Watertown Regional Medical Center, Inc. v. General Casualty Insurance Co.: Beware of the Hospital Lien

WDC Journal Edition: Spring 2015
By: Evan B. Tenebruso, Boardman & Clark LLP

In Watertown Regional Medical Center, Inc. v. General Casualty Insurance Co., the court of appeals applied Wis. Stat. § 779.80 (“the hospital lien statute”) to hold defendants liable for a hospital lien following a personal injury settlement.1 In addition, the court ruled that the law firm representing the personal injury plaintiff was not liable to pay the hospital lien, nor was the firm required to indemnify the tortfeasor’s insurance carrier in the absence of an express contractual agreement to do so. The decision was filed on April 17, 2014, and the deadline for filing a petition for review has now passed.

Background Facts

Nathaniel McGuire2 was injured in an accident allegedly caused by the negligence of General Casualty’s insured. Following the accident, McGuire received treatment from Watertown Regional Medical Center (WRMC). Pursuant to Wisconsin’s hospital lien statute, Wis. Stat. § 779.80, WRMC filed a lien and served notices upon General Casualty and McGuire.3 McGuire later retained Hupy & Abraham, S.C. (“Hupy”), who filed a personal injury action on his behalf against General Casualty and its insured.4General Casualty believed it had settled the entire matter when it issued a $30,000 settlement draft to Hupy’s trust account in exchange for an executed release. Hupy distributed the amount to McGuire and other lienholders. However, Hupy did not pay WRMC for its hospital lien from the settlement funds. Hupy was aware that McGuire owed WRMC for the treatment McGuire had received, but there was nothing in the record to show that Hupy was aware of the hospital lien.

WRMC then brought a small claims action against Hupy, General Casualty, and McGuire.5 During the small claims proceedings, McGuire was dismissed as a party for reasons not set forth in the court of appeals decision. Based upon the CCAP entries, it appears the small claims court dismissed McGuire without prejudice due to lack of service. It does not appear that General Casualty ever asserted a claim against McGuire for indemnification. On motions to dismiss and for summary judgment, the circuit court ruled that both Hupy and General Casualty were liable under the hospital lien statute and that Hupy had contractually agreed in the settlement agreement to be responsible for any liens.

The Court of Appeals Decision

Separate appeals filed by Hupy and General Casualty were consolidated before the court of appeals. In the consolidated appeal, the court affirmed the circuit court decision holding General Casualty liable, but reversed the decision holding Hupy liable, concluding that General Casualty alone was responsible for the lien because Wis. Stat. § 779.80 does not impose obligations on parties who merely pass along a payment, such as Hupy.6

The dispute centered on application of Wis. Stat. § 779.80(4), which provides that:

After filing and service of the notice of lien, no release of any judgment, claim or demand by the injured person shall be valid as against such lien, and the person making any payment to such injured person or legal representatives as compensation for the injuries sustained shall, for a period of one year from the date of such payment, remain liable to the hospital for the amount of such lien.

The court relied solely upon the plain language of the statute, concluding that it attaches liability only to those making a payment as compensation for injuries.7 General Casualty had clearly been the one to make the $30,000 payment because of its insured’s obligation to compensate McGuire for his injuries.8Therefore, it was responsible under the statute.

The court held that Hupy, on the other hand, did not actually make payment as compensation, but had rather merely transferred General Casualty’s payment.9 This interpretation was supported by the statutory notice requirements, which only required the hospital to provide notice to the injured party and potentially liable parties, but not to the law firm of the injured party. As a result of its interpretation, the court held that Hupy was not a person making payment as compensation for injuries and was therefore not liable for the lien under the statute.

