On April 29, 2008, the Illinois First District Appellate Court addressed a daily occurrence in insurance claims; the issue of insurance reimbursement liens. This type of lien has never been directly addressed by an Illinois Appellate Court. The court in Compton v. Country Mutual Insurance Company (Docket No. 1-06-2994) affirmed a trial judge's dismissal of an attempt to state a class action for breach of contract and consumer fraud against Country Mutual Insurance Company for its practice of placing "liens" on its insured's third party claims.
Automobile insurance policies have standard reimbursement language allowing a company that pays medical payments coverage ("MPC"), property damage, etc. to be reimbursed if the insured collects any of these items from a third party. It is standard practice for the insurance company to forward a "lien" to any entity that may compensate its insured, especially another insurance company.
There has always been a question as to whether this is truly a "lien" requiring a third party to place the insurance company's name on any settlement draft. There have been two schools of thought in regards to this matter: The first is that a "lien" can only be created by the legislature (i.e. public aid, hospital, doctors' liens); the second position is that there are common law liens which are a legal right or interest that a creditor has against another's property. The appellate court accepted this second definition and found that Country Mutual's lien was, in fact, enforceable and Country Mutual's notice of lien to be appropriate.
The court based its opinion on the policy provision that required any person who recovered on behalf of the insured to hold the proceeds in trust for the insurance company to the extent of the insurance company's payment. This right of reimbursement, rather than the subrogation provision of the policy, was the basis of the finding by the appellate court. Therefore the policy of placing the liening insurance company on a settlement check was approved.
It should be noted that the facts of this case were unusual in that the amount recovered by the insured in settlement was less than the lien from the insurance company. The appellate court dismissed both the breach of contract and Consumer Fraud Act claims since, in order to pursue those claims, you must be able to prove damages. Inasmuch as Country Mutual was entitled to the entire proceeds of the check issued by Founders Insurance, there were no damages that could be proven. The plaintiff had claimed that the reimbursement lien claim was an unfair attempt to delay the disbursement of the proceeds of recovery requiring the plaintiff or his attorney to hold the money in trust and delaying the receipt of payment to the plaintiff/insured. Since there were no excess funds to be held in trust, there could be no damages.
No discussion or mention was made in this appellate court decision regarding the common funds doctrine or the right of the plaintiff's attorney to reasonable attorneys' fees for the procurement of any settlement. See, Baier v. State Farm, 66 Ill.2d 119, 361 N.E.2d 1100 (1977).
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Kevin Caplis, a shareholder in our Chicago office is an accomplished trial attorney with over 35-years experience in numerous areas of civil litigation including product and premises liability, construction, insurance coverage (including excess and reinsurance), and professional liability involving accountants, architects and attorneys. He is a frequent lecturer at legal seminars for attorneys and insurance personnel, and has been published in law reviews, legal publications and law manuals. Kevin is also listed in the May, 2005 and February, 2008 issues of Chicago magazine as an Illinois SuperLawyer, a title given only to 5% of the attorneys in Illinois. He has also been recognized by his peers as a Leading Lawyer in various areas of law including products liability defense. If you have any questions regarding this article, please contact Kevin via 312-540-7630, or via kcaplis@querrey.com.
