Mercy Hospital & Medical Center v. Farmers Insurance Group of Cos.

932 P.2d 210, 15 Cal. 4th 213, 61 Cal. Rptr. 2d 638, 97 Cal. Daily Op. Serv. 2034, 97 Daily Journal DAR 3753, 1997 Cal. LEXIS 1007

• Court: California Supreme Court
• Decided: March 20, 1997
• Docket: S054093
• Status: Published

Opinions

Opinion

BROWN, J.

In California, when a hospital provides care for a patient, the hospital has a statutory lien against any judgment, compromise, or settlement received by the patient from a third person responsible for his or her injuries, or the third person’s insurer, if the hospital has notified the third person or insurer of the lien. (Civ. Code,¹ §§ 3045.1, 3045.2, 3045.3.) If the hospital is paid at the time the judgment, compromise, or settlement is disbursed, it is entitled to receive as much of its lien as can be satisfied out of 50 percent of the recovery. (§§ 3045.2, 3045.4.) The issue in this case is what amount the hospital is entitled to when it is not paid at the time the patient’s recovery against the third person’s insurer is disbursed. The Court of Appeal held that the hospital’s entitlement remains limited to as much of the lien as can be satisfied out of 50 percent of the recovery. The hospital contends that it is entitled to the full amount of its lien. We agree with the Court of Appeal and affirm its judgment.

I. Facts and Procedural Background²

On January 24, 1992, Erik L. Schmidt was a passenger in a vehicle driven by Thomas David Schneider. Schneider was driving at a high rate of speed. TTie vehicle went out of control and rolled over several times, injuring Schmidt.

Schmidt was taken by helicopter to Mercy Hospital and Medical Center (Mercy). He received $77,889.51 of medical treatment and services. The value of the medical treatment received for the initial 72-hour emergency period was $49,197.95.

Schneider had a $15,000 automobile insurance policy through Farmers Insurance Exchange (Farmers). Schmidt initiated a claim for his injuries against Schneider, and Schneider tendered the claim to Farmers.

Mercy sent a notice of lien for $49,197.95 to Farmers. Sometime after receipt of this notice, Farmers, on behalf of Schneider, settled Schmidt’s claim by paying Schmidt and his attorney the entire $15,000 without deduction for or payment to Mercy against its lien. There were no prior liens.

Mercy then filed this action against Farmers seeking to recover the full amount of its lien. The trial court concluded that Mercy was entitled to the sum of $7,450, consisting of half of the policy limit of $15,000 less $100. It rejected Mercy’s argument that it was entitled to the full amount stated in its notice of lien, or $49,197.95, because the policy had been paid without honoring Mercy’s lien. The Court of Appeal affirmed. We granted Mercy’s petition for review.

II. Discussion

“A lien is a charge imposed in some mode other than by a transfer in trust upon specific property by which it is made security for the performance of an act.” (§ 2872; Code Civ. Proc., § 1180.) A lien is created by the parties’ contract or by operation of law. (§ 2881.) There are various types of personal property liens; the one at issue in this case is a statutory nonpossessory lien. Such liens are generally nonconsensual, and enacted “to compensate a person who, pursuant to express or implied contract, furnishes services or materials in the improvement of a chattel, or stores it.” (4 Witkin, Summary of Cal. Law (9th ed. 1987) Personal Property, § 168, p. 156.) Here, of course, we address the parameters of a lien that compensates a hospital for providing medical services to an injured person by giving the hospital a direct right to a certain percentage of specific property, i.e., a judgment, compromise, or settlement, otherwise accruing to that person. (Cf. National Ins. v. Parkview Memorial Hosp. (Ind.Ct.App. 1992) 590 N.E.2d 1141, 1144.)

