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Please note that Attorney Bruzonsky has been doing this regular “Liens Corner” column since April 2006. His last “Liens Corner” article was for the November/December 2017 issue of The Advocate, having stepped down from this regular column, as he now works part-time (and is part-time retired) exclusively handling large subrogation/lien claims in very large personal injury and medical malpractice cases for other attorneys. However, attorney Bruzonsky may add notes to this website under the subject lien article headers from time to time. (Please keep in mind that this site contains general information for educational purposes only. It is not intended to provide legal advise, which can only come from a qualified attorney who is familiair with all the facts and circumstances of your specific case and relevant law.) 



2008-12: ARS 12-962 Liens Litigation Update

June 25th, 2016 12:12:55 pm

This article has been published in "The Advocate", a monthly publication of the Arizona Association for Justice/Arizona Trial Lawyers Association, December 2008 issue, @2008 by Steven J. Bruzonsky, Esq.

Litigation Update: A.R.S. §12-962 State, Political Subdivision & School District Lien Claims

(Please see my February and March 2007 "Liens Corner" articles concerning A.R.S. §12-962 state and political subdivision and school district lien claims.)

The purpose of this article is to discuss current litigation concerning A.R.S. §12-962 lien claims.

Background A.R.S. §12-962 lien claims:

Historically, thanks to the decision in Piano v. Hunter, 173 Ariz. 172, 840 P.2d 1037 (App. 1992), Arizona state agencies and local school districts did not have lien rights against personal injury settlements. In the Piano case, the court held that a self-funded Arizona school district trust fund lien for accident-related health benefits was void under Arizona anti-subrogation caselaw, noting that this was not a private sector ERISA healthplan lien which would have pre-empted Arizona anti-subrogation caselaw under United Food & Commercial Workers & Employers Arizona Health & Welfare Trust v. Pacyga, 801 F.2d 1157 (9th Cir. 1986).

The only Arizona appellate case to date dealing with A.R.S. §12-962 is AHCCCS v. Bentley, 928 P.2d 653, 187 Ariz. 229 (App. 1996). In that case, the Court held that A.R.S. §12-962 gives AHCCCS a statutory cause of action to recover medical benefits paid from proceeds of personal injury/medical malpractice settlements, regardless of whether an AHCCCS statutory lien has been timely filed pursuant to A.R.S. §36-2915 (the AHCCCS lien statute). AHCCCS as a state agency qualified as a "state or political subdivision" to recover medical benefits. However, that case involved a medical malpractice claim and did not involve first party uninsured or underinsured motorist or medical payments benefits; this decision was prior to the 1999 amendment to A.R.S. §12-962; and that case did not discuss non-AHCCCS state agencies or local school districts.

Prior to the 1999 Amendment to A.R.S. §12-962, the first sentence of A.R.S. §12-962(A) stated: "If this state or any of its political subdivisions is required by law to furnish medical care and treatment . . .". The Piano case was cited in the legislative history to the 1999 Amendment to A.R.S. §12-962 as the reason to change the statutory language. The 1999 amendment revised the above sentence to state: "If this state or any of its political subdivisions provides medical care and treatment . . .". Essentially, the words "required by law to furnish" was changed to "provides" by the 1999 Amendment. The remaining sections and parts of A.R.S. §12-961 et seq are unchanged. ARS §12-961 continues to define that "Medical care and treatment" includes hospital, medical, psychological,surgical and dental care, ambulance services, prostheses, medical appliances and supplies, pharmaceutical supplies, occupational therapy and physical therapy.

Current A.R.S. §12-962 litigation in Maricopa County Superior Court:

During the past year, the Arizona Dept. of Administration (ADOA) has filed two lawsuits litigating the A.R.S. §12-962 lien issue under the State of Arizona's alleged "self-funded medical insurance plan" through United Health Care for state employees. In each case, Ingenix, a subsidiary of United Healthcare, had asserted A.R.S. §12-962 lien rights. The ADOA is represented by John C. West, Esq., of Jennings, Strouss & Salmon, P.L.C.

A default judgment was entered by Judge Buttrick in Arizona Dept. of Administration v. Dedecker, CV2007-008187 (Maricopa County Superior Court), in response to ADOA's Motion for Summary Judgment (MSJ). For whatever reason, there was no response filed to ADOA's MSJ. Apparently the injured party's attorney Michael York has filed a Motion for Reconsideration.

Ingenix has been sending out a copy of this Ruling (on default) demanding payment on A.R.S. §12-962 liens. But this Ruling was issued as a default judgment and is meaningless.

Recent A.R.S. §12-962 Judgment in Pima County Superior Court:

In Arizona Dept. of Administration v. Cox, CV2007-2162 (Pima County Superior Court), Judge Cornelio, after cross MSJs, entered judgment on August 28, 2008 in favor of ADOA in the amount of $2,475.00 plus taxable costs. We understand that ADOA is appealing this judgment. The injured party's attorney is Thomas Cotter, Esq. of Haralson, Miller, Pitt, Feldman & McAnally, P.L.C.

In this case, uncontested facts are as follows: (1) The State of Arizona established a Health Insurance Trust Fund ("Trust Fund") for purposes of administering state employee health insurance plans, including the payment of claims costs (per A.R.S. §38-654). The Trust Fund pays for medical services covered under the State of Arizona Group Health Plan ("State Plan"). The Plaintiff, Arizona Department of Administration (ADOA), is an administrative agency of the State authorized to procure and administer the health and accident plans for state employees. The ADOA contracted with United Health Care Insurance Company to serve as the State Plan's administrator. Proceeds in the trust fund consist of both employee and employer contributions. (2) Jennifer and Richard Cox are employees of the State of Arizona, and insured by the State Plan. On or about October 16, 2004, they were injured in an automobile accident because of a negligent third party. As a result of their injuries, the Trust Fund paid a total of $25,012.22 for their medical care and treatment. They settled their claims against the third party tortfeasor for $30,000.00. They also collected $200,000.00 under their own automobile policies Underinsured Motorist provision. Their attorney fee agreement was 25% of those amounts.

