General Liability Alert: Party Claiming Lien Must Prove Charges are Reasonable and Necessary

On June 11, 2013, the California Court of Appeal issued its ruling in State Farm Mutual Automobile Insurance Company v. Huff (“Huff”), holding that a party, such as a hospital, asserting a right to interpleaded funds under the Hospital Lien Act has the burden to prove by a preponderance of the evidence the amount of its lien. The Court further held that the amount of a party’s lien is restricted to the amount of “reasonable and necessary charges” furnished to the plaintiff.

In the underlying action, plaintiff Huff suffered injuries after a motor vehicle collision with defendants Wilkinses. Huff received treatment for his injuries at a facility operated by Pioneers Memorial Healthcare District (“the District”). When Huff was discharged, he owed the District $34,320.86 for medical services, but the District was never paid. After Huff received a judgment against the Wilkinses, the District’s collection agency sent written notice to State Farm, the Wilkinses’ insurer, claiming a lien pursuant to the Hospital Lien Act. Huff contested this notice, demanding that State Farm pay him the entire judgment. Thereafter, State Farm filed an interpleader action against Huff and the District to resolve the conflicting claims.

The trial court ruled in favor of the District, finding that the District had met its burden to establish a valid and enforceable claim under the Hospital Lien Act. The trial court found the following evidence sufficient: Huff had received medical services; the District had not been paid for those services; and the District gave State Farm valid notice. Specifically, the trial court held that the District “was not required under the [Act] to present expert testimony or otherwise affirmatively prove that the amounts it claims in the lien are ‘reasonable and necessary charges.'”

Interpreting the language of the Hospital Lien Act, the Court of Appeal reversed. Notably, the Act permits a hospital to have a lien upon damages recovered “to the extent of the amount of the reasonable and necessary charges of the hospital.” Further, the Act requires a hospital to provide written notice of the amount claimed as “reasonable and necessary.” The Act also restricts recovery on the lien to 50% of the proceeds recovered by the injured person.

Relying on default rules, the Court of Appeal also held that the party asserting the right to interpleaded funds bears the burden of proof. The Court of Appeal then held that the District did not meet its burden of proof because “there was no testimony or other evidence that any of the specific services itemized in Huff’s bill were reasonably required as a result of the collision.”

Huff is in line with the California Supreme Court’s decision in Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541, which also emphasizes the significance of the “reasonable” value of medical services when determining the amount a party may recover.

This document is intended to provide you with information about general liability law related developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.

June 13, 2013