California Court of Appeal: Addressing Plan for Reimbursement of Conditional Payment Claims in Settl


In Karpinski v. Smitty’s Bar, 2016 Cal. App. LEXIS 277, the California Court of Appeal highlighted the importance of specifying a plan for reimbursement of liens, mainly conditional payment claims, in the settlement agreement.

In this case, Karpinski, a patron of Smitty’s Bar, filed a complaint for damages against Smitty’s after two intoxicated individuals in the bar injured Karpinski by threatening him and punching him in the head and face. In May 2014, Smitty’s and Karpinski signed an initial settlement agreement in which Karpinski agreed to dismiss the complaint in exchange for $40,000.00. The settlement agreement specified that Karpinski and his attorney agreed to negotiate, satisfy, and dispose of all liens. The agreement also stated that Karpinski would indemnify Smitty’s, its attorneys, and Crusader (Smitty’s insurance carrier), from any lien claim.

In July 2014, Karpinski filed a motion for entry of judgment pursuant to the settlement agreement. Smitty’s opposed the motion on the ground that liens had been imposed against the settlement by the federal government based on Medicare payments to Karpinski and by the State of California based on crime victim compensation payments to Karpinski. Although Smitty’s opposed the motion to enforce the settlement, Smitty’s stated that it was willing to pay the settlement amount immediately if Karpinski would accept a check made out to him and both of the lien holders.

In September 2014, the trial court granted the motion to enforce the settlement, recognizing that the provision in the settlement agreement requiring Karpinski and his attorney to negotiate, satisfy, and dispose of all liens was not contingent on them doing so before receiving payment. The trial court also acknowledged that the agreement contained hold harmless language, which provides Smitty’s and Crusader with a remedy if the liens are not properly reimbursed.

In October 2014, Smitty’s filed a notice of appeal of the trial court’s decision to enforce the settlement, arguing that the satisfaction of the outstanding medical liens was a condition precedent to payment of the settlement funds and that Karpinski had failed to resolve the liens. Affirming the trial court’s decision, the Court of Appeal held that the agreement did not specifically provide that the satisfaction of liens must occur before Karpinski received the settlement proceeds and that neither the lien imposed by the federal government nor the lien imposed by the California Victims of Crime Program created a statutory condition precedent to payment of settlement proceeds. The Court also referenced the Georgia Court of Appeals decision in Hearn v. Dollar Rent A Car, Inc., (Ga. Ct. App. 2012) 726 S.E. 2d 661, 668., which concluded that public policy does not prevent a court from enforcing a settlement agreement that does not include Medicare as a co-payee on a settlement check where the plaintiff signed a release acknowledging his responsibility to pay any Medicare claim.

Smitty’s could have avoided this whole issue if it simply included a plan for reimbursing the lien in the settlement agreement. As the Court of Appeal stated, “if Smitty’s and Crusader were so concerned about their potential liability either to Medicare or the board, they could have negotiated for inclusion of terms in the settlement agreement requiring either Karpinski’s payment of these obligations as a precondition to receipt of the settlement proceeds or inclusion of the board and Medicare as payees on the settlement check.” Instead, Smitty’s is forced to comply with the terms of the settlement and use the remedy provided in the agreement if Karpinski fails to properly reimburse the liens.

Aside from avoiding confusion after settlement, agreeing upon a plan for reimbursement of liens and detailing the same in the settlement release is the best way to ensure Medicare is properly taken care of and to avoid the risk of a claim for double damages under the private cause of action provision of the Medicare Secondary Payer Act.

#MSPA #CaliforniaCourtofAppeals

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