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Lockhart v. New Hampshire Insurance Co.

Court of Workers Compensation of Montana

July 31, 1998

DOUG LOCKHART Petitioner
v.
NEW HAMPSHIRE INSURANCE COMPANY Respondent/Insurer for LABOR CONTRACTORS Employer. LIBERTY NORTHWEST INSURANCE CORPORATION Petitioner vs. NANCY PETAK Claimant/Respondent and COMMUNITY MEDICAL CENTER Respondent.

          Submitted: July 24, 1998

          ORDER AND JUDGMENT REGARDING ATTORNEY FEES

          MIKE McCARTER JUDGE.

         Summary: Consolidated cases raise the issue whether claimants' attorneys are entitled to attorney fees with regard to medical benefits secured with their efforts paid out of medical benefits.

         Held: Attorneys are not entitled to satisfy their fee liens from medical benefits secured on behalf of clients. [Note: WCC reversed on this issue in Lockhart v. New Hampshire Insurance Company and Liberty Northwest v. Petak, 1999 MT 205.]

         Topics:

Constitutions, Statutes, Regulations and Rules: Montana Code: section 37-61-420, MCA. Consolidated cases raised the issue whether claimants' attorneys are entitled to attorney fees with regard to medical benefits secured with their efforts paid out of medical benefits. WCC held attorneys are not entitled to satisfy their fee liens from medical benefits secured on behalf of clients. [Note: WCC reversed on this issue in Lockhart v. New Hampshire Insurance Company and Liberty Northwest v. Petak, 1999 MT 205.]
Attorneys Fees: Lien. Consolidated cases raised the issue whether claimants' attorneys are entitled to attorney fees with regard to medical benefits secured with their efforts paid out of medical benefits. WCC held attorneys are not entitled to satisfy their fee liens from medical benefits secured on behalf of clients. [Note: WCC reversed on this issue in Lockhart v. New Hampshire Insurance Company and Liberty Northwest v. Petak, 1999 MT 205.]

         ¶1 The above-captioned cases have been consolidated for purposes of determining whether attorney fees are payable out of medical benefits which are secured by a claimant's attorney. The Court invited the parties to brief the issues. It also invited amicus curiae briefs.

         ¶2 Eighteen briefs were received by the Court. The matter was argued in Helena on July 22, 1998, with eight attorneys participating. At the close of the hearing, the issue was deemed submitted for decision.

         Factual Background

         I. Lockhart

         ¶3 Lockhart is a disputed liability case. After trial the Court determined that claimant suffered a compensable injury and that he is entitled to medical benefits, temporary total disability benefits, and temporary partial benefits. (Findings of Fact, Conclusions of Law and Judgment (December 11, 1997).)

         ¶4 Following entry of judgment, claimant's attorney, Mr. Kenneth S. Thomas (Thomas), filed a motion requesting an order directing the insurer to directly pay him a 25% attorney fee with respect to the medical benefits ordered by the Court. (Motion for Order Directing Payment of Attorney Fees (December 18, 1997).) The insurer read the request, as did the Court, as seeking pro rata payment of attorney fees out of the medical benefits, thereby reducing the reimbursement due the medical providers to 75% of the amounts prescribed by statute, §39-71-704, MCA (1997).[1]

         ¶5 The insurer objected, pointing out that the order could subject it to a 25% increase in its liability for medical benefits should the medical providers demand the full amount of reimbursement without deduction for attorney fees. Counsel for the insurer provided the Court with a copy of a January 26, 1993 opinion letter of an attorney for the Department of Labor and Industry (Department) which concluded that attorney fees cannot be deducted from medical payments unless the medical provider consents to the deduction. A copy of the opinion letter is attached to this decision as Appendix A.

         II. Petak

         ¶6 Meanwhile, Liberty Northwest Insurance Corporation (Liberty) petitioned the Court for a declaratory judgment with respect to amounts it owes medical providers for care rendered to Nancy Petak (Petak). (Petition for Declaratory Judgment (November 18, 1997).) Liberty had initially denied Petak's claim for compensation.[2] Petak hired attorney Mr. Rex Palmer (Palmer) to represent her and Palmer filed a petition on her behalf, (Petak v. Liberty Northwest Insurance Corp., WCC. No. 9508-7359.) Approximately a month after the petition was filed, Liberty conceded liability and the petition was dismissed without prejudice.

         ¶7 Following it's acceptance of liability, Liberty determined it owed approximately $5, 000.00 for claimant's medical care. It made out checks payable jointly to Petak, Palmer, and the respective medical providers and forwarded the checks to Palmer. The largest check was for $3, 184.42 for medical care rendered by Community Medical Center (Community). That check was payable to Petak, Palmer and Community.

