The MSP and Bad Faith (Wilson v. State Farm)

Medicare Set-Aside Blog on June 20, 2011
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An attorney recently “reminded” me that he has a duty to get the best possible recovery for his client. Although that was in the context of how my notions about MSP obligations interfere with maximizing the portion of the recovery that ends up in his clients’ pockets, unencumbered despite representing compensation for said MSP obligations, I am left wondering if that same duty extends to bringing frivolous lawsuits. Does holding the defense responsible for unreasonable delays caused by federal government agencies really constitute bad faith simply because payment was delayed pending a demand by that agency?

Fortunately the United States District Court for the Western District of Kentucky understands that there is a serious deficit of MSP case law and has published its fourth MSP opinion this year. In Wilson v. State Farm, decided on June 14, 2011, the court denied Plaintiff’s claim that State Farm acted in bad faith by not making payment while it waited for information from Medicare about conditional payments owed. Plaintiff was a passenger in a vehicle insured by State Farm that was struck by an uninsured driver, for which State Farm agreed to pay the uninsured policy limits of $50,000. Because Plaintiff received significant medical care, some of which was paid by Medicare, State Farm requested permission from Plaintiff to discuss the lien with Medicare and was denied. Alternatively State Farm suggested making Medicare a payee on the settlement check which was also rejected by Plaintiff. The only thing Plaintiff would agree to was holding defendants harmless from any claim by Medicare, therefore State Farm elected to determine the Medicare demand and then issue separate checks to Medicare and Plaintiff. Two months after Plaintiff filed suit for bad faith, Medicare made its demand and State Farm cut checks to both Medicare and Plaintiff the very next day.

In its bad faith analysis, the court was primarily looking to determine if State Farm had a reasonable basis for delaying payment. The court determined that while Plaintiff has the primary responsibility to repay Medicare pursuant to 42 C.F.R. § 411.24(h), State Farm is absolutely liable to Medicare pursuant to 42 C.F.R. §411.24 (i)(1) should Plaintiff not satisfy the Medicare lien from his settlement funds. State farm was only trying to avoid the possibility of paying twice. Furthermore, the court found State Farm’s request for use of  a three party check reasonable, as supported by several courts reaching that same conclusion, and that Plaintiff refused to cooperate with attempts to pay more quickly. Accordingly, both the bad faith claim and the motion for twelve percent interest were denied and the complaint dismissed with prejudice.

Lesson here is that Plaintiffs and Defendants need to work together to meet the MSP obligations. There’s nothing to be gained by being intentionally disagreeable when all parties to the settlement, the lawyers included, have a personal financial stake in making sure that the Medicare issues are resolved. Identifying these issues early will go a long way in avoiding unreasonable delays in disseminating settlement proceeds. Conditional payment searches generally take at least 90 days but can be initiated at any time, however nothing is owed unless a settlement, judgment or award is reached.  The sooner you look into the matter the better because truly, how can you evaluate a claim or agree to settle without actually knowing if someone else has a priority statutory right to the settlement proceeds.

2011 U.S. Dist. LEXIS 63430
June 14, 2011, Decided
June 15, 2011, Filed