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Insurer Violated Lien Statute and Committed Deceptive Trade Practice When Settling With Pro Se Claimant

October 3, 2017

The North Carolina Court of Appeals recently held that when an insurer settles with a pro se claimant and issues a settlement check, the insurer must pay all valid medical provider liens before making any payments to the claimant (pursuant to N.C. Gen. Stat. §§ 44-49 and 44-50). Nash Hosps., Inc. v. State Farm Mut. Automobile Ins. Co. A check made payable jointly to the claimant and the lienholder will not suffice; in fact, it violates the lien statute and is an unfair and deceptive trade practice. 

In Nash, the pro se plaintiff incurred just over $2,000 in medical costs as a result of a motor vehicle accident, $757.00 of which arose from her treatment at Nash Hospital.  State Farm settled with the pro se plaintiff and issued a settlement check for $1,943.00 made payable jointly to the claimant and the lienholders.  When Nash Hospitals could not recover its portion of the settlement, the hospital sued State Farm to recover for violation of lien statutes and unfair or deceptive trade practices.  The trial court held State Farm was liable.

The Court of Appeals affirmed the trial court’s ruling that “the insurance company violated the North Carolina medical lien statutes by failing to retain funds subject to medical liens and committed an unfair or deceptive trade practice by failing to pay directly to the lienholder its pro rata share of funds for several months despite repeated demands.”   The Court of Appeals reasoned, based on a prior holding in Smith v. State Farm Mut. Auto. Ins. Co., that the “obvious intent of N.C. Gen. Stat. §§ 44-49 and 44-50 is to protect hospitals that provide medical services to an injured person who may not be able to pay but who may later receive compensation for such injuries which includes the cost of the medical services provided.” 157 N.C. App. 596, 602, 580 S.E.2d 46, 50 (2003), rev’d per curiam on other grounds by 358 N.C. 725, 599 S.E.2d 905 (2004).  

The Court rejected State Farm’s argument that the issuance of the check to the claimant and providers was legal and customary practice.  Despite being on notice of Nash Hospital’s lien, State Farm never informed Nash Hospital of the settlement and failed to resolve the lien issue despite repeated requests to reissue a separate check.  The Court found this conduct constituted unfair or deceptive trade practices, but noted that the holding did not establish violations of N.C. Gen. Stat. § 44-49 as per se unfair or deceptive trade practices. 

Under N.C. Gen. Stat. § 44-50, the lienholders’ recovery shall not exceed fifty percent (50%) of the total recovery, exclusive of attorney’s fees. State Farm successfully argued that Nash Hospital was entitled to no more that its pro rata share of lien funds, which came out to $323.69, but the Court trebled those damages for an award of $971.07.  

As a result of Nash, insurers must be vigilant in distributing settlement funds to lienholders prior to issuing settlement checks to pro se claimants, even if that means changing routine practices and procedures.

Sam Lloyd is a Business Litigation Associate in the Charlotte office, with experience managing cases through arbitration and has tried numerous matters to jury verdict. She works with clients on matters relating to Civil litigation: defense, Civil: Racketeer Influenced and Corrupt Organizations Act (RICO), Auto liability, Insurer bad faith, and Products liability.