The Supreme Court of Alabama Revisits Hospital Lien Enforcement

In the case of Alfa Mutual Insurance Company v. University of South Alabama, the University Medical Center Hospital filed a complaint alleging impairment of its hospital lien that was filed pursuant to Section 35-11-370 of the Alabama Code with respect to expenses incurred by the hospital in its treatment of Abaney Wright, who was injured in an automobile accident less than one week before her admission to the hospital and later died as a result of her injuries. The hospital alleged that Alfa Mutual Insurance Company impaired its lien by making a $2,000 payment to Wright’s parents for funeral expenses under a provision in the parents’ automobile insurance policy. The circuit court entered summary judgment in favor of the hospital in the full amount of its lien, $36,438, plus attorney fees in the amount of $5,166. Alfa appealed to the Court of Civil Appeals. That Court affirmed the summary judgment in part, concluding that under the rationale of University of South Alabama v. Progressive Insurance Co., 904 So.2d 1242 (Ala. 2004), the circuit court correctly ruled that the amount of damages awarded against Alfa should be based on the full amount of the hospital’s charges, regardless of the amount paid by the insurer. Alfa petitioned the Supreme Court, who reversed the decision in part.

The Supreme Court explained that §35-11-370 grants hospitals a lien on certain actions, claims, judgments, and settlements for the reasonable expenses of treating certain patients injured in accidents. In the Progressive Insurance case, the hospital claimed that its lien was impaired by a settlement between the patient and a tortfeasor, in which the patient was paid $6,000 in exchange for a full release of the claims against the tortfeasor. The Supreme Court in Progressive rejected the argument that the amount of damages for impairment of a hospital lien is limited to the payment made by the insurer to obtain the release of the tortfeasor. Chief Justice Nabers dissented as to the amount of damages, concluding that the hospital was entitled to be made whole and to seek the fair value of the claim against the wrongly released tortfeasors, but was not automatically entitled to the full amount of its lien. The Supreme Court agreed with Justice Nabers that a hospital is not entitled to recover automatically the full amount of its lien whenever there has been an impairment of any magnitude. The Court pointed out that its conclusion was consistent with §35-11-372, which provides for a “civil action on account of such impairment.”  This means a hospital’s damages on account of an impairment are measured by the difference between the amount the hospital actually recovered and the amount it could have recovered absent the impairment. The Court held that result was equitable and comported with the purpose of the lien statute. It stated:  “Awarding a hospital a windfall for a minor impairment is not equitable and does not comport with the purpose of the statute.”

This decision places more reasonable limits on what had been a very harsh result for insurance companies.  While insurers must still be very careful to protect hospital liens so they are not forced to pay twice, this decision represents a more reasonable interpretation of the hospital lien statute in Alabama.