In a groundbreaking decision, Long Beach Mem’l Med. Ctr. v. Allstate Ins. Co. (2023) 95 Cal.App.5th 710 (Long Beach), the California Court of Appeal interpreted the Hospital Lien Act (HLA) and established that insurers (or others) settling a patient's third-party injury claim must pay statutory hospital liens separately from the settlement payment to the injured party. Thus, when claimants or their attorneys improperly insist that the party paying a bodily injury settlement issue a single check to the claimant's attorney and the medical provider, they should be directed to the decision in Long Beach, as the Court of Appeal unequivocally declared this practice to be unacceptable.
Background of the Hospital Lien Act
Pursuant to the Hospital Lien Act (Civil Code section 3045.1, et seq.), “when a hospital provides care for a patient, the hospital has a statutory lien against any . . . settlement received by the patient from a third person responsible for his or her injuries, or the third person’s insurer, if the hospital has notified the third person or insurer of the lien.” (Merry Hospital & Medical Center v. Farmers Ins. Group of Companies (1977) 15 Cal.4th 213, 215.) As applicable here, the HLA prohibits an insurer from paying a patient without also paying the hospital either the full amount of its lien, or as much as can be satisfied from 50 percent of the patient’s recovery from the tortfeasor or insurer. (See ibid.)
The HLA’s overarching purpose is “to secure part of the patient’s recovery from liable third persons to pay [their] hospital bill, while ensuring that the patient retain sufficient funds to address other losses resulting from that tortious injury.” (Id. at p. 217.) The policy underpinning the enactment of the HLA was expressed as follows: “Few would contend that any person who is financially able to pay [their] medical bill should not do so. Fewer would contend that payment of medical bills should be so burdensome as to pauperize a patient or [their] family.” (Id. at pp. 217-18, quoting Greenfield, Property Liens for County Hospital Care—A Collection Tool, Bur. Pub. Admin.1961, Legis. Problems: No. 8, Public Medical Care, p. 3.) Thus, the HLA sought to ensure that medical providers be compensated fairly, but not insofar as to impoverish an injured claimant.
Nothing in the HLA grants claimants or their attorneys the power to negotiate medical liens with medical providers.
Background of the Long Beach Case
Vernon Barnes was treated by Long Beach Medical Center (“the Medical Center”) in December 2017 for injuries sustained in a car accident. Allstate, which insured the driver allegedly liable for the accident, ultimately settled the claim for $300,000 in February 2020. The damages incurred by Barnes included $116,714.67 in medical expenses for treatment at the Medical Center. The Medical Center asserted a lien for that amount under the HLA and notified Allstate of the lien by letter.
The settlement agreement provided that Allstate would pay the $300,000 amount in three separate checks sent to Barnes’ legal team: one made payable to Medicare for a separate lien; one made payable to Barnes and the Medical Center for its HLA lien; and one for the balance of the settlement made payable to Barnes and his attorneys. Allstate issued the $116,714,67 check as required pursuant to the settlement agreement, but Barnes’ attorney never deposited that check or relayed it to the Medical Center, and the check subsequently expired. Allstate then sent a second check for the same amount made payable, again, to Barnes and the Medical Center. Once again, the check was never deposited or relayed to the Medical Center.
The Medical Center brought suit against Allstate under the HLA, seeking to recover the amount of the lien as permitted by Civil Code 3045.5. Allstate filed a motion for summary judgment, in which it argued, principally, that it “protected the lien by issuing a two-party check including the Medical Center as a payee on the check” or, alternatively, that “there ha[d] been no payment because the multi-party check ha[d] not been cashed.” (Long Beach, supra, 95 Cal.App.5th at p. 714.) The trial court granted Allstate’s motion, but did not provide a written analysis. The Medical Center timely appealed.
The Court of Appeal’s Decision
At the Court of Appeal, Allstate abandoned its argument that it never technically made a settlement payment to Barnes because the multi-party check had not been cashed. Rather, Allstate asserted that delivery of the check to Barnes’ attorney satisfied its obligation to the Medical Center. Allstate stressed that a check to multiple payees is considered delivered to all when delivered to one. The court did not disagree as to constructive delivery, but emphasized that the statutory language in the HLA focuses on “payment,” not “delivery.” On that issue, the court cited a long line of cases going back to 1949 that stand for the principle that “payment” by check is not achieved until the check is cashed, absent agreement otherwise.
The Court of Appeal disagreed with Allstate’s remaining argument that “public policy supports a finding that [Allstate’s] conduct did not violate the HLA[,]” because the Medical Center was free to “resolve the lien with Mr. Barnes.” (Long Beach, supra, 95 Cal.App.5th at p. 719.) The court noted how Allstate’s delivery of a check to Barnes’ attorneys made payable to Barnes and the Medical Center improperly “empower[ed] [Barnes and his attorneys] to negotiate keeping some portion of the amount of the Medical Center’s lien for [themselves].” (Id. at p. 720.) The court added that “[t]he HLA does not condition the hospital’s right to payment on the timing or resolution of a negotiation between the patient and the hospital.” (Ibid.)
What This Means for Insurers and Practitioners
This decision emphasizes not only that payors may not put claimants or their attorneys on the same check used to satisfy an HLA lien, but also that the most prudent way to ensure those liens are satisfied is by delivering the associated checks directly to the lien-holding medical provider. While the case does not direct how delivery must occur in all cases, it makes clear that payors will be on the hook for the lien (and exposed to liability under the HLA) unless and until a check they issue to satisfy an HLA lien is actually cashed (or at least received) by the medical provider.
The Long Beach decision provides welcome guidance and cover for insurers, other payors, and defense counsel. As noted, the court's decision stems in part from the fact that consolidated payments give claimants and their attorneys undue leverage over medical providers during lien negotiations. As such, the Long Beach decision can and should be cited by defendants negotiating settlements when faced with improper demands to issue a single check that includes the lien, and/or to deliver lien payments to the claimant’s attorneys instead of directly to the medical provider.
The decision also stresses the importance of exploring the status of medical liens (of all types, but especially those covered by the HLA) prior to finalizing the negotiation of settlement terms. Such information may be easily pursued through written discovery or even informal requests.
The Long Beach decision provides clarity in the complex world of negotiating bodily injury settlements when statutory liens are at issue. With the guidance of this case, coupled with the expertise of the attorneys at WSHB, insurers and other payors subject to the HLA can rest assured that such settlements will be properly handled.