General Casualty argued that by signing the settlement agreement, the Hupy attorney agreed to be responsible for any liens.10 The court rejected this argument, holding that by reading the settlement agreement as a whole, Hupy was not an undersigned party to the agreement, but rather had merely consented as counsel for a represented party pursuing a personal injury lawsuit as required by Wis. Stat. § 757.38.11 A signature by a Hupy attorney in that capacity did not render Hupy a party such that Hupy was bound by the agreement’s terms. The court also found that nothing in the settlement documents indicated that Hupy had agreed to personally assume responsibility for paying any liens.12

General Casualty also argued that Hupy should be held responsible under theories of negligence/ assumed duty and equitable estoppel.13 In rejecting this argument, the court stated that the plain language of the release placed no obligation on Hupy to pay the lien from the settlement proceeds.14 General Casualty argued that Hupy should be equitably estopped from denying payment because Hupy induced General Casualty to reasonably rely on Hupy to pay the lien because Hupy had paid other third parties from the settlement proceeds.15 The court rejected this argument, because when the settlement agreement was made, General Casualty did not know that Hupy would later pay third parties from the proceeds; thus, there could have been no reasonable reliance.16

Practice Implications for Defense Counsel

In light of this decision, commentators have suggested steps which attorneys should take to ensure that their defense clients do not bear any post-settlement liability for hospital liens.17 It is important to note that General Casualty’s problem in this case would not have been prevented by adding language to the release signed by the plaintiff. Wis. Stat. § 779.80(4) provides that “no release of any judgment, claim or demand by the injured person shall be valid as against such lien.” Therefore, constructing a better release to be signed by the plaintiff will not prevent defendants from running into the same problem.

Defense counsel may avoid the problem entirely by obtaining a release signed by the lien holder. Notably, defendants may obtain a release from the hospital lien holder without insisting on paying the hospital lien holder directly. Insisting on paying the lien directly could be an impediment to settlement as the plaintiff’s firm may be calculating its legal fee as a percentage of the gross recovery, before the lien holders are paid. Another option would be to make the settlement draft jointly payable to the client trust account of the plaintiff’s attorney and the hospital lien holder, thereby requiring the lien holder to sign off.

It is also good practice to document a written agreement that plaintiff’s counsel assumes the obligation to resolve all liens, explicitly including hospital liens. Many defense attorneys routinely accomplish this in the letter transmitting the settlement draft, tendering the draft in trust of the plaintiff’s counsel pending resolution of all liens, including hospital liens. Defense counsel should also consider asking mediators to add language to mediation agreements requiring that plaintiff’s counsel satisfy all liens, expressly including hospital liens.18

It is also important for defense counsel to inform plaintiff’s counsel of the existence of hospital liens. In Watertown Regional Medical Center, plaintiff’s counsel was aware that his client owed money for medical bills to the hospital but was not aware of the hospital lien.19 If plaintiff’s counsel is given notice of the lien, then the attorney has an ethical duty to hold sufficient funds in trust to resolve that lien.20Wisconsin Supreme Court Rule 20:1.15(d) (1) provides that:

Upon receiving funds or other property in which a client has an interest, or in which the lawyer has received notice that a 3rd party has an interest identified by a lien, court order, judgment, or contract, the lawyer shall promptly notify the client or 3rd party in writing. Except as stated in this rule or otherwise permitted by law or by agreement with the client, the lawyer shall promptly deliver to the client or 3rd party any funds or other property that the client or 3rd party is entitled to receive.

The comment to the rule advises that, “a lawyer may have a duty under applicable law, including SCR 20:1.15(d), to protect such 3rd party claims against wrongful interference by the client, and accordingly, may refuse to surrender the property to the client.”

The court of appeals did not address whether an ethical violation took place, because a lawyer’s ethical obligations are generally not relevant to the attorney’s civil liability.21 In his concurring opinion in another case, Justice Wilcox advised, “when an attorney knows a third party claims an interest in future settlement proceeds which the client has agreed to, the best course of action is to hold the money in trust until the matter can be resolved through a proper procedure.”22 When plaintiff’s counsel has actual notice of a lien, “the attorney should unambiguously notify the health care provider whether he or she intends to be bound to the agreement.”23

While Hupy argued that it satisfied all ethical duties, and this ethics rule does not create a contractual duty to the defendants,24 informing plaintiff’s counsel about the hospital lien would certainly encourage plaintiff’s counsel to satisfy the lien. Similarly, if General Casualty would have pushed the issue by pursuing recovery directly from McGuire, perhaps Hupy would have simply paid the lien to prevent a judgment from being entered against its client.25

Evan Tenebruso is a trial lawyer representing insurance companies, individuals, and businesses in tort litigation and insurance coverage disputes. He has obtained favorable results for clients at all stages of litigation including dispositive motion practice, mediation, jury trial, and appeal.

