Important Change to Texas Law Regarding Satisfaction of Hospital Liens

Case:
McAllen Hosps., L.P. v. State Farm County Mut. Ins. Co.
Texas Supreme Court
2014 Tex. LEXIS 394 (Tex. 5/16/ 2014)

On May 16, 2014, the Texas Supreme Court delivered a decision which alters the practices of insurance companies and defense firms with regard to hospital liens. In Texas, it has been common practice to simply send a settlement check to a plaintiff’s attorney, and have the plaintiff’s attorney satisfy all hospital or workers’ compensation liens, or to put the name of the hospital on the plaintiff’s check as a payee. However, this is no longer an acceptable practice.

In McAllen, two plaintiffs were injured in a car accident with Benavidez and received treatment at McAllen Medical Center. McAllen Medical Center filed hospital liens. Eventually, the plaintiffs settled with Benavidez’ insurance company, State Farm. State Farm made the settlement checks jointly payable to the Plaintiffs and McAllen Medical Center. The plaintiffs deposited the checks without McAllen Medical Center’s endorsement, and McAllen Medical Center was never reimbursed for the medical expenses. McAllen Medical Center sued State Farm to enforce its hospital lien. The Supreme Court held that (1) McAllen Medical Center’s charges were not “paid” under the Hospital Lien Statute and Uniform Commercial Code by issuing the check with McAllen Medical Center as a joint payee; (2) the underlying settlement was invalid without satisfaction of the hospital lien; and (3) the hospital lien remained intact.

Defendants and insurers should take heed. To settle a case which involves a hospital lien in Texas, a separate check must be sent to the hospital, with a written release that expressly releases all parties from the lien. Issuing a check made payable to the plaintiff and the hospital does not constitute payment of the lien.