a determination of special versus general law.  A special law relates to, or operates upon, particular persons or things, or purports to operate upon classified persons or things when classification is not permissible or the classification adopted is illegal.2 Whereas, a general law operates universally throughout the state or uniformly upon subjects as they may exist throughout the state.3 A general law can also operate uniformly within permissible classifications by population of counties or otherwise, or can be a law relating to a state function or instrumentality.4 While the legislative purpose behind Florida’s lien laws is recognized, the means used by the local governments to create these liens, i.e., special laws, is arguably unconstitutional.

In a recent decision, the First District Court of Appeals addressed this issue in Mercury Insurance Co. of Fla. v. Shands Teaching Hospital & Clinics, Inc. (“Mercury”), and held that Chapter 88-539, Florida Laws, as well as the Alachua County ordinance enacted pursuant to that law, violated the Florida Constitution’s prohibition against special laws relating to the impairment of liens arising from private contracts.5 In Mercury, the claimant sustained injuries as a result of an accident involving Mercury Insurance’s insured.6 The claimant was treated for her injuries at Shands, and as a result of said treatment, incurred medical expenses in the amount of $38,418.20.7 Pursuant to Chapter 88-539, Shands perfected a lien in the amount of the medical expenses incurred by the claimant.8 Thereafter, Shands delivered notice of the perfected lien to Mercury Insurance.9 No doubt because of the high risk scenario before the carrier, Mercury Insurance settled with the claimant for the per person bodily injury policy limits of $10,000.10 In exchange for the $10,000.00 limits payment, the claimant delivered a release memorializing the settlement.11 Shands did not participate in this settlement between Mercury Insurance and the claimant.12 Mercury Insurance, while in possession of notice of the lien, sought to reconcile and avoid an impairment claim by Shands and took the position that doubling its per person policy limits would act to shield it, and its insured, from such an action.  Accordingly it paid an additional policy limit amount of $10,000.00 to Shands.13 Though Shands accepted this payment, it determined that the amount was not adequate to satisfy its lien, and accordingly, filed suit against Mercury Insurance for impairment of its lien, seeking damages for the remaining amount.14

As part of its defense to the litigation, Mercury Insurance challenged the law which entitled charitable hospitals in Alachua County to a lien for the reasonable cost of hospital care.15 This lien attached to lawsuits, demands, settlements or judgments that arose as a result of the patient’s injuries which necessitated the hospital care.16 Further, any release executed and accepted without the hospital joining in or executing same constituted an impairment of the lien entitling the hospital to an action at law to recover the reasonable cost for the hospital care rendered.17 At the conclusion of a non-jury trial, the trial court found that Mercury Insurance had impaired Shands’ lien and entered a judgment in Shands’ favor after an unsuccessful motion for judgment notwithstanding.18 On appeal, the First District Court of Appeals determined that Chapter 88-539 was a special law which, in the instant case, created a lien based upon a private contract between the plaintiff and Shands.19 The court held that because Article III, Section 11(a)(9) of the Florida Constitution expressly provides that “[t]here shall be no special law or general law of local application pertaining to … creation, enforcement, extension or impairment of liens based on private contracts …”, Chapter 88-539 was specifically prohibited by the Florida Constitution, and as such, could not stand as law.20 If this decision is upheld, it could act to nullify a hospital’s ability to assert a cause of action for the impairment of a perfected lien against a tortfeasor and/or its insurance carrier.  However, the holding in Mercury does not necessarily invalidate all lien laws in Florida.  It may only invalidate those lien laws which were created by special laws and were based upon a private contract.

