A Common Conflict: Common Fund Doctrine and Medical Provider Liens in Tort Settlements

Abstract

Plaintiffs in negligent tort actions often recover less money than they need to resolve all of their accident-related debts due to the insufficient availability of liability insurance proceeds. Two significant debts common to these tort actions are liens for medical treatment of injuries that plaintiffs sustain and the attorney’s fees plaintiffs incur in pursuing liable insurance companies. The law places plaintiffs’ attorneys and medical lienholders in an inherently adversarial position. Medical lien statutes frequently grant attorney’s fees first priority to settlement proceeds but also do not require medical lienholders to reduce their claims, even if available insurance funds are insufficient to pay all the plaintiff’s debts. To resolve this impasse, plaintiffs’ attorneys often petition courts to apply the Common Fund Doctrine (Doctrine), an equity principle derived primarily from class action litigation, to force medical lienholders to reduce their claims to pay a proportionate share of plaintiffs’ attorney’s fees. This Note argues that such an application is an inappropriate expansion of the Doctrine and provides enormous leverage to plaintiffs and their attorneys. Applying the Doctrine in this way exacerbates the impact of existing limitations on the recovery of medical debts through statutory liens and provides immense incentive for plaintiffs to hire legal counsel, even when it is unnecessary. This Note also argues that citing fairness or equity as a policy justification for the use of the Doctrine in these situations is intrinsically hypocritical, as such use of the Doctrine results in inequitable outcomes for medical lienholders. Finally, this Note contends that the Bankruptcy Code provides a strong, federal correlative for the handling of attorney’s fees in settlement proceedings with insufficient funds and suggests that medical lienholders and personal injury attorneys should lobby to increase minimum insurance limits to reduce the frequency of insolvent settlements.