9/24/2014

Court Refuses Mulligan When Case Settles Too Soon for Too Little

You only get one shot when you're dealing with Medicare lines in the context of a settlement.

By Jessica Smythe

In golf, a mulligan means that a player gets a second chance to hit an errant shot, many times a tee shot, without incurring a penalty. Despite the fact that this practice is prohibited by the rules of golf, casual players often allow each other a mulligan to ensure the proper pace of play and to increase the general enjoyment of the game.

In the recent case of Rhoades v. Beck, the Oregon Court of Appeals upheld the lower court’s refusal to allow the plaintiff a mulligan on a personal injury settlement reached before the plaintiff knew that the existing Medicare lien was greater than the settlement itself.

Facts of the Case

The Rhoades case arises out of a March 9, 2007, motor vehicle accident. The plaintiff and her husband each filed personal injury actions following the accident, and a trial date was set for May 2010.

Shortly before trial, the attorneys for the parties reached a settlement. The defendant agreed to pay $15,000 to the plaintiff and $5,500 to the plaintiff’s husband. The defendant also agreed to satisfy the plaintiff’s personal injury protection (PIP) lien in exchange for a full and final release of all claims against the defendant. The plaintiff and her husband agreed to hold the defendant harmless from all other liens. The settlement was confirmed in writing by both parties.

Not only did the settlement documents sent by the defense attorney to the plaintiff’s counsel contain explicit release and indemnification language covering Medicare liens, but also the documents memorialized the plaintiffs’ promises to hold money in trust to cover future Medicare-covered medical expenses: 

I further represent and warrant that I will satisfy all liens and claims that might relate to this accident, including but not limited to liens made by Medicare/SSDI, Medicaid/SSI, and DHS State of Oregon.
I further agree and certify that to the extent future medical care may be required related to this event, I agree and certify that I will hold in trust all funds necessary to satisfy all future liens and claims by Medicare, Medicaid, and/or DHS which pertain to treatment or care for injuries suffered in the above-referenced accident.
In consideration of the payment of the above sum, I agree to indemnify and hold harmless the parties hereby released from any claims on settlement funds, including, but not limited to those claims by Medicare/SSDI and Medicaid/SSI, to include the expenses of investigation, attorney fees, and other costs of litigation associated with any such claim made.

Court Ruling on the Case

So it appears at this point, everything is lined up for a nice, straight tee shot. The parties have agreed on a number, assigned responsibility between themselves for reimbursement of all liens associated with the claim, and even taken measures to address Medicare’s future interests in the liability settlement. There is only one thing missing from this approach shot: the parties were not aware of the exact amount of Medicare’s conditional payments.

On May 12, 2010, shortly after settlement, the plaintiff received notice from the Medicare secondary payer recovery contractor (MSPRC) that Medicare had paid $22,970.62 related to the car accident. On May 17, 2010, the plaintiff’s attorney notified the MSPRC of the $15,000 settlement and requested a waiver of Medicare’s lien.

The plaintiff’s counsel then notified the defendant’s counsel that the settlement was off the table. The plaintiff refused to sign the settlement documents—essentially asking for a mulligan on the settlement contingent upon Medicare’s agreement to waive its lien. (It’s logical to assume the plaintiff’s refusal to move forward with the settlement was based on the fact that, if Medicare recovered the full amount of its lien, the plaintiff’s entire settlement would be extinguished.)

The defendant then filed a motion with the trial court for an order compelling the plaintiff to sign the settlement documents. The defendant argued that the settlement was not dependent on the amount of the Medicare lien and that the parties’ agreement to settle the claim was a binding, enforceable contract.

The plaintiff argued that liability for the Medicare lien was a material term that remained uncertain and, therefore, the settlement was not binding.

The trial court agreed with the defendant, found the settlement enforceable, and entered an order granting the defendant’s motion. When the plaintiff refused to sign the settlement documents, the trial court entered a general judgment dismissing the plaintiff’s action.

The plaintiff appealed on the grounds that the parties were not aware of the Medicare lien at the time of their oral settlement discussions and, therefore, reached no agreement as to whom would be liable for it. Since the parties didn’t know about the lien, “there could be no objective manifestation of intent to be bound to terms in the defendant’s written release concerning those liens.”

In response, the defendant argued to the court the fact that the plaintiff “was unaware of the amount of the Medicare lien is not a basis upon which to find that the parties did not enter into a binding agreement to settle the litigation.” The defendant also pointed out that there was evidence in the record that the plaintiff was aware of the Medicare lien at the time of the agreement.

Agreeing with the defendant, the Oregon Court of Appeals, following state contract law, upheld the trial court’s ruling that there was an enforceable contract. The court held that the record supported the fact that the parties’ communications and acts “objectively established” that there was an agreement that the plaintiff would release her claim against the defendant and hold the defendant harmless from all other liens in exchange for the payment of $15,000 and reimbursement of the PIP lien.

Citing Wheeler v. White Rock Bottling Co., the court stated, “We will not set aside a settlement in a personal injury case merely because, in hindsight, it was obtained too soon and for too little.”

Only One Shot

It’s easy to see both sides of the coin here. All of the parties should be commended for reaching what appeared to be a successful resolution of a claim without having to resort to the time and expense of a trial. In an all-too-common scenario demonstrated by the facts of the case, the parties, in reaching their settlement, were forced to juggle the competing interests of an expedient settlement, judicial economy, and the protection of Medicare’s interests.

Certainly, Rhoades v. Beck can be read as a cautionary tale. A party should know the amount of a Medicare lien before agreeing to pay it. If a party agrees to accept responsibility to indemnify and hold another party harmless for reimbursement and collection of liens, it should know exactly what liens are in existence.

The Rhoades case demonstrates that you get only one shot—and no mulligan—when addressing Medicare liens in the context of a settlement.   



Jessica Smythe is assistant vice president of customer relationship management at ISO Claims Partners, a member of the Verisk Insurance Solutions Group at Verisk Analytics. She has been a CLM Fellow since 2011 and can be reached at jsmythe@iso.com.

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