Judge Cornelio ruled on the following issues:

1. The ADOA can assert a reimbursement claim of the reasonable value of the medical services provided to Defendants under A.R.S. §12-962.

Defendants argued that the Trust Fund payment was not payment by the State, and that the State did not "provide" medical services, such that the ADOA lien/reimbursement claim does not fit within the strict construction of the language of A.R.S. §12-962(A).

The court looked at the plain meaning of the words used (e.g., not employ a hyper technical argument), citing In Re Aaron M, 204 Ariz, 152, 154, 61 P.3d 34, 36 (App. 2003); and Ariz. Dept of Revenue v, Raby, 204 Ariz. 509, 512, 65 P.3d 458, 461 (App. 2003). The argument that the state did not directly "provide" medical care as the 'hands on doctor" violates the purpose and plain meaning of the statute. The court also cites AHCCCS v, Bentley, supra at 657-658, as overturning a trial court's ruling that a government agency (AHCCCS) could not recover under A.R.S. §12-962 because it contracted with others to provide medical care. Nor did the court construe the language "...state or political subdivision..." so narrow as to preclude ADOA as such.

2. The A.R.S. §12-962 lien applies to the $30,000.00 liability settlement, but does not apply to the $200,000.00 Underinsured Motorists settlement.

A.R.S. §12-962(B)(3) provides that the state may "Recover the cost of care from the injured or diseased person or the person's estate to the extent that such person has received money in settlement of the claim or satisfaction of a judgment against the third party." See Gov't Employees Insur. Co. v. Andujar, 773 F.Supp. 282, (D.Kan. 1991) (holding that an automobile accident victim's uninsured motorist benefits were excluded from reimbursement because the state was not an intended beneficiary under the policy; the injured party was neither negligent nor a third party; and the injured party's insurance company was not negligent.)."

This affirm's my longstanding opinion, as expressed in my March 2007 "Liens Corner" article, that A.R.S. §12-962 liens do not apply to first party (uninsured, underinsured and medical payments) claims.

3 . The Court reduced the A.R.S. §12-962 lien by Ahlborn like considerations and by procurement costs from $25,012.22 to $2,475.00.

A. The A.R.S. §12-962 lien applies only to the medical expense reimbursement portion of the liability settlement.

The State's A.R.S. §12-962 lien applies only to the medical expenses actually recovered in the liability settlement, not to the entire liability settlement. The statutory language limits the State's lien to the "cost of the medical services provided".

A.R.S. §12-962(A) gives the State the right to recover the reasonable value of medical care and treatment provided to a person injured by a negligent third person, and "to the extent of this right, the subrogated to the any right or claim they might have against the third person." A.R.S. § 12-962 (A) also provides for an assignment of the cause of action " the extent of the reasonable value of the medical care...". The language of the statute clearly limits the rights provided. The State is not provided full assignment or subrogation rights. Those rights are limited to the cost of medical services provided.

A.R.S. §12-962(B)(3) gives the State the right to recover the cost of medical care from the injured person "to the extent such person has received money in settlement of the claim . . ." The words "the claim" refer to the State's more limited claim and limits the State's reimbursement from that portion of a settlement, which compensated an injured person's medical expenses not from the larger settlement amount, which includes compensation for other damages.

The court discusses that A.R.S. §12-963(A) provides for the State to compromise liens, and also to waive liens in whole or part due to "undue hardship". Most important here is A.R.S. §12-963(B), which reads "Actions taken by this state - - - shall not operate to deny the injured person any recovery for that portion of his damage not covered by this article." The correct view of this language is that the state cannot deny the injured party their general damages claim (i.e., that portion of damages not covered by this article").

The court discusses Ark. Dept. of Health and Human Services v. Ahlborn, 547 U.S. 268, 126 S.Ct. 1752 (2006), which addresses a similar issue, noting that the Medicaid statutes discussed in Ahlborn contain a specific anti-lien provision, a factor in the court's decision; that Arizona statutes do not contain an anti-lien provision; that Arizona caselaw generally prohibits assignment of personal injury claims; that Piano v. Hunter, supra discusses problems if full subrogation/assignment rights exist (that allowing subrogation for medical bills (1) when there is no way of apportioning the amount of medical bills this can only lead to further litigation, subterfuge or deceit, (2) would lift the lid off the "Pandora's box" crammed with both practical and legal problems, and (3) health insurance/trust fund payments do not provide full payments of losses, including general damages, and to allow full payment of subrogated bills and deny full payment of general damages is unfair); and that the court's limited construction of the subject statutes and rights provided to the state by way of assignment and subrogation is consistent with the public policy of Arizona and the plain language of the statute.

B. The A.R.S. §12-962 lien must be reduced by procurement costs.

The Court cites LaBombard v. Samaritan Health Sys., 195 Ariz. 543, 991 P.2d 246 (App. 1998), as authority to require apportioning attorney's fees under the "common fund" doctrine.

C. Calculation of Reimbursement Amount:

In Ahlborn, the court calculated reimbursement rights by reviewing the total value of the injured party's claim, together with the full amount of the medical bills. This created a percentage ratio, which was then applied to the settlement amount.

In this case, the total amount of medical services provided by ADOA is $25,012.11. Divided by the $30,000.00 liability settlement, this is a settlement to medical expenses ratio of 11%. ADOA is entitled to recover 11% of $30,000.00, or $3,300.00. Less 25% attorney's fees = $2,475.00.

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