On May 26, 2015, the Colorado Supreme Court ruled for Wheeler Trigg O’Donnell client Allstate Insurance Company on an issue involving controversial practices by medical lien companies. The ruling in Allstate Insurance Co. v. Medical Lien Management, Inc. provides protection to insurers regarding certain practices of the medical lien industry and establishes precedent that will benefit insurers in Colorado and nationwide.
WTO lawyers Terence Ridley and Evan Stephenson briefed the appeal, and Mr. Ridley argued the case before the Colorado Supreme Court in November 2014. In its opinion, the Court held that a contract that purports to assign an unspecified portion of a settlement that does not presently exist is not a true assignment. Instead, such contracts merely represent “promises” to make payments in the future. Because they are not truly assignments, such contracts may not be enforced against third parties such as liability insurers.
In Colorado, medical lien companies commonly offer to cover claimants' medical costs following accidents. In exchange, the companies require that claimants "assign" back a portion of the expected future settlement.
In 2011, Allstate settled a liability claim against its insured. However, a company called Medical Lien Management (MLM) asserted that Allstate owed a portion of the settlement amount to MLM directly because the claimant had signed an “assignment” agreement with MLM and MLM had paid almost $10,000 in medical bills. When the claimant disputed his alleged debt to MLM, MLM sued Allstate in an attempt to collect.
Allstate argued that MLM’s contract with the claimant was not a valid assignment, so Allstate had no obligation to pay MLM the amount of the claimant’s debt. The trial court agreed and dismissed the claims against Allstate. However, the Colorado Court of Appeals overturned that ruling in 2013, holding that MLM’s contract with the claimant effectively transferred a portion of the settlement to MLM and concluding Allstate had breached its duty to pay MLM a portion of the settlement directly. Allstate vigorously disagreed and pressed ahead to the Colorado Supreme Court.
While $10,000 in disputed debt might appear a small sum to take all the way to the state supreme court, the repercussions of this case are significant. The medical lien industry’s practice of requiring claimants to sign form “assignment contracts” can in many cases force insurers into the role of de facto debt collectors as they attempt to determine whether and to what extent a claimant legitimately owes money to a medical lien company. Allstate argued, and the Court agreed, that this responsibility represents an unfair burden on insurers.
In issuing its opinion, the Court reasoned that requiring a nonparty to a contract, such as Allstate, to “independently determine and verify” the extent of another’s debts “imposes an impermissible additional burden and risk” that is not required under Colorado law. The Court’s decision provides significant protection to insurers from the standardized assignment contracts commonly used by medical lien companies. The opinion puts Colorado alongside Ohio as the only two states that have established supreme court precedent in this area of the law.