Mercy’s lien is provided for and defined by sections 3045.1 through 3045.6. These sections, enacted in 1961, were California’s first statutory medical lien in favor of a hospital against third persons liable for the patient’s injuries. Sections 3045.1 through 3045.6 are not exclusive, and the hospital may still proceed directly against the patient for any unpaid balance. (See City and County of San Francisco v. Sweet (1995) 12 Cal.4th 105, 120 [48 Cal.Rptr.2d 42, 906 P.2d 1196] [under Government Code section 23004.1, county hospital not limited to recovery from third party tortfeasor but may recover sums due from any after-acquired assets of the patient]; 12 Cal.4th. at p. 117 [patient a “debtor whose assets the county had a preexisting right to pursue regardless of the source of those assets”]; Selected 1960-1961 California Legislation (1961) 36 State Bar J. 697, 699 [section 3045.4 not an exclusive remedy].) While in this case the third party happens to be an insurance company, the statutory scheme is applicable to any “person, firm, or corporation known to the hospital and alleged to be liable to the injured person for the injuries sustained.” (§ 3045.3.) Thus the section is equally applicable to a patient’s slip on an icy patch in front of an uninsured “Ma and Pa” grocery store, a child’s fall from an uninsured neighbor’s tree house, or a motorist’s accident on an unsafe bridge for which a public entity and, ultimately, the taxpayers are deemed responsible.

The apparent purpose of former section 3045.4 was to secure part of the patient’s recovery from liable third persons to pay his or her hospital bill, while ensuring that the patient retained sufficient funds to address other losses resulting from the tortious injury. As one author noted shortly before section 3045.4’s enactment, “Few would contend that any person who is financially able to pay his medical bill should not do so. Fewer would contend that payment of medical bills should be so burdensome as to pauperize a patient or his family.” (Greenfield, Property Liens for County Hospital Care—A Collection Tool, Bur. Pub. Admin., 1961, Legis. Problems: No. 8, Public Medical Care, p. 3.)

Former³ section 3045.1 provided that a hospital which “furnishes emergency medical or other services of a reasonable value in excess of one hundred dollars ($100) to any person injured by reason of an accident or wrongful act not covered by [worker compensation] . . . shall, if the person asserts or maintains a claim against another for damages on account of his injuries, have a lien upon the damages in excess of one hundred dollars ($100) recovered, or to be recovered, by the person, . . . to the extent of the amount of the reasonable and necessary charges of the hospital for the treatment, care, and maintenance of the person in the hospital during the emergency period.” (Stats. 1961, ch. 2080, § 1, p. 4340.) The emergency period may not exceed 72 hours. The lien applies “whether the damages are recovered, or are to be recovered, by judgment, settlement, or compromise.” (§ 3045.2.)

For the lien to take effect, the hospital is required to give written notice of “the amount claimed as reasonable and necessary charges for the emergency period ... to each person, firm, or corporation known to the hospital and alleged to be liable to the injured person for the injuries sustained.” (Former § 3045.3, as enacted by Stats. 1961, ch. 2080, § 1, p. 4340.) This notice must be sent prior “to the payment of any moneys to the injured person, his attorney, or legal representative as compensation for the injuries.” (Id. at p. 4341.) The hospital is further required to give notice “to any insurance carrier known to the hospital which has insured the person, firm or corporation alleged to be liable to the injured person against the liability.” (Ibid.) There is no dispute that Mercy gave Farmers notice in compliance with this section.

Former section 3045.4, the section at issue in this case, provides in relevant part: “[a]ny person, firm, or corporation, including but not limited to an insurance carrier, making any payment to the injured person, or to his attorney, ... for the injuries he sustained, after the receipt of the notice as herein provided, without paying to the . . . hospital the amount of its lien claimed in the notice, or so much thereof as can be satisfied out of 50 percent of the moneys exceeding one hundred dollars ($100) due under any final judgment, compromise, or settlement agreement after paying any prior liens shall be liable to the . . . hospital for the amount of its lien claimed in the notice which the hospital was entitled to receive as payment for the medical care and services rendered to the injured person.” (Stats. 1961, ch. 2080, § 1, p. 4341, italics added.) The “hospital may, at any time within one year after the date of the payment to the injured person, . . . enforce its lien by filing an action at law against the person . . . making the payment and to whom” the required notice was given. (§ 3045.5.)

