Progressive Select Insurance Company recently dealt a blow to Lee Memorial Health Systems when the Second District Court of Appeal affirmed Progressive’s position that the Hospital’s “Lien Impairment” statute was unconstitutional as a special law that created and impaired a lien based on a private contract between the hospital and its patient. Progressive and its counsel, Valerie Dondero, a shareholder in Kubicki Draper’s Miami office, was first in the State to obtain Summary Judgment at the trial level on this issue and successfully persuaded the trial court to reverse its prior rulings finding this statute constitutional and enforceable.
In 2011, Lee Memorial Health Systems filed suit against Progressive for impairing its hospital lien when Progressive settled an accident claim without discharging or otherwise settling the hospital’s lien for medical services. Progressive asserted that Lee Memorial’s statute, codified at 2000-439, which entitled the hospital to sue insurers for the full value of the hospital lien, violated Article III section 11(a)(9) of the Florida Constitution because it was a “special law pertaining to the creation, enforcement, extension and/or impairment of a lien based on a private contract.” Progressive further asserted that the lien was a violation of Article I section 10 of the Florida Constitution as an unconstitutional impairment of the insurance contract between the insurer and its insured because the statute allowed the hospital to recover the full value of its lien irrespective of the liability limits afforded under the insurance policies.
On appeal, Lee Memorial sought to avoid the application of the Article III section 11(a)(9) scrutiny by arguing that because it is a public hospital, its contracts with its patients must also be “public contracts” and not “private contracts” as addressed by the constitutional provision. The Appellate court rejected this argument and found that the contract between the hospital and its patient was private in nature because the lien attached to the patient’s private assets (his cause of action for injury and damages) rather than to “public assets,” citing Mercury Ins Co v. Shands Teaching Hospital, 21 So3d 38 (Fla 1st DCA 2009). The Appellate court also declared the lien statute an unconstitutional impairment of a contract by providing Lee Memorial with the right to seek the full value of the lien amount without regard to the policy limits. The court concluded that “absent bad faith, an insurer’s liability is limited to the amount of policy limits.”
Several insurers and patients have been sued by Lee Memorial under the provisions of this lien law, however, Progressive and Valerie’s prevailing arguments at both the trial and appellate levels set the stage to allow insurers to perform their good faith duties to settle claims on behalf of their insureds without also negotiating or settling the hospital liens presented by Lee Memorial Health Systems. This is a significant win for Florida insurers who have been repeatedly sued for hundreds of thousands of dollars in extra contractual damages by Lee Memorial Health Systems.
