New Year Brings New Deadlines for Defendants in Settlement of Personal Injury and Tort Actions

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January 9, 2014
Carmel Cosgrave
SmithAmundsen Health Care Alert

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Counsel for plaintiffs and defendants have bemoaned the fact that winding up the settlement of a lawsuit may often drag on for months. In particular, awaiting the final payment letter from the Medicare Secondary Payer Recovery Contractor (MSPRC) or the Centers for Medicare and Medicaid Services, (CMS), and otherwise handling and/or disposing of liens have lengthened the process in many instances. Our office had one case where the agreement to settle was made in December of 2012, but the final payment letter was not received until August of 2013 and the settlement drafts were not issued until September.

Last year, the Illinois legislature passed a law concerning settlements, 735 ILCS 5/2-2301, et seq. The law became effective January 01, 2014. The law imposes several deadlines on defendants who settle “a personal injury, property damage, wrongful death or tort action.” The statute does not apply to the State of Illinois; any state agency, board, or commission; any state officer or employee sued in his or her official capacity; any person represented by the attorney general and provided indemnification by the State pursuant to the State Employee Indemnification Act; any municipality or unit of local government as defined under Article VII of the Illinois constitution; and class action lawsuits. Failure to comply with the deadlines may result in increased motion practice among the parties, including the entry of a judgment order with statutory interest accruing at 9% per annum. The law also addresses how third party interests to recover through subrogation or liens may be addressed by the settling parties. These latter provisions may not sit well with some defendants and/or their insurers.

Defendant Deadlines: 14 days to issue release; 30 days to pay all sums due

The law requires that the settling defendant tender a release to the plaintiff within 14 days of “written confirmation of the settlement.” 735 ILSC 5/2-2301 (a). Written confirmation can take any form, so it presumably includes email confirmation, as well as letter confirmation, or stipulation (as often occurs at a mediation). Section (d) of the statute also requires that the settling defendant pay all sums due to the plaintiff within 30 days of tender by plaintiff of the executed release and all applicable documents in compliance with other subsections. “Tender” is defined as “personal delivery or delivery by a means of providing a return receipt.” 735 ILCS 5/2-2301(d). The plaintiff must tender more than just an executed release. For example, where the law requires that the court approve a settlement, as is the case with wrongful death actions, and the settlement of minor’s claims, the plaintiff must tender a copy of the order approving settlement, before the clock starts to tick against the settling defendant. 735 ILCS 5/2-2301 (b). The plaintiff must also tender appropriate documents indicating that he/she has protected the rights of third party lien holders and/or subrogees.

Plaintiff’s options in protecting third party liens or subrogation interests

This new statute also recognizes the plaintiff’s obligation to protect the interests of third parties, and the significance of resolving liens and subrogation interests to the defendants. The statute identifies at least 4 types of third party interests, though it is not limited to these interests. Specifically, the statute identifies:

  1. Attorney liens;
  2. Healthcare provider liens;
  3. Governmental liens, including Medicare, CMS, the Illinois Department of Healthcare and Family Services; or
  4. Private health insurance companies.

The statute specifies that “the plaintiff may protect the third-party’s right of recovery or subrogation interest, where applicable, by tendering to the defendant one or more of the following documents:

  1. A signed release of the attorney’s lien;
  2. Either:(i.) A signed release of a healthcare provider lien; or (ii.) A letter from the plaintiff’s attorney agreeing to hold the full amount of the claimed lien in the plaintiff’s attorney’s client fund account pending final resolution of the lien amount; or (iii.) An offer that the defendant hold the full amount of the claimed right of recovery pending final resolution of the amount of the right of recovery; or (iv.) Documentation of any other method resolution of the liens as agreed by the parties.
  3. Either: (i) Documentation of the agreement between the plaintiff and Medicare, the Centers for Medicare and Medicaid Services, the Illinois Department of Healthcare and Family Services, or the private health insurance company as to the amount of the settlement that will be accepted in satisfaction of right of recovery or (ii) A letter from the plaintiff’s attorney agreeing to hold the full amount of the claimed right to recovery in the plaintiff’s attorney’s client fund account pending final resolution of the amount of the right to recovery; or (iii) An offer that the defendant hold the full amount of the claimed right to recovery pending final resolution of the amount of the right of recovery; or (iv) Documentation of any other method of resolution of the liens as agreed by the parties. 735 ILCS 5/2-2301 (c).

