Florida Second District Court of Appeals finds Lee Health Lien Unconstitutional

For those of you who insure or adjust claims in Southwest Florida, recent news out of the Second DCA may change the way you deal with claims where Lee Health (formerly Lee Memorial) treated the claimant. On October 25, 2017, the Second District held that Lee Health’s statutory lien is unconstitutional. See Lee Memorial Health Sys. v. Progressive Select Ins. Co., 2D14-5925 (2d DCA 2017).

History of Lee Health Liens

For years, Lee Health has utilized its statutory lien right found in chapter 2000—439, section 18, Laws of Florida, to lien any proceeds of an insurance settlement in which the claimant was treated by any of the Lee Health hospitals. Lee Health currently operates six hospitals in Lee County in addition to urgent care centers, specialty centers, and doctor’s offices. The lien language provides in pertinent part as follows:

Lee Memorial Health System shall be entitled to a lien for all reasonable charges for hospital, physician, and other health care services provided by the Lee Memorial Health System to ill or injured persons, upon the proceeds of all causes of action, suits, claims, counterclaims, and demands accruing to said persons or to their legal representatives, and upon all judgments, settlements, and settlement agreements rendered or entered into by virtue thereof.

No release or satisfaction of any cause of action, suit, claim, counterclaim, demand, judgment, settlement, or settlement agreement shall be valid or effectual as against the lien of Lee Memorial Health System unless the lienholder shall join therein or execute a release of its lien prior to the payment of any proceeds thereof.

Lee Health liens have historically made it difficult (if not impossible) for insurers to settle claims where the applicable policy limits were less than the amount of the lien. That exact scenario led to the decision in the case at hand.

Case Background

In Lee Memorial Health Sys. v. Progressive Select Ins. Co., the claimant (Mr. Gallegos) was struck by a car and injured, leading to treatment at a Lee Health facility. As a result of Mr. Gallegos’ treatment, he incurred a total of $84,199.99 in medical bills, for which Lee Health recorded a lien. Mr. Gallegos then filed suit against the driver that hit him and the owner of the vehicle. Progressive Select Ins. Co. (“Progressive”) offered to pay the limits of its bodily injury coverage as a full and final settlement of the claim, which was ultimately accepted. However, those limits were only $10,000.00. As a result, Lee Health lien was not satisfied. Following the settlement, Lee Health filed suit against Progressive alleging that it had impaired Lee Health’s lien. Progressive moved for summary judgment arguing that the lien was unconstitutional because it 1) violated Article I Section 11(a)(9) of the Florida Constitution, which prohibits the creation, enforcement, extension or impairment of liens based on private contracts and 2) violated Article I Section 10 of the Florida Constitution which prohibits impairment of insurance contracts.

Appeals Court Decision

After examining the language of the private contract between Mr. Gallegos and Lee Health, the statutory lien language, and the Florida Constitution, the Second District found the statutory lien unconstitutional on both grounds. The court reasoned that the lien was created, at least in part, based on the contract between Mr. Gallegos and the hospital at the time of his admission. The opinion also found that the lien impaired the insurance contract between the driver and Progressive because it exposed Progressive to losses “far greater than that for which it contracted.” Id.

Notably, the court’s discussion on whether the lien impaired the defendant’s insurance contract struck down the statutory lien on its face. Article I, section 10, states, “No bill of attainder, ex post facto law, or law impairing the obligation of contracts shall be passed.” The court noted that chapter 2000—439 “allows [Lee Health] to sue an insurer who was not a party to the admissions contract simply because the insurer did what insurers frequently do: enter into settlement contracts with their insureds or with persons injured by the actions of their insureds. In doing so, the special law unconstitutionally impaired the insurer’s contractual rights in violation of article I, section 10, of the Florida Constitution.” Lee Memorial Health Sys. v. Progressive Select Ins. Co., 2D14—5925 (2d DCA 2017).

Impact on Future Settlement Negotiations

The end result of the holding is that insurers, claimants, and defendants will no longer have to deal with liens (large or small) from Lee Health when trying to resolve cases. The claimant is now free to have negotiations and enter into settlements without the fear of Lee Health refusing to accept less than the lien amount. The insurance company is now free to settle claims without fear that it will be sued at a later day for impairment of Lee Health’s lien. Defendants and defense lawyers can now focus more on the merits of a case without hearing from the plaintiff that the hospital will not reduce its lien, therefore making settlement difficult or impossible.

The holding also likely means that Lee Health will submit more bills to a claimant’s health insurance (including Medicare and Medicaid). Because of the statutory lien, it has long been the practice of Lee Health not to submit medical bills to health insurance (or Medicare/Medicaid) in injury cases. Presumably, Lee Health has declined to submit the medical bills to a claimant’s health care insurer in injury cases because the lien gave Lee Health an avenue to recover the full amount of the medical bills from the settlement proceeds. Were those same medical bills submitted to a claimant’s health insurance, Lee Health would have been forced to accept less (often far less) pursuant to its contracts with those health insurance carriers. Now that the lien is effectively gone, Lee Health will likely seek to recover whatever payment it can by submitting medical bills to health insurers in injury cases.

About the Author

Richard Akin concentrates his litigation practice representing local municipalities, businesses, insurance companies, and individuals in civil, employment and tort claims, including constitutional claims, premises liability, product liability, and motor vehicle accidents. He also represents businesses and individuals in administrative litigation, including licensing and permitting matters.

Richard also represents many Florida school boards (before both administrative and civil courts) in tort and special education matters under the Individuals with Disabilities Education Act, the Family Educational Rights Privacy Act, and representation in connection with Constitutional matters under the 1st, 4th, and 14th Amendments.

Richard can be reached at 239-344-1182 or by email at richard.akin@henlaw.com.