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Health Insurers’ Subrogation Liens Are to Be Legislatively Regulated

By James A. Borland

Although the Health Care Services Lien Act has been the law of Illinois for more than 18 years, health insurers who hold subrogation liens on personal injury claims have nevertheless been fraught with typical questions: Is their lien reduced by the amount of comparative fault of a claimant? Are they required to reduce their lien to share proportionately in the claimant’s attorney’s fees when the lien is collected? How does the subrogation lien holder know when he has received adequate notice of a petition to adjudicate its lien?

Effective January 1, 2013, these important questions will be answered. The Illinois General Assembly has amended the Health Care Services Lien Act specifically addressing these questions. Starting with the new year, in Illinois we will note the following.

Where an insurance company has paid medical bills of a claimant who holds a personal injury cause of action against another individual, that subrogation lien will in fact be reduced by the same proportion that the injured party’s right of recovery is reduced, because of the claimant’s comparative fault. For example, if a health insurer paid $10,000 of medical bills on behalf of a claimant who is 25% responsible for his own accident, the subrogation lien held by the insurer is also reduced by 25%. A similar reduction is required where the total amount of damages is limited by uncollectability due to limited liability insurance available for the accident.

Next, the subrogation lien holder’s right of recovery is further reduced in order to assist the claimant in the payment of his attorney’s fees. At common law this has been referred to as “The Common Fund Doctrine.” Under this rule of law, where a claimant’s attorney creates a common fund out of which payments are made to subrogation lien holders, those lien holders were expected to reduce their liens to pay the pro rata share of attorney’s fees and litigation expenses. This common law rule has now been codified, effective in January 2013.

Finally, a personal injury claimant and his attorney may adjudicate the rights of the subrogation lien by serving notice of any such hearing on the subrogation holder through registered mail or certified mail. No longer is it necessary for a claimant’s attorney to have a process server personally provide a copy of the notice of hearing adjudicating the lien to the subrogation lien holder.

The new amendments specifically exclude their application to any workers’ compensation lien holder, or any unpaid health care provider who claims a lien.

As with most newly enacted laws, the interpretation of this legislation will be proven only after claims have been litigated. As the new amendments are tested throughout Illinois courts, we will be able to determine better whether this legislation aids in the resolution of claims, or simply adds yet another layer of uncertainty.

Originally published in the Fall 2012 edition of Quinn Quarterly.

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