Under Alabama law, hospitals that provide care or treatment to an injured person in the State of Alabama have a lien for the reasonable charges for such care against any future judgments or settlements. If the injured person accepts a settlement without satisfying the hospital lien, the hospital “shall be entitled to a civil action for damages on account of such impairment, and in such action may recover from the one accepting such release or satisfaction or making such settlement the reasonable cost of such hospital care, treatment and maintenance.” Ala. Code § 35-11-372. The Alabama Supreme Court recently interpreted this statute to determine how to calculate a hospital’s lien impairment.

In Ex parte Alfa Mutual Insurance Company (Ala. April 28, 2017), the Alabama Supreme held that a hospital could only recover the actual amount of damages due to the impairment and not the entire hospital lien. In that case, Ms. Abaney Wright was insured by Alfa when she became involved in a car accident. She was admitted to USA hospital and later died from her injuries. Alfa paid Ms. Wright’s parents $2,000 for funeral expenses under a medical-payment-benefit provision in the parents’ automobile-insurance policy. Alfa then sent $2,000 to USA’s counsel, but USA did not accept the money. USA sued Alfa for lien impairment, and the Circuit Court awarded USA the amount of its entire lien ($26,438.50 plus $5,166.69 in attorneys’ fees). The circuit court awarded damages based on the entirety of USA’s lien without respect to the amount otherwise owed by Alfa under its policy. Alfa appealed.

The Alabama Supreme Court held that a hospital is not entitled to recover automatically the full amount of its lien whenever there has been an impairment of any magnitude. The damages must be caused by the impairment. That means the hospital does not get back its entire lien but the difference between the amount the hospital actually recovered and the amount it could have recovered absent impairment. Awarding the hospital a windfall due to a minor impairment does not comport with the impairment statute. Since the injured person’s claim against Alfa for funeral expenses was only $2,000, the damages for impairment could only be $2,000. The Alabama Supreme Court reasoned:

The purpose of the lien statute is to induce hospitals to receive a patient injured in an accident, without first considering whether the patient will be able to pay the medical bills incurred. The purpose of the statute is not to precipitate additional litigation, provide a windfall for hospitals, or saddle insurers with uncontracted-for liability in the event they pay a policy benefit that happens to be subject to a hospital lien.

Source: Ex parte Alfa Mutual Insurance Company, p. 13 (quotations and citations omitted). For more information on this case, contact Stephanie Monplaisr, a lawyer in our firm, at 800-898-2034 or by email Stephanie.Monplaisir@beasleyallen.com.

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