When resolving claims with pro se claimants, a recent North Carolina Court of Appeals opinion, Nash Hospitals, Inc. v. State Farm Mutual Auto. Ins. Co., No. COA16-532, 2017 WL 3254961 (N.C. Ct. App., Aug. 1, 2017), has added a new twist. It is common practice to place the burden on the recipient of a personal injury settlement to ensure that any all medical liens are satisfied or, in the alternative, to issue a joint settlement check made payable to the claimant and health care provider. Now, however, payors are saddled with the responsibility of ensuring the direct payment of outstanding medical liens or face potential exposure for failing to do so.

Nash Hospitals arises out of a settlement with a pro se personal injury plaintiff, a $757 hospital bill, and a settlement check made payable jointly to the plaintiff and two of her medical providers. Id. at 1. The plaintiff, Jessica Whitaker, was injured in an automobile accident. Id. Whitaker incurred $2,272 in medical expenses; $1,515 for treatment at Rocky Mount Chiropractic and $757 for treatment at Nash Hospitals. Id. State Farm received notice from both Rocky Mount Chiropractic and Nash Hospitals, pursuant to North Carolina General Statutes §§ 44-49 and 44-50, of their respective liens on the personal injury settlement. Id. North Carolina General Statute § 44-49 creates a lien against funds received in a personal injury action in favor of health care provider and North Carolina General Statute § 44-50 provides for the retention of funds to satisfy such liens.

Subsequent to receiving the notices of medical liens, Whitaker and State Farm reached a settlement in the amount of $1,943; an amount insufficient to satisfy the medical liens. Id. After receiving an executed release from Whitaker, State Farm sent the settlement check directly to her; it neither notified Nash Hospitals of the settlement nor sent the settlement check to Nash Hospitals. Id. The settlement check was made payable to Whitaker, Rocky Mount Chiropractic, and Nash Hospitals; however, Whitaker did not present the settlement check to Nash Hospitals to satisfy the medical liens out of the settlement funds. Id.

Nash Hospitals sued State Farm alleging that State Farm engaged in an unfair or deceptive trade practice by virtue of its violation of North Carolina General Statutes §§ 44-49 and 44-50. Id. at 2. The trial court granted Nash Hospitals’ motion for summary judgment and awarded the hospital $757 to cover its bill but also treble damages for a total award of $2,271. Id. The question presented to the Court of Appeals is which party, Whitaker or State Farm, is responsible for the repayment of Nash Hospitals’ medical lien?

North Carolina General Statute § 44-50 states in pertinent part:

A lien as provided under G.S. 44-49 shall also attach upon all funds paid to any person in compensation for or settlement of the injuries, whether in litigation or otherwise. . . .Before their disbursement, any person that receives those funds shall retain out of any recovery or any compensation so received a sufficient amount to pay the just and bona fide claims for any drugs, medical supplies, ambulance services, services rendered by any physician, dentist, nurse, or hospital, or hospital attention or services, after having received notice of those claims.

N.C. Gen. Stat. § 44-50 (2015) (emphasis added). This particular section further states that no lien shall exceed 50% of the recovery, exclusive of attorney’s fees, and in the event the liens do, the 50% shall be disbursed on a pro rata basis. Id.

Analyzing N.C. Gen. Stat. § 44-50 and who should bear the responsibility for repayment, the Court of Appeals focused on the meaning of the word “disbursement”; as an undefined termed, the Court was faced with an issue of first impression. Nash Hospitals at 4. State Farm conceded that it was required to retain sufficient funds to satisfy any liens prior to disbursing the settlement funds; however, it argued that by making the check payable to Whitaker, Rocky Mount Chiropractic and Nash Hospitals, it did not disburse any funds as Nash Hospitals’ signature to the settlement check was necessary and, therefore, did not violate the statute. Id. at 3. The Court of Appeals concluded that once State Farm received notice of the lien and agreed to a settlement with Whitaker, Nash Hospitals was entitled to receive its pro rata portion of its unpaid bill from State Farm, prior to State Farm disbursing any funds to Whitaker. Id.

The purpose of North Carolina General Statutes §§ 44-49 and 44-50 is to ensure that hospitals, which provide care to injured individuals who may not be capable of paying for medical services, are repaid and to avoid situations such as the one faced by Nash Hospitals. Id. at 3. The Court reasoned that when State Farm forwarded the settlement funds to Whitaker, it lost control over the funds and, at that point, had made a disbursement. Id. at 4. As such, the Court of Appeals concluded that State Farm violated North Carolina General Statutes §§ 44-49 and 44-50 by failing to retain funds sufficient to satisfy Nash Hospitals’ lien and to forward those funds directly to the lienholder. Id.

Whether State Farm violated North Carolina’s Unfair and Deceptive Trade Practice statute, N.C. Gen. Stat. § 75-1.1 (2015), the Court of Appeals concluded that the issuance of the multi-party check to Whitaker without notifying Nash Hospitals, the refusal to satisfy and re-issue a check to Nash Hospitals to satisfy its lien, and the failure to set aside sufficient funds to satisfy the lien prior to disbursing funds to Whitaker were collectively deemed to constitute unfair and deceptive conduct by State Farm. Id. at 8. Concluding that the other requisite requirements of N.C. Gen. Stat. § 75-1.1 were satisfied, the Court of Appeals upheld the trial court’s grant of summary judgment in favor of Nash Hospitals but remanded the case for a determination of the hospital’s pro rata share of damages to be trebled. Id. at 10.

The outcome in Nash Hospitals may have immediate and practical implications for entities that process the settlement of personal injury claims with pro se claimants. It is relatively common practice to shift the burden to the claimant to ensure that any and all liens are satisfied; however, in light of Nash Hospitals, such practices may no longer be prudent. Although this particular case involves an insurance carrier, it should be anticipated that the Court’s ruling will apply equally to individuals or entities adjusting and settling claims, as the applicability of N.C. Gen. Stat. § 44-50 is not limited to insurance carriers. If you receive notice of a medical lien, prior to finalizing a settlement with a pro se claimant, best practices dictate that all potential lienholders are identified; all interested parties receive notification of the settlement prior to finalization; the interests of known lienholders are taken into consideration; if applicable, all payments are made directly to the lienholder; and any and all communications or agreements between the parties are documented. In the earnest of resolving a pro se claim, be mindful of the responsibility for the repayment of liens, and don’t fall victim to this new twist in North Carolina law.