Medical Liens Asserted Directly Against Insurer

Midtown Medical Group, Inc. v. Farmers Ins. Group, 691 Ariz. Adv. Rep. 21 (App. Div. I, July 15, 2014) (J. Portley) ARS 33-934(A)


Priority Medical Center [PMC] treated a person injured by a Farmers Ins. Group [Farmers] insured and treated another person insured by Farmers who was injured in a separate accident. Farmers had both patients sign a “Lien, Contract & Authorization to Release Medical Records” and recorded the liens in compliance with ARS sec. 33-931 to -932.  PMC also wrote to Farmers regarding both patients demanding it be included as a payee on any settlement drafts.  Farmers complied but neither patient obtained PMC's endorsement on the drafts., One patient was able to cash it without the endorsement and the other apparently just held onto the draft but did not pay PMC.   PMC sued Farmers pursuant to ARS sec. 33-934(A) seeking the lien amounts. The trial court dismissed the suit pursuant to Arizona Rules of Civil Procedure 12(b)(6), failure to state a claim, finding as a matter of law that Farmers met its obligation by putting PMC on the drafts as a payee and finding that PMC only had a claim against the bank that cashed the draft without PMC's endorsement and the patient who didn't cash the draft for failure to reimburse. The Arizona Court of Appeals reversed and remanded.   The court of appeals, based upon the 2004 amendment to ARS sec 33-931 et seq., held:  “Section 33-934(A) plainly provides that if an injured person recovers a settlement or judgment and the health care lienholder has not been paid or released its lien, it can sue the insurer ‘that is responsible for paying all or part of the damages.' The statute does not preclude an action against the insurer because it issued a joint-payee check.”   Additionally, the court found that while PMC had a claim that could be pursued against the bank for allowing a draft to be negotiated without the endorsement of a payee, this right did not preclude PMC from pursuing Farmers directly pursuant to the statute.    Finally, the court ruled that the lawsuit's connection to the contract here was tangential at best. The nature of the claim was statutory.  Accordingly, an award of attorneys' fees under ARS sec. 12-341.01 was disallowed, while fees and costs on appeal were granted PMC under ARS sec 33-934(B).

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