New Illinois Act Mandates Settlement of Claims With Strict Time Limits
The State of Illinois enacted SB112 as Public Act 098-0548, codified as 735 ILCS 5/2-2301, and addressing the settlement of claims. In summary, the statute which is effective January 1, 2014, creates a regimented dance that must be performed by plaintiff and defense counsel in their settlement negotiation and lays down multiple traps for defense counsel if they fail to comply with the statute.
The statute is applicable to personal injury, property damage, wrongful death, or tort settlements and establishes specific deadlines for the tender of a settlement agreement (14 days), the tender of settlement funds (30 days) and establishes a funding mechanism for liens. The statute fails to address how to resolve the conflict with the Health Care Services Lien Act or the Attorney’s Lien Act, 770 ILCS 5 and fails to extinguish the defendant’s liability or defense counsel’s liability to a third-party lien holder if the settlement funds are tendered to plaintiff’s counsel.
The statute appears to be directed more to the swift payment of plaintiff’s attorney fees rather than to the resolution of any liens. It fails to make any changes to the lien resolution process and, instead, merely attempts to get the funds into the hands of plaintiff’s counsel before the actual resolution of the liens.
The most significant changes to the typical settlement process include the manner in which the liens are funded, the timing of the settlement documents, and the timing of payment. The actual amount of a lien or validity of a claim remains unchanged as does the process of obtaining a Medicare payment amount. The primary impact upon medical liens is the requirement that the funds be held by an attorney until a resolution of the lien. There is no change in the process of resolving the liens or the notice to Medicare.
In a personal injury, property damage, wrongful death, or tort action involving a claim for money damages, a claim requiring court approval, or a claim where there is a third-party subrogation or recovery:
1) A defendant must tender a release within 14 days of the written settlement confirmation;
2) A plaintiff may send a signed release, show that the lien has been paid, hold the money in trust, offer to let the defense attorney hold the money in trust, or agree to another resolution of the liens.
3) A defendant must pay the settlement within 30 days of the plaintiff’s tender of the executed release and the lien documents.
The failure to pay the settlement may result in a statutory interest penalty from the date the plaintiff tendered the executed release, however, the parties can agree to remove the matter from this section. If the material terms of the settlement have not been confirmed, the settlement will prevent the trigger of the time limitations. One clear manner to avoid triggering the 14 days is to not confirm the settlement in writing until ALL terms are negotiated. If the plaintiff attempts to confirm the settlement in writing, defendant may dispute that the written confirmation incorporates all the terms of the agreement and identify additional terms necessary to the agreement. Many times, attorneys agree in principle to a settlement but, terms such as confidentiality, indemnification, lien resolution, and structured payment are not agreed upon until counsel begins to exchange the written settlement agreement.
The statute fails to recognize that settlement agreements are now exchanged primarily via email and not in a paper document. Both counsel for plaintiff and defendant may revise the document, track changes in a word processing program, or may require numerous defendants to exchange settlements among themselves in complicated cases before the agreement is ever proposed to plaintiff’s counsel.
The disproportionate burdens are evident by the fact that the Act permits plaintiff’s counsel to confirm a settlement which includes all communication by written means but, requires defense counsel to tender a settlement agreement only by “personal delivery or delivery by a means providing a return receipt.” Therefore, plaintiff is free to confirm a settlement in an email or fax but, defense counsel must then draft an ironclad contract (settlement agreement) for hundreds of thousands or millions of dollars and tender that contract by personal service or return receipt within 14 days. Further complicating the matter is the need to hold funds in a trust account pending the resolution of the liens and the payment of any surplus amounts if the liens are ultimately reduced. These contract provisions must foresee all contingencies including delayed lien amounts from governmental agencies and disposition of any surplus amounts held in trust.
In order to avoid the penalties of the Act, defense counsel should obtain plaintiff’s counsel’s agreement to remove the settlement process from the statute early in the negotiations. The Act contains a provision for the removal of all burdens as the parties are bound to the Act ” except as otherwise agreed by the parties.” 735 ILCS 5/2-2301(g). Therefore, defense counsel would be wise to obtain an agreement, and confirm the agreement in writing, that counsel mutually agree that they shall remove the settlement and the settlement time requirements from the requirements set forth under 735 ILCS 5/2-2301.
If it is not possible to remove the entire settlement from the Act, defense counsel must secure an extension to the time requirements in advance of non-compliance with the Act. In particular, if it will take longer than 14 days to draft a settlement or 30 days for payment, an express extension referencing 735 ILCS 5/2-2301 must be secured. If a settlement agreement is tendered via email, defense counsel must obtain an agreement from the plaintiff to allow delivery via electronic mail, fax or similar non-conforming manner. The failure to obtain an agreement to deviate from the requirements of the Act exposes the defendant to a judgment, costs, and interest.
