Example of How SEHP Lien Operates

When the Governor Signs[ed] the Bill, How will[does] it Work?

The Legislature has passed a revision to the State Employee and Teachers Health Plan lien and has sent that bill to the Governor for signature. Refer to this post for the text of the bill.

Up until now, the SEHP limited itself to no more than 50% of a gross settlement. Now the lien law limits SEHP to 50% of the settlement AFTER attorney fees have been paid. The Amendment to the original legislation allows a reduction for “reasonable attorney fees” but leaves the decision regarding “reasonableness” in the sole discretion of the SEHP.

EXAMPLES of how the “old” lien and the “new” lien operate

The current law which is not followed (Actual “old” SEHP lien law says this):

Assume SEHP claims $20,000 lien

30,000 settlement
10,000 Attorney fees
20,000 SEHP lien (paid $20,000)
$0 Client

NOW, before the “new” bill is in effect: (Note, new bill signed on August 31, 2006 and applies retroactively)

Assume SEHP claims $20,000 lien

30,000 settlement
10,000 Attorney fees
15,000 SEHP paid in full (50% of 30,000, reducing $20,000 lien by $5,000)
5,000 CLIENT

THE “NEW” Lien Law when signed by the Governor:

(NOTE: These examples below were edited on 9.6.06 because the previous post was incorrect. What is below is now correct.)

Example 1: Lien exceed 50% of the settlement

30,000 settlement
-10,000 Attorney fees
$20,000 Subject to SEHP lien
SEHP can take no more than 50% AFTER attorney fees, so
$20,000 > $10,000 (1/2 after attorney fees), thus
-$10,000 SEHP Lien ($20,000 reduced to 50% of 20,000 after atty fees)
$10,000 To CLIENT

Example 2: Lien does NOT exceed 50% of the settlement

Assume SEHP claims Lien of $9,000
30,000 settlement
-10,000 Attorney fees
$20,000 Subject to SEHP lien
SEHP can take no more than 50% AFTER attorney fees, so
$ 9,000 < $10,000 (1/2 after attorney fees)
-$9,000 SEHP Lien (NO REDUCTION IN LIEN)
$11,000 To CLIENT

As you can see, the Amendment increases the client’s recovery when the lien exceeds half of the recovery AFTER attorney fees. The old law was working with 50% of the GROSS recovery and now the formula works with (essentially) the NET recovery. Also, this Amendment provides an excellent reason for the client to hire you because the “attorney fee” cut is not available to unrepresented SEHP members.

Below is a quick review of the application of the lien:

For payments made from January 22, 2003 to July 20, 2004, the SEHP claims a right of equitable subrogation. The SEHP has not done much to enforce this, sending a few notice letters out on cases where they thought there was third party insurance, mostly car wrecks.

The SEHP, to my knowledge and by all reports, has not litigated the equitable subrogation right. I do not think that a right of equitable subrogation is recognized by North Carolina law.

If payments were made for related health care after July 22, 2004, then I think you must request a statement of the lien, which may prompt the SEHP to claim the equitable subrogation for payments made before July 2004.

There is also a good argument that for equitable subro to even exist, there must be direct notice of the claim to the lawyer or client. There does not need to be “notice” for the lien arising after July 2004.

If you do get caught up in the equitable subro claim because of post July 2004 payments, the SEHP has significantly negotiated on the equitable subro claims.

Also, the date that the SEHP uses to determine the lien is the date of their payment, not the date of service. The lien does not apply to UM or UIM recoveries.

If you have questions, please email Chris Nichols.

Chris Nichols
www.NicholsTrialLaw.com