Karl W. Blanchard, Jr.* R. Tyler Strodtman** 2014 Cumulative Supplement to Chapter 5 SETTLEMENT PROCEDURES Supplemented: 5.4 5.5 5.6 5.12 5.13 5.21 5.23 5.27 5 II. Timing and Methods of Evaluation of Case for Settlement B. ( 5.4) Discovery and Investigation and Legal Research In 2007, the U.S. Congress enacted new reporting requirements that must be considered by counsel for plaintiffs and defendants in every settlement or judgment. 42 U.S.C. 1395y(b)(7) and (8). These reporting requirements affect Medicare beneficiaries *Mr. Blanchard s biographical information appears on page 5 1 of the original chapter. **Mr. Strodtman received his J.D., 2008, from the University of Missouri. He is an attorney with the law firm of Blanchard, Robertson, Mitchell & Carter, P.C. in Joplin. 2014 5 Supp. 1
5.5 SETTLEMENT PROCEDURES who receive settlements, judgments, or other payment from liability insurance (including self-insurance), no fault insurance, and workers compensation. Id. Any payment from these plans to a Medicare beneficiary must be reported to the Centers for Medicaid and Medicare Services. The failure to comply with these requirements can have drastic consequences for attorneys and their clients. See, e.g., 1395y(b)(8)(E)(i). Attorneys for plaintiffs and defendants should be proactive in determining whether a particular claimant is a Medicare beneficiary or may reasonably become a Medicare beneficiary. Defense attorneys who represent payor entities covered by the reporting requirements, such as liability insurers, should gather the following information on each claimant: Age Health Insurance Claim Number Eligibility and application for Medicare or Social Security Disability Any other information that will assist in determining whether a future settlement will have to be reported to Medicare C. Factors to Consider 1. ( 5.5) Liability In 2005, the Missouri legislature passed House Bill 393, effective August 28, 2005, which amended several statutes in what was described as a tort-reform effort. H.B. 393, 93 rd Gen. Assembly, 1 st Reg. Sess. (Mo. 2005). While this supplement does not address all of the statutory provisions amended by House Bill 393, it is important to note the change to joint and several liability made by the amendment to 537.067, now RSMo Supp. 2013, in analyzing the 5 Supp. 2 2014
SETTLEMENT PROCEDURES 5.6 liability aspects of a case. Under the amended version of 537.067.1, in a tort action: if a defendant is found to bear fifty-one percent or more of fault, then such defendant shall be jointly and severally liable for the amount of the judgment rendered against the defendants. If a defendant is found to bear less than fifty-one percent of fault, then the defendant shall only be responsible for the percentage of the judgment for which the defendant is determined to be responsible by the trier of fact. A party remains responsible for the fault of another defendant if the other defendant was acting as an employee of the party or the party s liability for the fault of another person arises out of a duty created by the Federal Employers Liability Act, 45 U.S.C. 51. Section 537.067.1(1) (2). 5 This change alters the landscape of Missouri tort law, particularly in the evaluation of claims in which one defendant has great liability but little or no recoverable assets and a second defendant has little or no liability but significant recoverable assets. Section 537.067.3 specifically states that the impact of the section may not be disclosed to the trier of fact. 2. ( 5.6) Damages House Bill 393 also amended 490.715, now RSMo Supp. 2013, regarding collateral source evidence and medical bill evidence. H.B. 393, 93 rd Gen. Assembly, 1 st Reg. Sess. (Mo. 2005). With respect to evidence of the value of the medical treatment, 490.715.5(2) creates a rebuttable presumption that the dollar amount necessary to satisfy the financial obligation to the health care provider represents the value of the medical treatment rendered. But on the motion of a party, the value of treatment rendered may be determined by the court outside the hearing of the jury based on additional evidence. Plaintiffs counsel frequently attempt to rebut the presumption by providing testimony of the treating physician or an expert physician that the value of the services is the value actually charged versus that paid or reimbursed by insurers or government agencies. 2014 5 Supp. 3
