Decoding Chapter 140 of the CPRC

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Decoding Chapter 140 of the CPRC

August 4, 2016

Subrogation

Chapter 140 of the Texas Civil Practice & Remedies Code is intended to limit the subrogation rights of an injured person’s health insurance provider.  When this statute was first enacted in 2014, an esteemed personal injury attorney told me that the new law was simple, “Everyone gets a third of the gross settlement.  The insurance company gets a third, the attorney gets a third, and the client gets a third.”  That certainly sounded simple enough.  It was a couple of months later, when applying the new statute to one of my cases, that I realized it was not that simple.  In fact, the “simple” explanation only caused me to question my own analysis of the law.

            After reading Chapter 140 a dozen times and reading a handful of blogs, articles, and CLE papers, I finally realized that all of the commentators were assuming that the plaintiff’s attorney took the case on a 30% contingency.  While that is a safe assumption, Chapter 140 does not actually limit an attorney’s contingency fee to 30%.

You can review the actual wording of Chapter 140 HERE, but allow me to restate the basics in plain language:

Applicability of Chapter:

  1. Plaintiff is injured by Defendant.
  2. Plaintiff is insured by an insurance company described in the statute (there are exceptions).
  3. Insurance pays for healthcare resulting from injury.
  4. Insurance company has subrogation rights.
  5. Plaintiff obtains a recovery from Defendant (i.e., the case settles).

Calculating Insurance Company’s Portion:

  1. When Plaintiff is not represented by an attorney:
    1. Insurance company gets lesser of:
      1. 1/2 gross recovery; or
      2. Total cost of benefits paid
    2. When Plaintiff is represented by an attorney:
      1. Insurance company gets lesser of:
        1. 1/2 gross recovery, minus 1/3 of Insurance Company’s share for the attorney and minus legal expenses; or
        2. Total cost of benefits paid, minus 1/3 of Insurance Company’s share for the attorney and minus legal expenses

As stated previously, these are just the basics; there is a lot more in the statute.  However, this explanation is intended to get past the overly simplistic 1/3, 1/3, 1/3 explanation that was previously given to me.

Let’s apply this explanation to an example:

Paul Plaintiff is injured by Dan Defendant.  Paul’s insurance company pays $50,000 for his healthcare resulting from the injury and asserts its right to subrogation under Paul’s policy.  Paul hires an attorney.  Paul agrees to pay his attorney 40% of his gross recovery plus expenses.  Paul’s attorney settles Paul’s claim against Dan for $90,000.

If my friend were correct, everyone would get $30,000.  The insurance company would have to eat $20,000, and Paul’s attorney would eat $6,000 plus his expenses (let’s say $1,000).  That is incorrect.

According to the statute, the math should look like this:

Insurance company’s portion starts at 1/2 the gross recovery ($45,000).  It is then reduced by a 1/3 ($15,000), and is further reduced by Paul’s legal expenses ($1,000):  $45,000 – $15,000 – $1,000 = $29,000.  The insurance company gets $29,000 and is going to write of $21,000.

Paul’s attorney is going to get 40% of the gross recovery ($36,000), plus his expenses ($1,000), for a total of $37,000.

Paul gets $24,000.

While Paul gets less than everyone else, he is still better off than he would have been under common law, which required the insurance company be made whole.  Under the common law, Paul would have received $3,000 ($90,000 – $50,000 – $37,000 = $3,000).

What does this mean for the practicing attorney?  I think it makes smaller personal injury cases more attractive and easier to settle.  If Paul would have been forced to pay his insurance company $50,000 of the proceeds, Paul’s attorney could never have settled his case for $90,000.  As a result of Chapter 140, Paul and his attorney are happy campers and Dan Defendant’s insurance carrier is also quite pleased.

If you see a flaw in my reasoning or my math, or if you would simply like to share your thoughts, please leave a comment below.

3 Comments so far:

  1. Rene says:

    I don’t think the math is correct. The health insurance takes 1/2 of the gross settlement. After that statute doesn’t say it reduces it further 1/3 for Plaintiff’s attorney fees. Sec. 140.005 (c)(1) states: one-half of the covered individual’s gross recovery less attorney’s fees and procurement costs as provided by Section 140.007. I think Sec. 140.007 refers to fees for the health insurance if they are represented by an attorney and if that attorney actively participates in recovering money on the personal injury claim. If there is no health insurance attorney then the health insurance shall pay to an attorney representing the covered individual a fee in an amount determined under an agreement entered into between the attorney and the payor (health Insurance) plus a pro rata share of expenses incurred in connection with the recovery. If there is health insurance attorney who actively participates in getting a settlement then the court shall award and apportion between the covered individual’s and the payor’s attorneys a fee payable out of the payor’s subrogation recovery. In apportioning the award, the court shall consider the benefit accruing to the payor as a result of each attorney’s service. The total attorney’s fees may not exceed one-third of the payor’s recovery.

    So the subrogation lien can be reduced depending if the health insurance has an attorney and if that attorney actively participates in the settlement. So statute still difficult to interpret. So I believe in your example health insurance takes 1/2 of settlement which is 45K. Now it depends if health insurance has attorney and if they participated. If not an agreement can be made with health insurance as to how much fees they should pay you for helping them recover their lien.

    • Rene says:

      So the lien can be further reduced depending how much the health insurance and you agree as to your fees for settling the claim and helping them get some of their money back. Of course the expenses can also be deducted and reduce the lien further. So your example on how much the lien can be reduced cannot be determined until this is done.

    • Jacob Thomas says:

      I believe that 140.007(a) applies to when the insurance company is not actively represented by counsel and the insurance company has an agreement with plaintiff’s counsel. 140.007(b) applies under the usual situation when the insurance company is not represented, but the injured party is represented (which is the basis for the commentary and the example in the post), but no agreement exists between the attorney and the insurance company. 140.007(c) applies when the insurance company has an attorney.

      The problem is with the language in 140.007(b) that refers only to “the attorney.” However, taken as a whole, I believe the correct interpretation is that “the attorney” refers to the injured person’s attorney (the Plaintiff’s attorney). In the event the insurance company has an attorney who was actively involved in the process, then the court gets to decide (140.007(c)).

      I believe that your conclusion is only accurate if the insurance company has an attorney who actively participated in obtaining the recovery. Absent there being such an attorney, the max the plaintiff’s attorney can obtain is 1/3 of the insurance’s company’s share. The “pro rata share of expenses” set forth in 140.007(a) would not apply because the injured party is represented by counsel, and the question of whether or not the lien is reduced by costs beyond the 1/3 is questionable. Reading the two subsections together, I believe an argument could be made that the 1/3 max applies to both fees and expenses, but the language is unclear.

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