Texas Passes Private Health and Disability Lien Law

On May 25, 2013, Texas House Bill No. 1869 was signed into law by the Governor of Texas. This new law, TX CIV PRAC & REM T. 6, Ch. 140, impacts the contractual subrogation/reimbursement rights of insurance companies and other plan benefit providers. This legislation specifically addresses equitable doctrines affecting subrogation/reimbursement rights, including the made whole and common fund doctrines, and first party coverage scenarios. While recently signed into law the bill does not take effect until January 1, 2014.

The following aspects of the law are worth noting:

• The law does not apply to workers’ compensation, Medicare, Medicaid, certain state health plans, and self-funded ERISA plans.
• Contractual subrogation/reimbursement rights are limited by a statutory formula which incorporates the common fund doctrine.
  • When a claimant is not represented by an attorney, a lien holder shall recover the lesser of (1) 50% of the gross recovery or (2) the total amount of benefits paid by the lien holder.
  • When a claimant is represented by an attorney, a lien holder shall recover the lesser of (1) 50% of the gross recovery minus the lien holder’s share of attorney’s fees and costs or (2) the total amount of benefits paid minus the lien holder’s share of attorney’s fees and costs.
• The lien holder’s share of the attorney’s fee shall be agreed upon between the lien holder and the claimant’s attorney. If no agreement is reached, a court may designate a fee not to exceed 1/3 of the lien holder’s recovery. The lien holder’s share of the expenses shall be calculated on a pro rata basis.
• The made whole doctrine (rule of equity that prohibits a lien holder from seeking a right of reimbursement against the claimant's settlement unless the claimant is compensated for all damages) is specifically excluded from application. Therefore the made whole doctrine is inapplicable in Texas unless a lien holder’s plan or policy expressly adopts the doctrine.
• A lien holder cannot seek subrogation or reimbursement against a claimant’s first party coverage (Uninsured/Underinsured Motorist and/or Medical Payments) unless the premiums for that coverage are paid by someone other than the claimant or the claimant’s immediate family.

If you have any questions about this new law and how it will impact private lien resolution please feel free to contact Michael Russell, who leads our private lien resolution team, at mrussell@garretsongroup.com.