State Farm Holds Back Settlement Pending Medicare Lien

In Wilson v. State Farm, a U.S. District Court in Kentucky found that an insurance carrier did not act in “bad faith” by delaying payment of the settlement in a car accident case pending plaintiff’s lawyer squaring away a Medicare lien.

state farm settlementIn Wilson, the plaintiff brought an uninsured motorist claim and the insured tendered the policy of $50,000. Plaintiff said, “Okay, we settled the case, pay me.” State Farm withheld payment, worried that it would be responsible for the Plaintiff’s Medicare lien. Plaintiffs’ lawyers deal with this issue every day.

Plaintiff’s lawyer understood State Farm’s position and tried to marry the two, demanding that State Farm put the settlement in an escrow account from which Medicare’s conditional payment amount would be payable. The plaintiff (and probably his lawyer, I don’t know) also promised to hold the insurer harmless regarding any potential claim asserted by Medicare.

State Farm’s answer was a solution that was offered – and rejected – to me in a case just last Friday: putting Medicare on the check. Getting them to sign that check would probably take literally an Act of Congress.

Plaintiff’s car accident lawyer then filed a bad faith claim, contending that State Farm’s failure to tender payment did not comply with its good faith obligation to “effectuate prompt, fair and equitable settlements of claims” in which, as is the case in Wilson, liability and damages were not at issue.

The court ruled that the insurer’s delay did not constitute bad faith. The court also seemed more concerned than I am about the theoretical concern that State Farm would be on the hook under the Medicare Secondary Payer statute (“If Medicare is not reimbursed …, the primary payer must reimburse Medicare even though it has already reimbursed the beneficiary or other party.”).

What’s the “take home” message of this lawsuit that probably never should have been filed because the facts begged for a bad outcome and the creation of unhelpful law? Get the lien information as soon as you can. Did plaintiff’s car accident lawyer drag his feet on the lien in this case? I have no idea. But plaintiffs’ lawyers do it all the time.

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