First let’s understand Civil Code 3040, then we can talk about common fund.
What Is Civil Code 3040?
Civil Code 3040 is a long, technical statute. But basically it limits certain health insurance companies from how much money they can recover in a personal injury settlement.
In most personal injury cases, the plaintiff, or injured person, gets medical treatment. The plaintiff’s health insurance company pays for that treatment. If the plaintiff then brings a claim or lawsuit against the party responsible for causing the injuries, the health insurance company could have a lien. That means the health insurance company could have a right to collect money from the responsible party before the plaintiff gets any money.
Civil Code 3040 is designed to prevent, or at least limit, the health insurance company from doing that.
Civil Code 3040 Limitations
Here is what Civil Code 3040 can do for you.
First understand the difference between capitated services and non-capitated services. Capitated services means healthcare providers are paid a fixed amount per patient regardless of how many services the patient uses. Non-capitated services means healthcare providers are provided a fee per service. Under Civil Code 3040, liens from capitated services cannot exceed 80% of the usual charges, and liens from non-capitated services cannot exceed actual amounts paid.
If the plaintiff hires an attorney, who then helps recover money from the responsible party, then the plaintiff’s healthcare lien should be limited to 1/3. If the plaintiff does not hire an attorney, then the lien should be limited to 1/2.
If the plaintiff is found at fault of the incident, then the lien must be reduced in portion to the plaintiff’s percentage of fault.
Under Civil Code 3040 only applies to certain health insurance companies and plans. There are many exceptions.
What Is Common Fund?
The California common fund doctrine can further limit a health insurance company’s lien. Here’s how.
If the plaintiff hires an attorney, and that attorney helps recover money from the responsible party, then the health insurance company must reduce its lien by the attorney’s contingency percentage. That percentage could be 33% or 40%.
Putting Civil Code 3040 And Common Fund Together
Here’s an example:
- $300,000 settlement
- $200,000 health insurance lien
- $99,000 attorney fee (33%)
- $1000 plaintiff recovery
That’s a bad outcome for the plaintiff.
But under Civil Code 3040, the health insurance company can take no more than 1/3 of $300,000 because the plaintiff hired an attorney. So the health insurance lien is limited to $100,000.
The attorney’s percentage is 33%, so under the common fund doctrine is health insurance lien of $100,000 is reduced by 33% to $67,000.
The result is now:
- $300,000 settlement
- $67,000 health insurance lien
- $99,000 attorney fee (33%)
- $134,000 plaintiff recovery
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