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What Now? – Handling the Uncertainty of Personal Injury Lien Disbursements

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My colleague Brooke Ottesen and I recently presented a CLE on trust account disbursement at Elon University School of Law.  The participants asked many wonderful questions regarding this subject.  Several of these questions were from personal injury attorneys and focused on how to handle certain types of liens.  I previously practiced in this area, and I recall facing the same issues and having the same questions.  Medicare liens, in particular, can be onerous and confusing.  I presented the scenarios below to Deanna Brocker of our firm for her advice and comment:

Scenario 1:          The client has Medicare and the claim has been reported.  Medicare Secondary Payer Recovery Contractor (MSPRC) has sent a conditional payment letter itemizing the claims Medicare has paid and listing the potential lien amount.  The case is settled and the proceeds are deposited into the attorneys’ trust account.

(1)    Can the attorney hold Medicare’s conditional payment amount in trust and distribute the remainder of the funds even though Medicare’s final demand letter has not been issued?

(2)    What if Medicare’s final demand amount is greater than the conditional payment amount?  Can the attorney seek the difference from the client?

Answer:               The attorney is required to hold in trust the amount he believes will cover the final demand.  Clearly, the attorney cannot know exactly what that amount will be; however, he should make an educated guess based upon the information he possesses.  If the amount of the final demand is more than the amount held in trust, the attorney may either (a) make up the difference in the trust account first, pay the final amount to Medicare, and seek reimbursement from the client OR (b) if there is time, seek reimbursement from the client, deposit those funds into the trust account, and make the disbursement to Medicare.  The attorney is not required to seek reimbursement from the client for any shortfall, and may decide to absorb that cost.

Scenario 2:          Insurance Company A contracts with numerous subrogation companies to collect liens it may have on client settlements.  Often, the insurance company cannot tell the attorney which of the subrogation companies has the lien or they provide the name of the incorrect company to the attorney.  Sometimes, Insurance Company A informs the attorney there is no lien and then sends a letter claiming a lien after funds have been disbursed.

Answer:               The attorney is required to perform due diligence to determine whether there is a lien on the proceeds of a client’s settlement.  If a lien is discovered after the case has settled, the attorney may seek payment from the client or he or she may decide to pay the lien from his funds first and then decide whether to seek reimbursement from the client.  Under this latter scenario, there are no funds in trust, so if the attorney elects to pay the lien, the attorney may do so from funds in his operating account and place any funds reimbursed by the client back into the operating account.  The attorney must be careful, however, to create a paper trail documenting where the funds are going and what they are for.

Dealing with liens is certainly frustrating.  It is wise to be proactive and have clients sign a statement at your initial meeting divulging any benefits they may receive that could potentially result in a lien.  Knowing what agencies and insurance companies you need to contact at the outset can save both time and money.