Following law school, Evan spent three years working for a Milwaukee-area insurance defense firm. As an intern for the Dodge County District Attorney, Evan gained considerable courtroom experience, including conducting a jury trial under the Wisconsin Supreme Court Student Practice Rules. During law school, Evan served as a judicial intern to Justice N. Patrick Crooks of the Wisconsin Supreme Court and worked as a law clerk for a medical malpractice defense firm and a medical malpractice plaintiff’s firm.

References

1 2014 WI App 62, ¶ 2, 354 Wis. 2d 195, 848 N.W.2d 890.
2 Id., ¶ 2 n.2. During the relevant time period, the personal injury plaintiff changed his name from Nathaniel Dickman to Nathaniel McGuire.
3 Watertown Regional Medical Center Inc. v. Nathaniel Dickman, Jefferson County Case No. 09-HL-1. CCAP entries indicate that a satisfaction of judgment was entered on December 15, 2014, indicating that the hospital lien of $8,447.30 was paid in full.
4 Nathaniel S. Dickman v. General Casualty Company of Wisconsin , Jefferson County Case No. 11-CV-803.
5 Watertown Regional Medical Center Inc. v. Nathaniel McGuire , Jefferson County Case No. 13-SC-510.
6 Watertown Regional Medical Center , 354 Wis. 2d 195, ¶¶2, 12, 15.
7 Id. , ¶ 14.
8 Id. , ¶ 15.
9 Id.
10 Id. , ¶ 34.
11 Id. , ¶ 41.
12 Id. , ¶¶ 38, 43.
13 Id. , ¶ 44.
14 Id. , ¶ 45.
15 Id. , ¶ 49.
16 Id.
17 See, e.g. , J. Michael Riley, Medical Liens—Who Pays? (June 9, 2013), found at: http://www.axley.com/publication_article/medical-liens-who-pays/; Sara Mills, Defendant Insurer Liable for Plaintiff’s Hospital Lien Despite Settlement Agreement (April 22, 2014), found at: http://cclegalupdate.com/2014/04/22/defendant-insurerliable-for-plaintiffs-hospital-lien-despite-settlementagreement/#more-571; Hall Render, Lawyer Who Disbursed Insurance Settlement Proceeds to Client Is Not Liable to Charitable Hospital for Impairing its Hospital Lien (April 23, 2014), found at: http://blogs.hallrender.com/blog/lawyer-who-disbursed-insurance-settlementproceeds-to-client-is-not-liable-to-charitable-hospital-forimpairing-its-hospital-lien/.
18 In Watertown Regional Medical Center , the mediation agreement did not burden plaintiff’s counsel with any obligation to satisfy liens. Rather, it put that obligation upon the plaintiff himself. 354 Wis. 2d 195, ¶ 43.
19 Id. , ¶ 6 n.4.
20 See Wisconsin Supreme Court Rule 20:1.15(d).
21 See Watertown Regional Medical Center , 354 Wis. 2d 195,¶ 6 n.4; Yorgan v. Durkin , 2006 WI 60, ¶ 25 n.8, 290 Wis.2d 671, 715 N.W.2d 160.
22 Yorgan , 290 Wis. 2d 671, ¶ 50 (Wilcox, J., concurring).
23 Id. , ¶ 51 (Wilcox, J., concurring).
24 Watertown Regional Medical Center , 354 Wis. 2d 195, ¶47 n.7.
25 CCAP entries in the hospital lien action indicate that the lien was fully satisfied as of December 15, 2014, but do not indicate who issued the payment. Watertown Regional Medical Center Inc. v. Nathaniel Dickman , Jefferson County Case No. 09-HL-1.