5.12 SETTLEMENT PROCEDURES In Deck v. Teasley, 322 S.W.3d 536 (Mo. banc 2010), the Supreme Court addressed the application of 490.715. In Deck, the defendant filed a motion to determine the value of medical treatment rendered to the plaintiff. The defendant asserted that the proper value was $9,904.28, which was the amount actually paid by Medicare, supplemental insurance, and the plaintiff. The plaintiff offered the testimony of three witnesses to the effect that the amount she was billed, $27,991.30, represented the value of her treatment. The Supreme Court found that the plaintiff s evidence was sufficient to rebut the presumption in 490.715.5. The Court further found that once a trial court determines that the presumption has been rebutted, both the plaintiff s and the defendant s evidence of value should be admitted at trial and reconciled by the jury. 3. ( 5.12) Effect of 537.060, RSMo Missouri appellate courts continue to address 537.060, RSMo 2000, frequently. In Fetick v. American Cyanamid Co., 38 S.W.3d 415 (Mo. banc 2001), a physician who administered a vaccine that rendered an infant triplegic brought an action against the vaccine manufacturer and distributor, alleging fraud and seeking contribution to cover the amount he paid to settle the infant s suit. The Court affirmed the proposition that, in settling, the plaintiff extinguished only those claims against himself while insulating himself from liability. In doing so, the Court concluded that Fetick triggered the settler-barred doctrine, which precludes him from pursuing his own contribution claims against another defendant unless he also discharged the liability of that defendant as part of the settlement. Scott v. SSM Healthcare St. Louis, 70 S.W.3d 560 (Mo. App. E.D. 2002), addressed the relationship between 537.060 and former 538.230, RSMo 2000, when there is a settlement by one of several defendants in a medical malpractice case. Section 538.230, which has since been 5 Supp. 4 2014
SETTLEMENT PROCEDURES 5.12 repealed in 2005, applied to medical malpractice claims and provided that nonsettling defendants who went to trial were entitled to have a judgment against them reduced by the percentage of fault allocated to a settling party. In contrast, 537.060, which applies generally in tort cases, provides that a nonsettling defendant is entitled only to a dollar-for-dollar set-off for amounts paid by a settling defendant. At issue in Scott was the verdict reduction the hospital was entitled to based on the settlement by a defendant (Dr. Koch), who was found to be 75% at fault. Because the jury found Dr. Koch and another at-fault defendant doctor to be the agents of the hospital, there was but a single judgment against a single defendant the hospital. Under these circumstances and the principle of vicarious liability, the hospital was completely liable for the negligence of its agents and was not entitled to a reduction in the verdict based on any apportionment of fault between the principle and its agents. Consequently, the court determined that the dollar-for-dollar reduction of 537.060 applied in this situation as opposed to the percentage-offault reduction of former 538.230. The court further noted that, if Dr. Koch had been found not to be an agent of the hospital, he would have been an independent tortfeaser for whom the hospital was not responsible, and 538.230 would have applied to the Koch settlement. 5 In Norman v. Wright, 100 S.W.3d 783 (Mo. banc 2003), the Supreme Court addressed the necessity of pleading a reduction of a verdict or judgment based on a 537.060 settlement. The defendant, a week after a verdict, moved for the first time to reduce the verdict by the amount of a settlement with two other defendants. The plaintiffs objected to the motion as untimely because the defendant did not plead the reduction as an affirmative defense. The Supreme Court held that: a reduction under 537.060 is a satisfaction of an amount owed; and the satisfaction is an affirmative defense that must be pleaded and proved. 2014 5 Supp. 5
5.12 SETTLEMENT PROCEDURES Because the defendant failed to plead and prove the affirmative defense of reduction under 537.060, the defendant was not entitled to have the judgment reduced. Lunceford v. Houghtlin, 170 S.W.3d 453 (Mo. App. W.D. 2005), dealt with whether a general release of one tortfeaser in a motorcycle accident also released two other tortfeasors. After a grant of summary judgment to the two other tortfeasors based on the general release, the court of appeals reversed based on the finding of a genuine issue of material fact as to whether there was a mutual mistake between the plaintiffs and the settling defendant as to the nature of release intended general versus limited. In doing so, the court concluded that the earlier decisions of Liberty v. J.A. Tobin Construction Co., 512 S.W.2d 886 (Mo. App. W.D. 1974), and Rudisill v. Lewis, 796 S.W.2d 124 (Mo. App. W.D. 1990), incorrectly stated a blanket proposition that a release agreement can never be modified or rescinded by the parties. The court acknowledged the general principle that parties to a contract are free to modify their contract at a later time, notwithstanding contract language limiting modification, and that the principle applies to a release. State ex rel. Curators, University of Missouri v. Moorhouse, 181 S.W.3d 621 (Mo. App. W.D. 2006), again tackled the issue of contribution and indemnity in the context of