In a recent decision by a Pennsylvania state court, the court interpreted the Superior Court of Pennsylvania’s decision in Zaleppa v. Seiwell, 9 A.3d 632 (Pa. Super. Ct. 2010), to mean that a defendant could not delay paying settlement proceeds due to the fact that the plaintiff’s Medicare liens were unresolved. The court interpreted the holding in Zaleppa as follows:
a settling defendant has no legal responsibility to protect the interests of the United States government in respect to the payment of Medicare liens, and [] a settling defendant [is] not permitted to unilaterally attach to the payment of settlement proceeds, any condition seeking to protect the interest of Medicare.
In this case, the defendants refused to disburse the settlement proceeds until the plaintiff either satisfied his Medicare lien or advised the defendants of the amount of the lien owed. The parties’ settlement agreement provided that plaintiff would be responsible for directly paying all liens, including any outstanding Medicare lien. Defendants argued that they were not required to pay plaintiff any portion of the settlement proceeds until plaintiff received a Final Demand Letter from Medicare; otherwise, they could be subjected to penalties, interests, and the risk of double paying the monies. Plaintiff filed an Affidavit of Non-Payment of Settlement Funds pursuant to Pa. R.C.P. 2291 and requested the court to impose sanctions against Defendants for their failure to deliver the settlement funds to Plaintiff. The court denied plaintiff’s request for sanctions.
On September 24, 2010, after Plaintiff received a Final Demand Letter from Medicare, Plaintiff filed a Motion for Reconsideration of the court’s order. On October 22, 2010, the court ordered the defendants to release one-half of the settlement proceeds with interest and required the plaintiff to verify Medicare’s position with regard to any future medical lien. The court mandated that the remaining settlement proceeds remain in an interest bearing escrow account until verification from Medicare was received.
After the Superior Court issued an opinion in Zaleppa on November 17, 2010, plaintiff filed a motion for reconsideration of the court’s order. The court granted plaintiff’s motion and ordered defendants to immediately release the remaining settlement proceeds with the interest accrued, but denied the plaintiff’s request for additional simple interest, attorneys’ fees and costs, and Petition for Contempt/Sanctions. Plaintiff subsequently appealed the court’s refusal to impose sanctions or find defendants in contempt due to defendants’ failure to release the settlement proceeds. The court found that sanctions were not appropriate against the defendants based on a material dispute of the terms of the settlement. The parties had disputed whether defendants would be protected from any responsibility for paying the outstanding Medicare lien. The court explained that because of the uncertainty of the law at the time, namely, whether tortfeasors were liable to Medicare in litigation cases where Medicare payments were involved, it was uncertain whether defendants could be responsible under the Medicare Secondary Payer Act for reimbursing Medicare unless plaintiff paid his Medicare liens. The court held that based upon the legal uncertainties that existed at the time, Defendants acted appropriately and delivered the settlement proceeds to Plaintiff shortly after the Zaleppa decision. The court further explained that defendants acted on “good faith beliefs and justified concerns related to the delivery of the settlement proceeds without assurances.”
After the Superior Court’s decision in Zaleppa, it appears that Pennsylvania courts will not find a defendant’s delay in paying settlement proceeds to be justified where the delay is due to the defendant’s potential risk of a future Medicare recovery action. The decision is contrary to decisions by district courts in other jurisdictions that have held that a defendant’s delay in paying settlement proceeds until it determined the conditional payment amount owed to Medicare due to the insurer’s potential liability for reimbursement of was reasonable. See Wilson v. State Farm Mutual Automobile Insurance Company, No. 3:10-CV-256-H, 2011 U.S. Dist. LEXIS 63430 (W.D. Ky. June 15, 2011). Click here for a discussion of the Wilson decision. In light of the Zaleppa decision, the defendant insurer should pay the plaintiff settlement proceeds less any amount asserted by Medicare. It would also be a good practice to insure that the undisputed portion, if any, of Medicare’s interest is paid. With regard to the disputed portion, the insurer should put those monies in escrow pending a final decision by Medicare. In cases involving a plaintiff who may require future medical services, additional analysis is required.
Date of Decision: June 20, 2011
Mirabal v. Bard Access Systems, Inc., No. 2525, 2011 Phila. Ct. Com. Pl. LEXIS 147 (C.C.P. Philadelphia June 10, 2011).