         ¶8 Palmer asserted an attorney lien with respect to the medical payments. Community disputed the lien and insisted on full payment without any deduction for attorney fees. Since Palmer and Community could not agree to the negotiation of Liberty's check and the distribution of the proceeds, Liberty petitioned the Court for a Declaratory Judgment respecting its payment obligations. (Petition for Declaratory Judgment (November 18, 1997).)

         ¶9 Comment by counsel in briefs and at the July 22, 1998 hearing indicates a variety of practices with respect to attorney fees on medical benefits. At least some claimants' counsel took the position that they were entitled to a fee on and from medical benefits. In those cases, some insurers made checks for medical benefits jointly payable to the claimant, the claimant's attorney, and the medical providers, leaving it to claimant's attorney to negotiate with the medical providers. Some claimants' counsel indicated that medical providers typically acquiesced to the attorney taking the fee from the medical benefits but some medical providers did not, causing at least some attorneys to forgo the fee. Some claimants' counsel did not attempt to collect a fee with respect to medical benefits.

         ¶10 One further fact is of consequence in the Petak matter: The only benefits due to date are medical benefits. Thus, the only source of funds for payment of attorney fees, other than Petak's personal resources, are the medical benefits.

         III. Cheetham

         ¶11 Lockhart and Petak are not the first cases in which an issue regarding attorney fees on medical benefits has been raised. Nonetheless, the issue is of recent vintage as far as the Court is concerned. The issue first arose in 1997 in Robert Cheetham, Jr. v. Liberty Northwest Ins. Corp., No. 9612-7675. Following judgment for claimant, the claimant's attorney requested an order directing the insurer to pay him directly, as single payee, an attorney fee of 25% of the amount of medical benefits.[3] Without the benefit of any significant briefing or significant reflection on my part, on July 16, 1997, I issued an Order which effectively assessed a pro rata attorney fee against medical benefits procured by claimant's attorney, thus reducing the actual payments to medical providers by the amount of the fees. (Robert Cheetham, Jr. v. Liberty Northwest Ins. Corp., Order Regarding Medical Payments, WCC No. 9612-7675 (July 16, 1997).) Specifically, I ordered the insurer to pay the claimant's attorney, single payee, a 25% fee on medical benefits obtained in the case.

         Request for Briefs

         ¶12 The issue presented in these companion cases is significant and the resolution of the issue will have a significant impact on one of the three groups -- the claimants' bar, claimants individually, or medical providers -- involved in the current tug-of-war. I therefore requested further briefing by the parties. Additionally, I invited amicus curiae briefs. (Liberty Northwest Ins. Corp. v. Petak, Order Denying Community Medical Center's Motion to Dismiss, 1998 MT WCC 21(March 4, 1998) and Order for Further Briefing (March 4, 1998); Lockhart v. New Hampshire Ins. Co., Order Inviting Amicus Curiae Briefs and Directing Withholding of Attorney Fees, 1998 MT WCC 22.) I requested that the briefs "address whether attorney fees authorized by an attorney fee agreement with a claimant are payable out of medical benefits which are paid as a result of the attorney's efforts, or whether such fees are payable solely out of non-medical compensation benefits obtained by the attorney."

         Restatement of the Issue

         ¶13 The Court was short-sighted in its initial statement of the issue. The briefs and oral argument disclose a threshold issue I did not consider when inviting briefs. That issue is whether a claimant's attorney is entitled to any fee with regard to medical benefits paid on account of his efforts. Therefore, I restate the issues as follows:

1. Is a claimant's attorney entitled to an attorney fee with respect to medical benefits procured on behalf of the claimant?
2. If a claimant's attorney is entitled to an attorney fee with respect to medical benefits procured on behalf of claimant, may that fee be deducted from the medical benefits?

         Discussion

         I.

         ¶14 Initially, I acknowledge the conflicting interests of attorneys, the medical community and claimants, and the predictions of dire consequences should I reach one conclusion or another. The medical community points out that section 39-71-704, MCA, fixes their reimbursement for treating workers' compensation patients at a lower rate than their usual and ordinary charges. One attorney argues that if fees are imposed on medical benefits, the medical community will lobby vigorously for a legislative reversal of that result. Some claimants' attorneys point out that the reduction of benefits since 1987 and the curtailment of attorney fees make it difficult for claimants to obtain counsel. They argue that a failure to impose attorney fees pro rata on medicals will further erode the ability of claimants to find attorneys to represent them. The Court is also aware that taking fees for medical benefits from a claimant's indemnity benefits may leave the claimant with little or nothing by way of actual compensation for her or his wage loss.

         ¶15 Without question, one group -- claimants, claimants' attorneys, or medical providers -- is going to be a loser in this litigation. Without question, the issues presented in these cases raise serious and difficult policy issues. Nonetheless, it is not the role of the Court to weigh in for or against one group or for it to craft policy based on political power: those matters are for the legislature ...


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