a 537.060 release. The issue was whether 537.060 and former 538.230.3 prohibited a third-party plaintiff from seeking indemnification or contribution from a third-party defendant when that third-party defendant had been released by the plaintiff from the original action. The court concluded that, under the plain wording of both statutes, the third-party defendant is no longer liable for contribution to the third-party plaintiff after the settlement with the plaintiff because allowing the indemnification would contravene the purposes of these statutes by failing to allow a tortfeaser to buy their peace by good faith settlement with the claimant. Moorhouse, 181 S.W.3d at 624 (quoting Lowe v. Norfolk & W. Ry. Co., 753 S.W.2d 891, 892 (Mo. banc 1988)). 5 Supp. 6 2014
SETTLEMENT PROCEDURES 5.13 III. Techniques of Negotiation A. ( 5.13) Who Should Initiate Settlement Discussion and When Counsel should be aware that House Bill 393, 93 rd Gen. Assembly, 1 st Reg. Sess. (Mo. 2005), revised 408.040, now RSMo Supp. 2013, as it pertains to prejudgment interest demands by plaintiffs. The new provisions specifically require that the demand be made to a party or parties or their representatives and the liability insurer, if known. Prejudgment interest must be awarded if the judgment exceeds the demand for payment or offer of settlement and is calculated from a date ninety days after the demand or offer was received, as shown by certified mail return receipt, or from the date the demand or offer was rejected without counter offer, whichever is earlier. Section 408.040.2. To qualify as a 408.040.2 demand or offer of settlement, the demand must: 5 (1) Be in writing and sent by certified mail return receipt requested; and (2) Be accompanied by an affidavit of the claimant describing the nature of the claim, the nature of any injuries claimed and a general computation of any category of damages sought by the claimant with supporting documentation, if any is reasonably available; and (3) For wrongful death, personal injury, and bodily injury claims, be accompanied by a list of the names and addresses of medical providers who have provided treatment to the claimant or decedent for such injuries, copies of all reasonably available medical bills, a list of employers if the claimant is seeking damages for loss of wages or earning, and written authorizations sufficient to allow the party, its representatives, and liability insurer if known to the claimant to obtain records from all employers and medical care providers; and (4) Reference this section and be left open for ninety days. Id. If the claimant fails to file a cause of action in circuit court within 120 days after the demand or offer was received, the court cannot award prejudgment interest to the claimant. Id. 2014 5 Supp. 7
5.21 SETTLEMENT PROCEDURES IV. Methods of Settlement E. ( 5.21) Settlement of Wrongful Death and Survival Action House Bill 393, 93 rd Gen. Assembly, 1 st Reg. Sess. (Mo. 2005), impacted the evaluation of wrongful death claims, particularly when the deceased was not employed at the time of death or was a minor at the time of death. House Bill 393 amended 537.090, now RSMo Supp. 2013, which addresses the type of damages available in a wrongful death claim. Section 537.090 now provides that: if the deceased was not employed full time and was at least fifty percent responsible for the care of one or more minors or disabled persons, or persons over sixty-five years of age, [at the time of death,] there shall be a rebuttable presumption that the value of such care, regardless of the number of persons cared for, is equal to one hundred ten percent of the state average weekly wage, as computed under section 287.250, RSMo. If the deceased is under the age of eighteen, there shall be a rebuttable presumption that the annual pecuniary loss suffered by reason of the death shall be calculated based on the annual income of the deceased s parents, provided that if the deceased has only one parent earning income, then the calculation shall be based on such income, but if the deceased had two parents earning income, then the calculation shall be based on the average of the two incomes. G. ( 5.23) Section 537.065, RSMo Contracts to Limit Recovery to Specific Assets or Insurance Contracts Vaughan v. United Fire & Casualty Co., 90 S.W.3d 220 (Mo. App. S.D. 2002), addressed the frequently raised issue of whether a 537.065, RSMo 2000, agreement in an auto accident case was the result of fraud or collusion. The court analyzed the agreement under the standard of what a reasonably prudent person in the defendant s position would have settled for on the merits of the plaintiff s claim as set out in Gulf Insurance Co. v. Noble Broadcast, 936 S.W.2d 810, 816 (Mo. banc 1997). The court in Vaughan concluded that the release was not the result of fraud or collusion given the following factors in the case: 5 Supp. 8 2014
