Before lawyers settle or try a personal-injury case, both sides to a dispute should be sensitive to resolving statutory subrogation and lien interests. Otherwise, parties, counsel and insurance carriers can face ongoing liability exposure if such interests are not protected. The laws under which these lien and subrogation interests are created put the parties, their attorneys and liability insurance carriers on notice that these interests have to be paid back; if they are not, the parties, their attorneys and liability insurance carriers are liable for penalties, fines and interest. Avoiding a malpractice claim requires the ability to spot subrogation and lien issues throughout litigation.

A lien is a security interest that a creditor has in another’s property ensuring payment of a debt. A subrogation interest, on the other hand, is an insurance concept where an insurer pays a debt of the insured and owns the right to recover the debt.

The following are four statutes creating subrogation or lien interests. Attorneys should be familiar with these laws to fulfill their legal and ethical obligations to clients and avoid potential malpractice claims.

1. Medicare/Medicaid: Medicare and Medicaid are federally mandated insurance programs. Payment of Medicare funds in situations where Medicare expects other sources to pay medical expenses first (i.e., if a tortfeasor wrongfully injures a Medicare beneficiary who then needs medical and health care to treat the injury) creates a subrogation right in favor of the government, which can seek recovery against the insured, insurer, employer or any liable person. The federal government can seek double damages and interest for unpaid amounts.

Similarly, the federal Medicaid program requires states to develop rules that require beneficiaries to assign to the states the beneficiaries’ rights to seek recovery against liable third parties, rules for recovering monies from liable third parties and rules setting out beneficiaries’ responsibilities to cooperate with the state agency in recovering subrogated monies. By applying for Medicaid benefits, the person automatically assigns his right to the state Medicaid agency to recover any expenses Medicaid pays on his behalf from a tortfeasor or other liable party.

A Medicaid beneficiary and his attorney have a statutory duty to inform the agency if there is a liable third party from whom funds can be recovered. The Texas Department of Health can prosecute a cause of action in its own right to recover Medicaid benefits from a liable third party. Before any special-needs trusts are funded for an injured person, all monies owed to Medicaid must be reimbursed.

It’s not just plaintiffs lawyers who need to worry about this. If Medicare or Medicaid subrogation interests are not protected, the federal or state governments can obtain a judgment for recovery of these benefits, plus penalties and interest, against the beneficiary, his attorney, the defendants, their attorneys and insurance carriers who pay money in settlement or a judgment.

2. Texas Workers’ Compensation: Workers’ compensation is insurance issued primarily for the benefit of employees. An insurance carrier paying these benefits automatically is subrogated to the interests of the injured employee for the benefits paid. Texas law puts the parties on notice that a subrogation interest exists and must be protected.

If the employee is awarded a settlement or judgment that includes monies for health-care expenses and wages, the insurance carrier is entitled to “first money” that a third party tortfeasor pays to an injured employee or his representatives, up to the amount of compensation paid. The insurance carrier can recover the amount from the employee or the third party tortfeasor.

A workers’ compensation carrier, like the Medicare and Medicaid agencies, can intervene in a suit to recover benefits it has paid on behalf of the employee, and the parties remain liable to reimburse those amounts until they have been paid.

3. Property Code liens protecting health-care charges: Texas law permits hospitals, emergency-service providers and physicians employed by institutions of higher learning to perfect a lien on certain health-care expenses which have not been paid and which are due and owing pursuant to Texas Property Code §§55.002, 55.004(h).

Importantly, this type of lien only covers charges for emergency care sought within 72 hours of the accident. If the patient sought care within that time and later is transferred formally from hospital to hospital for treatment of the injury, both hospitals can file a lien for charges incurred for the first 100 days of hospitalization. A physician can secure his charges for the first seven days of treatment through this method if the doctor has not accepted payment under an insurance plan, accepted an assignment of benefits and does not exceed reasonable charges, among other limitations.

The lien attaches to the proceeds of a settlement or judgment for an individual’s personal injury or death, though certain types of payments are exempt from these types of liens. Exempt payments include those made under workers’ compensation, the Federal Employers Liability Act, the Federal Longshore and Harbor Workers’ Compensation Act or life insurance.

Perfecting the lien requires the health-care provider to file a written lien listing the required elements with the county clerk of the county where it provided services before money is paid to the injured person. Within a certain time of recordation, the hospital must mail the notice to the injured person specifying that the lien will attach to any settlement or judgment proceeds. An emergency-services provider may be exempt from mailing the notice.

While lien notice is required to be mailed, the lien is actually perfected upon filing. The hospital or provider has a separate cause of action against the injured party for recovery of amounts secured by a lien; its cause of action does not accrue until monies are paid. This can be problematic if the hospital bill is “written off” under a charity policy. Some facilities’ charity policies, in fact, allow revival of their charges if the injured person has or may have a right to a money recovery. The hospital could then file a lien several years after the treatment that secures its right to recover.

A perfected lien cannot be extinguished unless the hospital or provider files a certificate in the county records that the lien has been paid and the clerk dates and records a memorandum that the certificate is filed. Furthermore, a release between the injured party and tortfeasor is not valid unless the lien was paid before the release was signed or the hospital or provider was a party to the release. A judgment remains in effect until the lien is satisfied.

4. Child support liens: The Texas Family Code permits liens over real and personal property to recover child support payments regardless of whether the amounts have been adjudicated. Among other property, a lien will attach to a claim for compensation or proceeds of a settlement or award of compensation owned or acquired after the date the notice is filed with the court clerk where litigation is pending. The contents of the notice are quite detailed and are outlined in Family Code §§157.313(a), (c).

The lien notice may be filed properly in several different counties where it will be recorded in the county judgment records. Once filed, the notice must be mailed to the person owing child support and anyone else known to have an interest in the property within 21 days of filing. Filing or delivering the lien notice perfects it. However, if the notice is filed or delivered to the obligor after an assignment of a money judgment, the lien is unenforceable.

Federal and state law extend the obligation to protect certain subrogation and lien interests to many individuals and entities. One or more of these interests can exist simultaneously in one claim; therefore, it is crucial that a lawyer identify these interests early to satisfy them from a settlement or judgment. Often, the lawyer can negotiate the full amount of the protected interest with the agency or carrier. But ultimately some agreement must be reached to compromise the subrogation or lien interest and eliminate ongoing liability of the parties, their attorneys and insurance carriers to reimburse the federal or state agencies for these monies.