Although the recent decision in Mercury renders the enforcement of the Alachua County hospital lien ordinance conferred on its charitable hospital against tortfeasors and/or their insurance companies unconstitutional, other hospital lien laws have previously been able to withstand constitutional attack.  For example, the constitutionality of the Hospital Lien Act, as well as various amendments thereto, was questioned in State Farm Mutual Auto. Ins. Co. v. Palm Springs Gen. Hosp., Inc. of Hialeah (“State Farm”).21 Pursuant to this Act, counties within certain specified population limits were entitled to a lien for hospital care.22 The Third District Court of Appeals upheld the constitutionality of this Act only after conducting a substantive due process analysis, which resulted in a determination that there was a reasonable relationship between the population classification and the purpose of the law.23 The court, however, was not inclined to explain its holding, but merely noted that with higher populations comes a greater need for having a mechanism in place to ensure payment from indigent individuals.24 On appeal, the Supreme Court of Florida, in determining that a “logical and sensible conclusion” was reached by the court below, affirmed its decision and the constitutionality of the Act.25

In Hosp. Bd. of Directors of Lee County v. McCray (“McCray”), the Second District Court of Appeals addressed the constitutionality of a special act that, by statute, created liens upon demands, judgments, and settlements in favor of Lee Memorial Hospital.26 While the trial court found this law to be unconstitutional, this decision was reversed by the Second District Court of Appeals.27 The court reasoned that the Florida Constitution “prohibits those special laws which create liens based on private contracts, not all special laws which create liens.”28 Because the court reasoned that the lien was created pursuant to a statute rather than by a private contract, the court found that Chapter 78-552 did not violate the Florida Constitution.29 The court’s decision was also based on the fact that a similar law was approved by the Supreme Court of Florida after a constitutional challenge in State Farm.30

It should be noted, however, that the holding in Mercury can be distinguished from the holdings in both State Farm and McCray.  Specifically, the court in State Farm did not address the particular constitutional issue raised in Mercury. As discussed above, the court in Mercury addressed whether the challenged law was a special law, and whether it created a lien based upon a private contract.31 In holding that the hospital lien law was unconstitutional, the court in Mercury found that the law violated the plain language of the Florida Constitution.32 The court in State Farm, however, did not undertake this type of analysis to arrive at its decision to uphold the constitutionality of the Hospital Lien Act.  Rather, the court conducted a substantive due process analysis and determined that because there was a reasonable relationship between the population classification and the legislative purpose behind the law, such law was therefore constitutional.33 Mercury can also be distinguished from State Farm based upon the particular language contained within the respective lien law in each case.  Specifically, the lien law challenged in Mercury permitted only charitable hospitals in Alachua County to benefit from the enacted lien law.34 Whereas, the challenged lien law in State Farm permitted only those hospitals in counties who met certain population requirements to benefit from the enacted lien law.35

Although the courts in Mercury and McCray both considered the plain language of the Florida Constitution in rendering their respective decisions, it appears that each court applied a different meaning to said language.  Thus, it could be argued that the McCray decision is fundamentally flawed.  Specifically, the court in Mercury held that, “chapter 88-539 is a special law which creates a lien based on a private contract…”, and therefore, violates the Florida Constitution.36 However, the court in McCray found that “[c]hapter 78-552 was a lien created by a statute, rather than by a private contract…” and was therefore, not in violation of the Florida Constitution.37 Based upon this reasoning, it appears that the court in McCray may have confused a lien right created by a private contract, with a lien right created by a special act but based upon a private contract.  Although the holding in Mercury appears, on its face, to be favorable to insurance carriers, we must caution that this holding could be limited by the specific facts of the Mercury case.  For example, the holding in Mercury arguably could not apply to cases involving publicly funded hospitals because the involved hospital, Shands, was a private hospital.38

The impact of the recent decision in Mercury is not fully known at this time.  However, if this decision is upheld, it could have a positive effect on how insurance carriers handle settlements with unrepresented claimants when hospital liens are involved and the claimants are refusing to include the hospital as a co-payee.  The hospital lien law which was challenged in Mercury imposed a duty upon insurance carriers to ensure that hospital liens were satisfied when settlement payments were made.  By properly executing this duty, carriers were able to avoid a subsequent suit brought by the hospital pursuant to the lien law.   However, the Mercury decision has, in essence, shifted the burden to satisfy a perfected hospital lien back to the patient, as the lien, according to the First District Court of Appeals, is a private contract between that individual and the hospital.39 Thus, while a lien filed by a hospital against a patient for medical services rendered is not in itself unconstitutional, the decision in Mercury has limited the ability of a charitable hospital, in Alachua County, to proceed directly against said patient’s interest in a third party liability policy settlement.