Here, Mercy’s lien was $49,197.95, and the policy limit $15,000. The parties agree that former section 3045.4 obligated Farmers to pay one-half of the policy minus $100, or $7,450, to the hospital at the time the $15,000 was disbursed. Their dispute is over what amount Farmers is liable for once it disbursed the policy limits without paying Mercy $7,450. Mercy contends that pursuant to former section 3045.4, Farmers is now obligated to pay the entire amount of the hospital’s lien, or $49,197.95. Farmers, on the other hand, contends that this section simply provides that the insurer remains liable to pay Mercy $7,450 “notwithstanding the fact that it has already paid its policy limits to the injured party.”

“We must select the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute, and avoid an interpretation that would lead to absurd consequences.” (People v. Jenkins (1995) 10 Cal.4th 234, 246 [40 Cal.Rptr.2d 903, 893 P.2d 1224].) If “the terms of a statute provide no definitive answer, then courts may resort to extrinsic sources, including the ostensible objects to be achieved and the legislative history.” (People v. Coronado (1995) 12 Cal.4th 145, 151 [48 Cal.Rptr.2d 77, 906 P.2d 1232].)

Since its enactment 36 years ago, former section 3045.4 has been the subject of scant interpretation. Most of these interpretations and commentary, which are in summary form and without critical analysis, have concluded that former section 3045.4 makes the insurer or other payor liable for the full amount of the hospital’s lien if the insurer or other payor fails to pay the hospital at the time any recovery is disbursed. In City and County of San Francisco v. Sweet, supra, 12 Cal.4th 105, we stated in dicta, “section 3045.4 provides that unless the entity given notice pays to the claimant as much of the amount of the lien as can be paid out of 50 percent of the damages recovered, that entity is responsible for the full amount of the lien.” (Id. at p. 122, fn. 11; see Selected 1960-1961 California Legislation, supra, 36 State Bar J. at p. 698 [lien limited to 50 percent of the amount the injured person recovers from third person, “[b]ut, if the third person after receiving the notice fails to pay such amount to the hospital, then he is liable to the hospital for the full amount of its lien claimed in the notice”]; see also 63 Ops.Cal.Atty.Gen. 808, 813-814 (1980) [“[s]hould the tortfeasor or his insurance carrier make payment to the injured after receiving notice from the hospital of its lien, they become liable to the hospital for the amount of its lien claimed in the notice” (original italics)]; but see 4 Witkin, Summary of Cal. Law, supra, Personal Property, § 193, p. 184 [“Payment to the injured person in disregard of the notice makes the person notified liable to the hospital for the amount of its lien, ‘or so much thereof as can be satisfied out of 50 percent of the moneys . . . due’ under any judgment or settlement.”].)

We begin with the language of the statute. The relevant language of former section 3045.4, that the insurer “shall be liable to the . . . hospital for the amount of its lien claimed in the notice which the hospital was entitled to receive as payment” is ambiguous. On one hand, it could mean, as Mercy contends, that if the insurer or other payor does not pay the hospital “the amount of its lien . . . or so much thereof as can be satisfied out of 50 percent of the moneys” at the time the judgment or settlement proceeds are disbursed, the insurer or other payor is liable for the full “amount of [the hospital’s] lien claimed in the notice which the hospital was entitled to receive as payment,” here $49,197.95. On the other hand, the language “which the hospital was entitled to receive as payment,” is written in the past tense. Thus, the “amount of [the hospital’s] lien . . . which the hospital was entitled to receive as payment” may refer back, as Farmers contends, to the amount the hospital was entitled to receive at the time the judgment or settlement was disbursed. This would be the “lien . . . or so much thereof as [could] be satisfied out of 50 percent of the moneys.” Here, that amount is $7,450.