It is important to note that there is no change to the process of resolving the liens with Medicare, only the manner in which the funds are paid through the attorneys. Since Medicare can still seek payment from the insurer or defendant if it is not paid, the one clear recommendation to defense counsel is to either hold the funds in defense counsel’s trust account or obtain a full release. It is specifically not advisable to agree to let the plaintiff attorney hold the funds in their account.
Any number of examples can be cited in support of this position ranging from plaintiff attorneys absconding with the funds, co-mingling funds, a lack of oversight of the trust account and other reasons. If a plaintiff’s attorney fails to resolve the lien, defense counsel will not be able to raise the Code of Civil Procedure as a defense to the lienholder suit. Lien law clearly establishes the liability of party that fails to recognize and protect a lien. The creation of a new Code of Civil Procedure does not extinguish that liability merely by paying the funds to plaintiff’s counsel based upon a letter of assurance that plaintiff’s counsel will keep the funds in their client funds account.
Cautious defense counsel will obtain an agreement to extend any deadlines under the Act, allow tender of a settlement via email and hold all funds in their trust account pending the resolution of all liens. The failure to take these precautions may result in a motion for entry of judgment, costs and interest.
The full text of the statue is as follows:
735 ILCS 5/2-2301
Sec. 2-2301. Settlement of claims; payment.
(a) In a personal injury, property damage, wrongful death, or tort action involving a claim for money damages, a release must be tendered to the plaintiff by the settling defendant within 14 days of written confirmation of the settlement. Written confirmation includes all communication by written means.
(b) In a personal injury, property damage, wrongful death, or tort action involving a claim for money damages in which the law requires court approval of a settlement, the plaintiff shall tender to the defendant a copy of the court order approving the settlement.
(c) In a personal injury, property damage, wrongful death, or tort action involving a claim for money damages in which there is a known third-party right of recovery or subrogation interest (including attorney’s liens, healthcare provider liens, or rights of recovery claimed by Medicare, the Centers for Medicare and Medicaid Services, the Illinois Department of Healthcare and Family Services, or private health insurance companies), the plaintiff may protect the third-party’s right of recovery or subrogation interest, where applicable, by tendering to the defendant:
(1) A signed release of the attorney’s lien.
(2) Either:
(i) a signed release of a healthcare provider lien; or
(ii) a letter from the plaintiff’s attorney agreeing to hold the full amount of the claimed lien in the plaintiff’s attorney’s client fund account pending final resolution of the lien amount; or
(iii) an offer that the defendant hold the full amount of the claimed right to recovery pending final resolution of the amount of the right of recovery; or
(iv) documentation of any other method of resolution of the liens as agreed by the parties.
(3) Either:
(i) documentation of the agreement between the plaintiff and Medicare, the Centers for Medicare and Medicaid Services, the Illinois Department of Healthcare and Family Services, or the private health insurance company as to the amount of the settlement that will be accepted in satisfaction of right of recovery; or
(ii) a letter from the plaintiff’s attorney agreeing to hold the full amount of the claimed right to recovery in the plaintiff’s attorney’s client fund account pending final resolution of the amount of the right to recovery; or
(iii) an offer that the defendant hold the full amount of the claimed right to recovery pending final resolution of the amount of the right of recovery; or
(iv) documentation of any other method of resolution of the liens as agreed by the parties.
(d) A settling defendant shall pay all sums due to the plaintiff within 30 days of tender by the plaintiff of the executed release and all applicable documents in compliance with subsections (a), (b), and (c) of this Section.
(e) If, after a hearing, the court having jurisdiction over the parties finds that timely payment has not been made by a defendant pursuant to subsection (d) of this Section, judgment shall be entered against that defendant for the amount set forth in the executed release, plus costs incurred in obtaining the judgment and interest at the rate specified under Section 2-1303 of this Code, calculated from the date of the tender by the plaintiff under subsection (d) of this Section.
(f) As used in this Section, “tender” means personal delivery or delivery by a means providing a return receipt.
(g) This Section applies to all personal injury, property damage, wrongful death, and tort actions involving a claim for money damages, except as otherwise agreed by the parties. This Section does not apply to:
(1) the State of Illinois;
(2) any State agency, board, or Commission, as defined in Section 1-7 of the Illinois State Auditing Act;
(3) any State officer or employee sued in his or her official capacity;
(4) any person or entity that is being represented by the Attorney General and provided indemnification by the State pursuant to the State Employee Indemnification Act;
(5) any municipality or unit of local government as defined under Article VII of the Illinois Constitution; and
(6) class action lawsuits.
Section 99. Effective date. This Act takes effect January 1, 2014.
