The Attorney And The Hospital Have Competing Liens. How Can The Company Safely Settle?

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You are familiar with this scenario.

The claimant is willing to sign a release in exchange for your insured’s policy limit.  However, the claimant, the attorney and the hospital, all legitimate lienholders, can’t agree on how to divide up the money.  Sometimes there is just not enough money to go around.

It seems like a no win situation.

• If the insurance company pays the settlement proceeds to the attorney without protecting the hospital lien, the hospital could pursue the insurance company directly under NRS 108.650.
• The insurance company can’t just pay the full hospital bill without honoring the attorney’s liens.
• The insurance company could interplead the proceeds, but the insurance company probably doesn’t want to get itself embroiled in litigation. Not only is litigation expensive, but parties named in an interpleader have no obligation to provide the insured a release.
• And the insurance company has a duty to settle when it can and should protect its insured where possible.

So how does this problem get solved?  

In the recent case of Golightly & Vannah, PLLC v. TJ Allen, LLC, 132 Nev. Adv. Rep. 41, 2016 Nev. LEXIS 484 (June 2, 2016) the Nevada Supreme Court has offered insights into what is a new alternative solution.

In the Golightly & Vannah case, a dispute arose over how a settlement should be distributed.  There were too many claimants and not enough money.  And the attorney firm believed that its attorney’s fee lien should take precedence over all the other liens.

The details regarding which of the parties had properly perfected their liens, and how, makes for interesting reading. But those details are not as important as just one fact.  Providing the historical legal background is necessary to offer an appropriate explanation.

In an earlier case, Michel v. Eighth Judicial Dist. Court of State, 117 Nev. 145, 17 P.3d 1003 (2001), the Nevada Supreme Court had said that disputes over how competing liens are to resolved require that the disputed funds be deposited with the court in an interpleader action in which are the lienholders were named.

However, the Golightly v. Vannah case explains that the funds need no longer be deposited in the court.  Instead, the Court ruled that the settlement funds could now be held in the attorney’s trust account until an agreement or a disbursement order could be issued.

There is never a perfect solution under circumstances like these.  However, this new case opens up some alternatives for the settling parties.  Now, the insurance company could reach an agreement with the claimant that the attorney will hold the proceeds in trust until such time as a distribution agreement can be reached between the lienholders or a court can issue a distribution order.  A provision like this, to hold the funds in trust, could be added to the release that settles the case and worded so as to protect the insured, the insurance company and the lienholders.

If you have questions about this strategy or on any other issues related to Nevada Insurance, Coverage or Trucking Law, please be sure to contact Mike Mills at Bauman, Loewe, Witt & Maxwell, 702-240-6060.  Or send an email to mmills@blwmlawfirm.com.