Mercury has helped to give some hope for relief to claims professionals working to resolve high exposure claims with unrepresented claimants who have hospital liens.  The lasting impact of Mercury, and whether the First District’s holding will withstand further appeals are unknown.  Mercury could be overturned on appeal, or could be found by other Florida jurisdictions to be limited to its facts and the ordinance in Alachua County.  However, if Mercury is adopted in other districts and represents a trend in the courts, it could signify a paradigm shift, assisting claims professionals and insurance carriers facing the daunting challenge of an expeditious resolution in the face of a significant collateral claim from a hospital lien.  As noted above, because the hospital lien ordinances are varied around the State, each should be examined based on their own pronouncements.  Furthermore, each claim of lien should be examined in terms of its strict complicity with the respective ordinance for purposes of determining whether the lien has been properly perfected in the first instance.  We are always available to discuss or assist with any hospital lien and claim settlement issues.

(Endnotes)

1          When an injured party is represented by counsel, that attorney has an ethical obligation to resolve any and all liens and subrogated interests applicable to the settlement proceeds.  The Florida Bar v. Sweeney, 730 So. 2d 1269 (Fla. 1998).   Ignoring liens and subrogated interest claims could result in action by the Florida Bar and/ or criminal sanctions.  Id.; See also Durie v. State, 751 So. 2d 685 (Fla. 5th DCA 2000).

2          State ex. rel. Landis v. Harris et. al., 163 So. 237, 240 (Fla. 1935).

3          Id.; See also Lawnwood Medical Center, Inc. v. Randall Seeger, M.D., etc., 990 So.2d 503 (Fla. 2008).

4          Id.

5          Mercury Ins. Co. of Fla. v. Shands Teaching Hosp. & Clinics, Inc., Case No. 1D08-1198, 2009 WL 2151903 (Fla. 1st DCA July 21, 2009).

6          Id. at 2.

7          Id.

8          Id.

9          Id.

10       Id.

11       Id.

12       Id.

13       Id.

14       Id.

15       Id.at 1.

16       Id.

17       Id.

18       Id.

19       Id.

20       Id.

21       State Farm Mutual Auto. Ins. Co. v. Palm Springs Gen. Hosp., Inc. of Hialeah, 232 So.2d 737 (Fla. 1970).

22       Palm Springs Gen. Hosp., Inc. of Hialeah  v. State Farm Mutual Auto. Ins. Co., 218 So.2d 793, 797 (Fla. 3d 1969).

23       Id. at 799.

24       Id.

25       State Farm Mutual Auto. Ins. Co., 232 So.2d at 739.

26       Hosp. Bd. of Directors of Lee County v. McCray, 456 So.2d 936 (Fla. 2nd DCA 1984).

27       Id. at 939.

28       Id.

29       Id.

30       Id.

31       Mercury Ins. Co. of Fla., 2009 WL 2151903 at 1.

32       Id.

33       Palm Springs Gen. Hosp., Inc., 218 So.2d at 799.

34       Mercury Ins. Co. of Fla., 2009 WL 2151903 at 1.

35       Palm Springs Gen. Hosp., Inc., 218 So.2d at 796.

36       Mercury Ins. Co. of Fla., 2009 WL 2151903 at 1.

37       McCray, 456 So.2d at 939.

38       Mercury Ins. Co. of Fla., 2009 WL 2151903 at 1.

39      Id.


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About the Attorney

Trevor Hawes

Partner

Trevor Hawes is a partner in the Cole Scott & Kissane’s Jacksonville office. He has a civil trial practice that encompasses commercial litigation, legal and accounting malpractice, negligent security, insurance coverage matters, premises liability, bad[...] Read more


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