Volume XXIII, No. 2

January 19, 2011


Garan Lucow Miller, P.C. 

From the Co-Editors

James L. Borin & Simeon R. Orlowski


It is common for a carrier to add the names of known lienholders to a check issued in settlement of a case or to pay on a judgment after verdict. The thinking is that it is then up to the plaintiff’s attorney to figure out how the lienholder’s claim is to be resolved before the plaintiff and the attorney receive their share. A couple of decided cases suggest that this approach will not always work in the context of Medicare reimbursement issues.

Tomlinson v Landers Tomlinson was decided by the United States District Court for the Middle District of Florida, Jacksonville division, on April 24, 2009. Landers was insured by Millers Classified Insurance Company (MCIC). In February 2007, Tomlinson was involved in a motor vehicle accident with Landers, and sustained personal injuries.

In November 2007, Tomlinson’s attorney wrote to MCIC and demanded payment of the entire $100,000 policy limit. In response, within 6 days, MCIC sent a check in the amount of $100,000, with a proposed release form, as purported satisfaction of the claim. The settlement draft included the plaintiff, his attorney, and Medicare as payees.

After Tomlinson filed a lawsuit, Landers filed a Motion to Enforce Settlement and for Dismissal, claiming that it had satisfied the entirety of the plaintiff’s claim by tendering the settlement check in the amount of $100,000.

The Court found that there was not a binding and enforceable settlement, because there had been no “meeting of the minds” between the parties. It ruled that all of the essential terms of a settlement agreement, including who was to be paid and how, must be included within the agreement if it is to be judicially enforceable.

It rejected the defendant’s argument that it was required by law to name Medicare as a payee on the settlement check. It agreed that insurers are sometimes obligated to reimburse Medicare, but noted that the obligation on the part of the primary payer to make payment directly to Medicare does not arise unless the payee fails to reimburse Medicare for the amounts that it is owed within 60 days.

The Court thus found that MCIC was not required under Federal law to name Medicare as a payee. Including Medicare as a payee may well have been in MCIC’s best interests, it noted, but was not required by Federal law.

Zaleppa v Seiwell This was a decision of the Superior Court of Pennsylvania issued on November 17, 2010. A personal injury case arising from a motor vehicle accident went to trial and resulted in a verdict in the amount of $15,000. Seiwell filed a post-verdict motion to have the Court enter an Order allowing her to satisfy the verdict in one of two ways:

1. Naming Medicare as an additional payee on the settlement draft, or

2. paying the amount of the verdict into court until Medicare had notified the court that all outstanding liens had been satisfied. The trial court denied the motion and required that Seiwell pay the entire amount of the verdict to plaintiff.

The Superior Court upheld the trial court’s decision. After a judgment has been entered, it noted, the judgment could be satisfied only by tendering the full amount, payable to the plaintiff. 2 Recall that this does not include Michigan third-party automobile claims.

The Court rejected the defendant’s position that it was required to include Medicare as a payee, noting that the Medical Secondary Payer statute requires that reimbursement come from either the plaintiff or the defendant’s insurer as the primary plan. It further noted that the duty to reimburse Medicare arises only on receipt of a recovery demand letter.

Further, the Court took the position only the United States government is authorized to pursue its right to reimbursement under the MSP statute. Citing other Federal cases, the Court concluded that the Act does not permit a private party to bring suit on behalf of the United States government for the reimbursement of conditional Medicare payments. Based on those cases, the Court also ruled that the statute does not permit a private party to assert the interests of the United States government in any phase of litigation. (It is our belief that the Court’s position on this point, under the facts of this case, was erroneous.)

Commentary and practice tips When a settlement is being negotiated, the question of how liens or subrogation claims will be handled should be expressly discussed and resolved. We do not recommend that a carrier negotiate a settlement and then try to unilaterally add a lienholder’s name to the settlement check. (And at least when Medicare is involved, plaintiff’s counsel will never agree to have CMS added as a payee.)

As we noted earlier, in discussion of the Bradley case (see the October 20, 2010 issue of LawFax), scheduling a hearing by the trial court, inviting CMS to send an attorney to the hearing, and asking for a judicial determination of how much of a compromise is being made will often be a very good step to take when a larger-exposure claim is being settled.

When a case involving Medicare reimbursement issues 2 goes to trial, the defense should ask the court to order that part or all of any money paid on a judgment be paid into court pending resolution of the reimbursement claims. Even though the Zaleppa court declined to do so, many courts would be willing to enter such an order. That request should be made early, so that the issue can be briefed and argued by the parties, and decided by the court, well in advance of trial. It may be a good strategic move for the defense attorney to put the CMS recovery contractor on notice of the trial date, at least a couple of months in advance, to show that he did everything necessary to “respect the interests of Medicare”. By analogy to the scenario in Bradley, CMS would have the opportunity to participate in a post-trial hearing on the payment of the judgment, if it chooses to do so.

If the defendant is then ordered by the court to pay the judgment to the plaintiff, without any accounting for the Medicare claim, he will then be in the best possible position if the plaintiff thereafter fails to properly account for the reimbursement claim. It is important to note that the regulations and the CMS publications tell the defendant that it must “respect Medicare’s interests”; they do not require it to guarantee that Medicare is repaid.

TITLE SPONSOR FOR THE CHERRY-ROUBAIX BICYCLE RACE 2011 Garan Lucow Miller, P.C., title sponsor of the Cherry-Roubaix bicycle race in Traverse City, Michigan, is pleased to announce that Cherry-Roubaix will host the Michigan State Road Race Championship in 2011.

Cherry-Roubaix is actually a series of bicycle races, taking place over a three day period. The first day is devoted to a sprints competition in downtown Traverse City; the second day to criterium races, also in downtown Traverse City; and the third day is dedicated to a road race, which will crown the Michigan State Champion. The races are scheduled to take place on August 12, 13 and 14, 2011, and will also kick off Traverse City’s annual Third Coast Bicycle Festival and a charity ride benefitting the Munson Healthcare Women’s Cancer Fund.

If you have any questions about Cherry-Roubaix and Garan Lucow Miller, P.C.’s involvement in it, please contact Peter Worden at the Firm’s Traverse City office, (231)941-1611 or via email at Pworden@GaranLucow.com.