Who Gets Paid When a Case Settles?

As a trial lawyer who handles many types of suits, I see a lot of people with their hands out looking for a piece of any judgment or settlement which I obtain for my clients. Most people think that the plaintiff either gets to keep all of the money in a judgment, or that the plaintiff may have to pay a contingent fee to his lawyer, but otherwise gets to keep all the money.

That almost never happens. In the cases I handle, where the person is seriously injured, there are also serious medical bills to be paid. If a judgment is entered or a settlement is reached, usually the people who paid the medical bills caused by the conduct that led to the suit being filed are right there demanding to be paid back.

Private insurers, such as health insurers, often have contractual rights called "rights of subrogation" which state basically that if they pay damages caused by the negligence of somebody else, and you recover money from that person, you have to pay them back. Even where the insurance contract doesn't state this expressly, there is some law in Texas to indicate that private insurers may have this "subrogation right" anyway.

Hospitals are required by state and Federal law to accept and care for emergency patients if they wish to be part of the Medicaid and Medicare systems. It can happen, of course, that hospitals spend thousands or even tens of thousands of dollars caring for horribly injured patients who are uninsured and have no means to pay for their own care. Texas, like many other states, has a "hospital lien" statute, which provides that a hospital can take out a lien on any recovery made against the person who caused the care to be necessary - the other driver, a manufacturer of a bad product, etc. This lien must be paid out of any settlement or judgment, and it has to be paid first.

Likewise, if a plaintiff has had medical bills and lost wages paid by worker's compensation insurance, the worker's compensation insurer has a lien on any recovery the worker makes against a third party for the same injuries, and must be paid before any other claims are paid - including the plaintiff and his attorney. Finally, the Federal and state governments have a "superlien" on recoveries in civil suits to the extent that they have paid Medicare or Medicaid benefits. These liens last forever, there is no statute of limitations on them, they exist whether or not anyone knows they exist, and there are stiff civil and criminal penalties if they are not paid - and the penalties are imposed not only on the plaintiff, but also on his lawyer.

Of course, we can all agree that no plaintiff should get a "windfall" by being paid for medical bills which have already been paid. Unfortunately, the size and amount of these liens often result in a plaintiff actually recovering nothing, or a suit never being brought against someone clearly responsible. For example, I have several cases in my office now where there are liens by either the government or by hospitals which are well over $100,000. If the clearly negligent drivers in those cases (one of whom was drunk and the other jumped a median into oncoming traffic) have less than $150,000 in insurance, there will be no point in pursuing the cases, because after payment of the liens and the costs of litigation, my clients will end up with nothing. Some insurance carriers love this result—particularly the insurers of bad drivers with small insurance limits, who end up never having to pay a dime for the terrible injuries caused by their customers.

Often, an agreement can be reached with the holders of the liens to reduce their claims so that the case can go forward. Equally often, particularly in the case of some government liens, the lienholder either will not, or by statute cannot, reduce the size of their claims. I'm sure that this sort of thing sounds like a great idea when one Senator or another is complaining about "those evil trial lawyers", but when the result is that neither the injured, innocent plaintiff or the government gets their money back, and the drunk driver who caused all the pain and expense is never required to pay anything, it sure looks like bad public policy to me. The government loses tens of millions because of its insistence on getting all (or none) of its money back and its refusal to either reduce the size of its claim or pay any of the costs of asserting the claim.

I cannot advise a client to file a suit and pay all the costs of that suit with the certain knowledge that the government is going to take any money that we recover. And of course I am not willing to spend hundreds of hours of my time and thousands of dollars to get money for the government in exchange for nothing. The result? Taxpayers foot the bill, no suits are filed, and neither the guilty parties nor their insurers pay a dime.