We conclude that Farmers’ construction is the more reasonable. At the time former section 3045.4 was enacted, it was a settled principle in California that a debtor, notified that part of its debt had been assigned to another, did not extinguish that debt by paying the original obligee in full. Rather, despite full payment to the original obligee, the debtor remained liable to the assignee for the amount of the assignment. (McCloskey v. San Francisco (1884) 66 Cal. 104, 104-105 [4 P. 1092] [city’s payment to laborers, whose claim had been assigned to plaintiff, did not affect city’s obligation to also pay plaintiff].) Likewise, an attorney in possession of a judgment or settlement, and on notice of an outstanding lien, generally remained liable for the amount of that lien if he or she distributed the funds without satisfying the lien. (Jones v. Martin (1953) 41 Cal.2d 23, 28 [256 P.2d 905], overruled on other grounds in Fracasse v. Brent (1972) 6 Cal.3d 784, 791-792 [100 Cal.Rptr. 385, 494 P.2d 9] [neither defendant union nor plaintiff’s attorney could pay plaintiff money recovered and be relieved of obligation to satisfy former attorney’s lien unless former attorney waived or was estopped to assert such rights]; see Cooper v. Spring Valley Water Co. (1911) 16 Cal.App. 17, 27 [116 P. 298] [defendant company had right to decide without court’s aid who it would recognize as stock owner, “ ‘but it took the risk of having to pay the true owner the value of the stock if it turned out that the person it had recognized as the owner was not the true owner.’ ”].) Nothing in these cases suggests, however, that the amount of the debtor’s obligation increases if it neglects to pay the lien creditor or assignee of the debt. We presume that the Legislature was aware of these principles when it drafted former section 3045.4, and that the language the “amount of [the hospital’s] lien . . . which the hospital was entitled to receive as payment” simply incorporates this common law principle with respect to the hospital’s newly created statutory lien. (See Estate of McDill (1975) 14 Cal.3d 831, 839 [122 Cal.Rptr. 754, 537 P.2d 874].)

Contrary to Mercy’s assertion, there is no incentive under this interpretation to ignore the hospital’s lien. It is unlikely that an insurance company or any other person or entity obligated to pay for the patient’s injuries would entertain a preference as to whom it paid the judgment, compromise, or settlement amount. Moreover, while the insurance policy proceeds in this case—and Farmers’ concomitant continuing liability to pay Mercy—are marginal, in many other cases the insurance policy or other settlement or judgment will be for a substantially greater amount. Thus, for example, if the insurance policy proceeds disbursed in this case without paying Mercy had been $100,000, Farmers would still be obligated to pay Mercy the entire $49,197.95, in addition to having already paid Schmidt $100,000. Similarly, a public entity, and ultimately the taxpayers, held liable for the accident in this case and disbursing a judgment of $50,000 without paying the hospital $24,950, or 50 percent of $49,900, would continue to be obligated to pay the hospital $24,950. The Legislature may well have concluded that this result provided sufficient incentive on the part of the insurance company or other payor to pay the hospital at the time of judgment, compromise, or settlement.

