The Risk Manager, Summer 2010

Failure to comply with the Medicare Secondary Payer Act is not the only way lawyers are being stung when primary payers are not reimbursed for medical benefits paid to clients. In Longaberger Co. v. Kolt (586 F.3d 459, 6th Cir., 2009), Kolt represented a client injured in an auto accident. The client was covered by his employer’s ERISA Longaberger Company Health Plan and was paid benefits of $113,668 by the Plan. The Plan terms provided that it had a first priority lien on any third party recovery up to benefits paid. Kolt settled his client’s claims for $135,000, which he deposited in his IOLTA client trust account. Without resolving the Plan’s lien on the settlement, Kolt disbursed the settlement funds to the client, other involved lawyers, and retained a $45,000 fee. The Plan brought an action against the client and Kolt. The Federal District Court granted summary judgment in favor of the Plan and held Kolt responsible for one-third of the $113,668 lien or $38,899. The Sixth Circuit affirmed the judgment of the District Court.

Longaberger reviews ERISA health plan law and takes the reader through the ins and outs of how it applies to the facts of this case – a case that requires your close attention because private primary payers of health benefits are becoming just as aggressive as Medicare in seeking repayment from lawyers when there is a third party recovery. Risk managing this exposure is similar to that in the preceding article for Medicare. Add to those suggestions these considerations:

  • Do not ignore the possibility of an ERISA Health Plan lien on any award or settlement in a personal injury case. Protect yourself by informing yourself – obtain and read the client’s ERISA Health Plan if there is one. Your client is not entitled to a windfall that may ultimately come out of your assets.
  • At the outset of the representation do a cost-benefit analysis with the client. An overhanging potential large lien may render a personal injury claim against a third party not worth the client’s or the lawyer’s time. A large lien, however, may provide a strong negotiating position resulting in the Plan reducing its lien to the point that the Plan, client, and lawyer may all come out ahead. It is imperative that such negotiations be conducted before any settlement – after settlement your negotiating leverage is lost.