The Supreme Court of Texas recently issued a new opinion about what does not constitute a payment to a hospital with a statutory lien for medical expenses incurred within 72 hours of an accident. McAllen Hosp., L.P. v. State Farm County Mut. Ins. Co. of Texas.

State Farm, a liability insurer, settled a bodily injury case when there was a valid hospital lien on file. The insurer paid the claimant with a check made payable to both the claimant and the hospital with a lien and sent the check to the claimant. The claimant cashed the check without the hospital’s endorsement of the hospital, and the hospital never got paid. The hospital sued the insurer under Chapter 55 of the Texas Property Code to recoup its lien amount. The insurer obtained summary judgment in the trial court on the grounds that the hospital had been “paid”, and therefore the lien had been satisfied.

The Texas Supreme Court held that summary judgment in favor of the insurer was improper because the hospital was not “paid” for purposes of the Texas Hospital Lien Statute. Under Tex. Prop. Code  55.007, if the hospital is not paid in satisfaction of its lien, the settlement agreement between the claimant and the insured is not valid and enforceable. This decision is a reminder that, to effectuate finality in settlement in cases involving statutory hospital liens, the insurer needs to ensure that the hospital lien is satisfied, and making a check payable to both the claimant and the lienholder may not be sufficient. As a result, insurers and tortfeasors should consider alternative ways to make settlement payments in cases involving statutory hospital liens, such as separate checks payable to the claimant and the lienholder, or separate side agreements with the claimant’s attorney to guarantee payment to the lienholder. The practical effect of this holding is that insurers and defense attorneys need to be more proactive with respect to investigating the existence of hospital liens, and the settlement process may become more time-consuming due to the negotiation and finalization of the lien amounts before final payment.

However, the Supreme Court added in dicta that the hospital may not have a direct cause of action against the tortfeasor insured or its insurer to recover for the unpaid lien amount even if the release with the claimant is invalid and unenforceable. This language from the opinion will likely be used in defense of such direct actions brought by lienholders against liability insurers/settling tortfeasors.


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