SETTLEMENT PROCEDURES 5.23 The application of joint and several liability The presence of marijuana and alcohol in the system of the person giving the 537.065 release The evidence of failure to keep a proper lookout by the person giving the release The insurer s refusal to provide a defense without a reservation of rights The incarceration of the person giving the release Vaughan, 90 S.W.3d at 228. Norris v. Nationwide Mutual Insurance Co., 55 S.W.3d 366 (Mo. App. W.D. 2001), addressed the reasonableness of a 537.065 agreement allowing settlement in the amount of $300,000 recoverable only from an insurer after there was a prior jury verdict for only $10,000. In Norris, after the appeal of the jury verdict, the appellate decision directed the trial court to offer the underlying defendant two choices: an additur of $28,000 or a new trial. Nationwide defended the underlying case under a reservation of rights. Counsel retained by Nationwide for the underlying defendant Barnes agreed to the additur but apparently without consulting Barnes. Nationwide then continued to deny coverage and would not pay the judgment after additur. On being informed that the plaintiff was going to garnish his wages, Barnes, with the help of independent counsel, entered the 537.065 agreement with Norris for $300,000 and accepted a new trial as opposed to additur. Judgment was entered based on the $300,000 confession of judgment by Barnes. Norris sought to garnish the Nationwide policy. The Western District found that the amount of the earlier verdict was invalidated by the grant of the new trial and that the earlier verdict held no weight in considering whether the settlement was reasonable. Based on the evidence, the Western District found that: 5 the amount of the settlement in the 537.065 agreement was reasonable; and 2014 5 Supp. 9
5.23 SETTLEMENT PROCEDURES Nationwide should have clearly recognized that, when it continued to deny coverage after the Western District s first opinion, there was a risk: of a substantially different assessment of damages; and that Barnes would enter a 537.065 agreement. Bowan ex rel. Bowan v. Express Medical Transporters, Inc., 135 S.W.3d 452 (Mo. App. E.D. 2004), addressed, for the first time, the procedure for analyzing a claim for prejudgment interest under 408.040, now RSMo Supp. 2013, when there is also a 537.065 settlement that occurred after the prejudgment interest demand. The defendant argued that the amount of the 537.065 settlement should be credited against the final judgment before determining whether the plaintiff was entitled to prejudgment interest based on a demand under 408.040. The appellate court disagreed, setting out a two-step process for the application of 408.040.2(2) and 537.065 when both are involved in a case: 1. The court is to determine whether a plaintiff is entitled to prejudgment interest based on a proper demand under 408.040 and the amount of the judgment. 2. If the verdict exceeds the settlement demand, the court moves on to determine the amount of prejudgment interest that the plaintiff is entitled to by statute. Before calculating the interest, the amount of the 537.065 settlement is applied against the verdict amount because the plaintiff had that amount of money in hand and could have been earning interest on it from the date it was received. The remaining amount is used for the calculation of prejudgment interest. A claim that a 537.065 settlement is unreasonable or fraudulent should be asserted as an affirmative defense. In Taggart v. Maryland Casualty Co., 242 S.W.3d 755 (Mo. App. 5 Supp. 10 2014
SETTLEMENT PROCEDURES 5.27 W.D. 2008), the court found that a claim that a 537.065 settlement agreement was fraudulent and unreasonable was an affirmative defense that had properly been raised by the defendant. As a result, the plaintiffs were not entitled to summary judgment because they had failed to plead facts negating any elements of this defense in their motion. V. ( 5.27) Enforcing a Settlement Agreement In Eaton v. Mallinckrodt, Inc., 224 S.W.3d 596, 599 (Mo. banc 2007), the Supreme Court stated that a motion to enforce a settlement agreement may be decided by the trial court in one of three possible ways: 5 1. By holding an evidentiary hearing to determine disputed facts and then entering judgment after hearing the evidence regarding the agreement and any defenses 2. By a motion for judgment on the pleadings under Rule 55.27 3. By treating the motion to enforce as a motion for summary judgment under Rule 74.04 The Court stated that the most desirable course of action is for the trial court to hold an evidentiary hearing. Subsequent cases have found that the nonmoving party is entitled to notice that a motion to enforce will be decided without an evidentiary hearing. Paragon Lawns, Inc. v. Barefoot, Inc., 304 S.W.3d 298 (Mo. App. W.D. 2010); Jones v. Wells Fargo Auto Fin,. LLC, 383 S.W.3d 472 (Mo. App. W.D. 2012). 2014 5 Supp. 11