Hospital liens have been a continuing source of suits against attorneys. While plaintiff's personal injury attorneys are most frequently sued in these matters, defense counsel are not immune from problems in this area. This article will briefly set out the nature of the claims made and methods for avoiding problems with hospital liens.
Hospital liens are statutory liens governed by §55.001 et seq. of the Texas Property Code. Section 55.002 provides that if a person is admitted into a hospital within 72 hours of an injury for treatment of the injury, both the admitting hospital and hospitals to which the patient is transferred have liens on the cause of action or claim of the patient against any negligent party. The lien attaches pursuant to §55.003 to the cause of action, a judgment, and the proceeds of a settlement, though not to any first party insurance or workers' compensation coverage. Case law indicates that the hospital lien is superior even to an attorney's claim for attorney's fees pursuant to contract with the injured party, though there is some possibility of a different result when the proceeds of an insurance policy are not sufficient to pay both the attorney and the hospital lien. Bashara v. Baptist Memorial Hospital System, 685 S.W. 2d 307 (Tex. 1985). To secure the lien, §55.005 provides that notice of the lien must be filed with the county clerk of the county where the injury occurred prior to the time that any money is paid.
A significant range of litigation can arise from hospital liens. When a hospital has properly perfected its lien, on occasion both plaintiff's and defendant's attorneys may simply overlook the issue. In these situations, the hospital may sue the defendant's insurer, the plaintiff who received proceeds, and the plaintiff's attorney who received proceeds.
If defense counsel fails to handle hospital liens appropriately, the defendant or its insurance carrier may have to pay the entire amount of the settlement again unless proceeds can be recovered from the plaintiff and his or her attorney. In many circumstances, the defendant's attorney will understandably seek language in a release that puts the burden of paying any unknown hospital lien on the plaintiff. If the plaintiff spends the proceeds prior to a suit to recover proceeds, such language may be of little practical value. Defense counsel should actively seek to discover the amounts of any unpaid hospital bills and insist upon a release of any hospital liens regardless of whether notice of a lien was filed. Reliance on the courthouse records is risky. There is always some lag between the latest certification of lien status that can be obtained based on county clerk's records and the time the settlement is executed and funds change hands.
Plaintiff's attorneys face several potential problems from hospital liens. The most disconcerting problem is that they may have to give back any attorney's fees received since those are proceeds subject to the lien. In general, legal malpractice insurance policies cover only damages due to torts and do not cover attorney's fees that an attorney must give up. If the plaintiff is sued for disgorgement of proceeds, the plaintiff may sue the plaintiff's attorney, arguing that the attorney should have negotiated with the hospital to reduce the amount of its lien. It is very common for plaintiff's attorneys to negotiate in this manner, so as to pay off hospital bills at a discount and still provide funds directly to the plaintiff. On one occasion, a plaintiff's attorney was sued when the hospital had agreed in principal to a reduction of its lien but refused to sign a release or accept a check after other disbursements had been made.
The most efficient way to deal with hospital liens is for the plaintiff's attorney to negotiate with the hospital prior completion of a settlement agreement. While there may be situations where a plaintiff might believe that the hospital will not perfect the lien, defense counsel should be wary of agreeing to a deal in which they rely solely upon indemnity provisions from the plaintiff. Whenever an attorney, either on the defense or the plaintiff side, advises a client not to obtain a release of the lien from the hospital, the risks of such a course of action should be explained to the client and consent to the course of action should be obtained from the client.
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