When I think back to July of 2006, I remember excitedly preparing for the birth of my first child. In just over a month, he will turn nine years old. Strange, then, that I and many lawyers have had to take a fresh look at a decision from that era as if it were new law from our state appellate court. But that is essentially what has happened in recent weeks, as the defense bar has re-examined a decision that now more fully informs our practices.
In Progressive Spec. Ins. Co. v. University of Ala. Hosp., 943 So. 2d 413 (2006), a motorist was injured in an automobile accident and treated at UAB Hospital. The hospital provided nearly $30,000 in medical treatment, and, as it is allowed to do, later filed a “hospital lien” – putting the world on notice of the medical expenses it had incurred to treat the motorist. The car driven by the motorist was insured by Progressive, which paid the motorist $2,000 pursuant to its “medpay” coverage. UAB learned about this payment and sued Progressive for “impairment” of its hospital lien. The trial court found for UAB, and the Court of Civil Appeals affirmed. Nine years elapsed, and while the decision received attention in the state courts of Tennessee, no Alabama court cited it until this summer.
While the Progressive case upheld a relatively small verdict against a Cleveland, Ohio-based insurer, the law from that case has now been applied with equal force against an Alabama-based business. In Alfa Mut. Ins. Co. v. University of S. Ala., [Ms. 2140366, July 17, 2015] ___ So. 3d ___ (Ala. Civ. App. 2015), the Court applied the Progressive precedent against state-based insurer Alfa. As with Progressive before it, Alfa had sent a check for $2,000 to the insured’s parents, which were for the insured’s funeral expenses. Like Progressive, Alfa too was ultimately found liable for impairment of a hospital lien. Notably, while Alfa had only “impaired” the hospital’s lien to the extent of $2,000, the Court of Civil Appeals affirmed a judgment for the total amount of the hospital lien, plus costs and attorneys’ fees. All told, Alfa’s $2,000 impairment resulted in a judgment against it for over 20 times that amount.
The decision is worthy of extensive legal analysis, but for purposes of this blog post, there are two key observations worth mentioning:
- First, the holdings of both Progressive and Alfa amount to this: Any payment of benefits by an insurer to someone other than the treating hospital, regardless of amount, can potentially render that insurer liable for impairment of that hospital’s validly-perfected lien. The impairment happens the moment that the insurer disburses one dollar that should have first gone to satisfy a hospital lien.
- Second, it is difficult to “cure” even an accidental impairment of a hospital lien. At some point, Alfa became aware of the hospital’s lien and issued a payment to the hospital in the amount of the benefits due under the policy. The hospital rejected that offer, the appellate court found that the hospital was within its rights to do so, and affirmed a judgment for the entirety of the hospital lien.
Alfa is a decision that warrants attention, particularly by our insurer clients. While it technically does not announce a new rule, it reinforces the importance of checking hospital-lien filings as an integral part of investigation in advance of any settlement.