If the Legislature had intended that an insurer or other payor who failed to pay the hospital up to 50 percent of the policy at the time the judgment or settlement was disbursed was then liable for the full amount of the hospital’s emergency care (and after the 1992 amendments both emergency and ongoing care), we suspect that such a dramatic consequence would have been mentioned in the statute’s legislative history. Nowhere, however, in the statute or its legislative history does the Legislature refer to a hospital obtaining the “full” amount of its lien. Nor is there any discussion of an increase in the insurer’s or other payor’s liability if the insurer or other payor fails to pay the hospital at the time of judgment or settlement. Rather, the legislative history indicates that the lien “is only applicable ... to 50% of the damages received by the injured person . . . .” (Letter from Sen. Murdy to Governor Brown, June 19, 1961, p. 1; Legis. Counsel Rep. on Sen. Bill No. 1140 (1961 Reg. Sess.) [“Limits lien to 50 percent of any recovery against the third party in excess of $100.”]; Legis. Sect., Bill Mem. on Sen. Bill No. 1140 (1961 Reg. Sess.) July 17, 1961, p. 1 [“Authorizes a lien up to 50 per cent on any recovery of damages received by a person as a result of a personal injury action against a third party to the extent of the reasonable and necessary charges for hospital care and treatment rendered such person during an emergency.”].)⁴ Indeed, the measure was apparently enacted in response to a California Hospital Association’s membership survey that revealed at least $90,000 was lost as a result of injured persons collecting a judgment or settlement and failing to “discharge any portion of the hospital bill.” (Legis. Sect., Bill Mem. on Sen. Bill No. 1140 (1961 Reg. Sess.), supra, at p. 1, italics added.)

The dissenting opinion sets forth an approach not suggested by either party to this litigation, i.e., that Mercy is entitled to $14,900, or the full amount of the insurance policy less $100. Former section 3045.4, however, does not refer to the hospital receiving the entire judgment or settlement amount. Rather, it refers only to “the amount of [the hospital’s] lien ... or so much thereof as can be satisfied out of 50 percent of the moneys” and the “amount of [the hospital’s] lien claimed in the notice which the hospital was entitled to receive as payment for the medical care and services rendered to the injured person.” (Stats. 1961, ch. 2080, § 1, p. 4341.) The only two possible constructions of this language when the hospital is not paid at the time of judgment, compromise, or settlement, is that the hospital is entitled to either the full amount of its lien, here $49,197.95, or as much of its lien as can be satisfied out of 50 percent of the judgment, compromise, or settlement amount less $100, here $7,450. For the reasons discussed above, we have chosen the latter interpretation.

Whatever principles might generally apply to liens, former section 3045.4 is a statutory, not a common law, lien. The Legislature is, of course, free to define and limit such a lien, and has done so in this case. (Berry v. Hannigan (1992) 7 Cal.App.4th 587, 592 [9 Cal.Rptr.2d 213].)

We conclude under former section 3045.4 that when an insurer or other payor fails to pay a hospital “the amount of its lien . . . or so much thereof as can be satisfied out of 50 percent of the moneys exceeding one hundred dollars” at the time the judgment, compromise, or settlement is disbursed, the insurer or other payor remains liable to the hospital for this amount and no more. The judgment of the Court of Appeal is affirmed.

George, C. J., Mosk, J., and Chin, J., concurred.

1 All further statutory references are to the Civil Code unless otherwise indicated.

2 The facts are taken from the parties’ statement of agreed facts filed in the trial court.

3 At the time Mercy provided care for Schmidt and gave Farmers notice of its lien, the lien was limited to an “emergency period” not to exceed 72 hours, and a $100 floor was deducted before calculating the 50 percent amount. (Former §§ 3045.1, 3045.4, as enacted by Stats. 1961, ch. 2080, § 1, pp. 4340, 4341.) In 1992, sections 3045.1, 3045.3, and 3045.4 were amended to in part expand the lien’s scope to include “emergency and ongoing medical or other services,” and delete the $100 floor. These amendments do not affect the resolution of the issue before us.

4 Moreover, nothing in the language or legislative history of section 3045.4 as amended in 1992 indicates that the payor becomes liable under these circumstances for the full amount of the lien. (See People v. Pieters (1991) 52 Cal.3d 894, 902, fn. 5 [276 Cal.Rptr. 918, 802 P.2d 420] [“Although this amendment does not assist us in discovering the intent behind [the statute] as originally enacted, we observe the Legislature’s subsequent actions do not conflict with our interpretation of that statute.”].)