While section c (3) provides for alternative methods of handling a Medicare lien, conventional wisdom has been that the parties are best protected when CMS issues a “final payment letter.” Section c (3) (i) seems to recognize a final payment letter as one means of protecting Medicare’s interest. Defendants may be rightfully reluctant to allow plaintiff’s attorney to hold the amount due to Medicare in his/her client fund account for fear that that reimbursement may not be made. Likewise, defendants, who are eager to close their books on a settlement, may be reluctant to hold the amount of the claimed recovery pending final resolution. This is particularly important as CMS does not communicate directly with defendants. The legislation does nothing to protect a defendant from a suit by Medicare in a Federal Court if CMS’ reimbursement rights are not satisfied.

Interest on settlement amount if not payment not timely

Section e of the statute also allows the court to reduce the settlement to a judgment if, “after a hearing,” the court finds that timely payment has not been made. The judgment amount entered against the defendant is for the amount set forth in the executed release, plus costs incurred in obtaining the judgment, and interest (at the statutory rate of 9%) calculated from date of the tender of the settlement documents by the plaintiff to the defendant. The section is silent as to whether interest accrues on amounts owed to third parties, and if so, whether the plaintiff may benefit from interest on those amounts that have to be paid to the third party(ies).

The importance of clearly identifying and negotiating all significant terms of the settlement

Now, more than ever, it is important for the defendant to specify all conditions antecedent to payment. Defendants and their counsel should specify, no later than the confirmation of settlement, all information and documentation necessary before the settlement draft can be issued. Ideally, these conditions or terms should also be incorporated in the release. If a defendant or its carrier needs/ requires tax identification information, and/or a W 9, that should be clearly identified in the release, as well as the necessity of any final payment letter from CMS. The statute seems to recognize that the issues it addresses may be negotiated by the parties. See Section (c), (2) (iv); (c) (3) (iv) and section (g) [“This section applies to all personal injury, property damage, wrongful death, and tort actions involving a claim for money damages, except as otherwise agreed by the parties.” (emphasis added)].

When settlement is achieved at mediation, or before the court, any memorandum of settlement, or court order, should reflect the key conditions that need to be met before a settlement draft can be issued. Such conditions may include:

Defendants must recognize that the statute does not put plaintiff under any time limits. This is likely a reflection of the fact that it is plaintiff’s burden to negotiate and resolve the interests of third parties. However, while plaintiff may drag out the resolution of any liens, or delay the request for a final payment letter from CMS or delay the court action to approve settlement, this will not absolve the defendant’s obligation to issue payment of the settlement within 30 days of the tender of all necessary settlement documents.

Defendants should also expect certain plaintiff’s counsel to test the statute, by refusing defendant’s conditions, and providing one of the alternatives noted in the statute. When the parties cannot agree, the defendant should not be reluctant to seek court intervention to resolve the disagreement. However, one outcome of such intervention could include a finding that there was no meeting of the minds and hence no settlement. This office has already had one plaintiff’s counsel attempt to use the statute to reduce a settlement to judgment when the settlement draft was not delivered within 7 days of the tendering of the settlement documents.

Defendants, their liability carriers and defense counsel should also be clear with each other about what information is needed to cut a settlement check. If there are reasons why a release cannot be tendered within 14 days of confirmation of the settlement, where, for example, there are multiple settling defendants and a joint release is desirable, that fact should be addressed in the confirmation and settlement agreement. Plaintiffs and defendants should also expect that in multi-party cases, there may be a push to have each defendant issue its own release. Care should be taken, however, that all issues among the parties are properly resolved and documented. Where contribution or indemnification claims have been filed by and among the defendants, those claims should also be addressed in a release or settlement and dismissed in court.