Smith v. Marine Terminals of Arkansas & American Home Insurance Company

Smith v. Marine Terminals of Arkansas & American Home Insurance Company
No. 3:09 CV 00027-JLH
2011 WL 3489806 (E.D.Ark.August 9, 2011)

This case involved the settlement of an injury action arising under the Longshore Act.   The parties reached a global settlement of the filed liability suit and workers’ compensation claim for $1M, with the workers’ compensation carrier agreeing to waive its lien.  As the claimant was receiving social security disability benefits and was Medicare eligible at the time of the settlement, the parties decided to include a Medicare Set Aside (“MSA”) as part of the settlement.

A MSA allocation in the amount of $14,647.00 was secured from a MSA vendor and submitted to CMS for review and approval.  However, CMS ultimately declined to review the MSA proposal citing “workload threshold” reasons.  After CMS declined to review the MSA, the parties filed a joint Motion to Determine Set Aside Amount in the United States District Court for the Eastern District of Arkansas. 

The court granted the parties’ motion issuing various findings of fact and law through which the court approved the proposed MSA amount of $14,647.00 and ruled that the parties had reasonably considered and protected Medicare’s interests in connection with this settlement.

This case is summarized in greater detail as follows:    

Factual Background

The underlying accident giving rise to this case occurred on April 14, 2006.  On this date, the claimant, Billy Smith, was working as a truck driver aboard a floating barge when a co-worker closed a crane bucket on his right hand.  As a result of this accident, the claimant sustained a significant right hand injury which required five surgical procedures.  He also received psychiatric treatment for post traumatic stress disorder.

The claimant filed a claim against defendant, Marine Terminals of Arkansas (“defendant” or “Marine Terminal”) under the Jones Act and general maritime law asserting alleged negligence against his employer and upon allegations that the barge was not seaworthy. In response, the defendant filed a motion for summary judgment which was granted by the court thereby dismissing all of the claimant’s claims based upon his alleged status as a seaman.   The claimant also filed an alternative claim against Marine Terminal based upon vessel negligence under the Longshore Act which survived summary judgment.

In addition to the above, the claimant received workers’ compensation benefits for a period of time under the Longshore Act from the named intervenor workers’ compensation carrier, American Home Assurance Company (“American Home”). 

The claimant received workers’ compensation benefits through American Home from the accident date through March 17, 2009 in the total amount of $265,423.27, comprised of $213,447.07 in medical benefits and $51,976.40 in indemnity benefits. The claimant’s workers’ compensation benefits were terminated in March 2009 around the same time he filed his Jones Act claim.

Settlement Agreement & Related Terms

On February 23, 2011, the parties reached a settlement of both the liability suit and workers’ compensation claim in the amount of $1M. As part of this settlement, American Home agreed to a full waiver of its workers’ compensation lien ($265,423.27).

At the time of this settlement, the claimant was receiving social security disability benefits and was Medicare eligible.  In light of these facts, it was agreed between the parties that a MSA would be included as part of the settlement, with the claimant being responsible for securing the MSA allocation and submitting same to the Centers for Medicare and Medicaid (CMS) for review and approval.  The parties further agreed that the settlement was conditioned upon approval of the MSA by CMS and, upon same, approval of the overall settlement by the District Director.

As required under the settlement agreement, the claimant retained a MSA vendor to procure a MSA allocation.  The MSA vendor calculated a MSA in the amount of $14,647.00. 

On March 17, 2011, the MSA vendor submitted the MSA proposal to CMS for its review and approval.  However, the agency ultimately decided not to review the MSA submission citing “workload threshold” reasons.

Parties File Motion to Determine Set-Aside Amount

After CMS declined to review the MSA, the parties filed a joint Motion to Determine Set Aside Amount in the United States District Court for the Eastern District of Arkansas.

The court reviewed the background facts regarding this claim, including the MSA report prepared by the MSA vendor.  As part of its review of the MSA report, the court noted certain aspects pertaining to the claimant’s medical condition, including the nature and extent of the claimant’s injuries, his current medical and treatment status, and MMI status. 

With respect to CMS’ decision not review the MSA submission, the court noted:

It is apparent to the Court from the aforereferenced CMS correspondence and affidavit from [the MSA vendor’s attorney] that regardless of the details and potential deficiencies in the original submission, that CMS has decided it will not, for whatever reason, review or reconsider the proposed MSA, which response or lack thereof potentially jeopardizes what otherwise appears to be a reasonable settlement in the best interests of Billy Smith to accept and complete. Smith, 2011 WL 3489806, at *3.

Thus, the court then turned its focus to ruling upon the parties’ motion which involved determining whether the court believed the parties had reasonably considered and protected Medicare’s interests.

How Did the Court Rule?

The court granted the parties’ motion thereby approving the proposed MSA amount of $14,647.00 in connection with this settlement.

In reaching this ruling, the court found that the parties had reasonably considered and protected Medicare’s interests.  On this point, the court issued the following finding of fact:

There is no evidence that Billy Smith or any other party is attempting to shift the responsibility for payment of such future medical expenses for the treatment of work-related conditions and injuries to the federal government or to Medicare. On the contrary, the parties have done all that is reasonable and prudent and within their ability and authority to do to protect Medicare’s potential interest in this settlement. Smith, 2011 WL 3489806, at *4.

The court issued a “finding of law” approving the proposed MSA and finding that same adequately protected Medicare’s interests.  The court stated:

The findings of fact support the conclusion that Billy Smith is currently Medicare eligible and therefore considered a Medicare beneficiary. The sum of $14,647.00 as a Medicare Set Aside … is approved by this court to be set aside by Billy Smith out of the settlement proceeds for future medical expenses associated with treatment required for physical and mental injuries sustained in the accident of April 14, 2006, fairly and reasonably takes Medicare’s interest into account, and as such, Billy Smith should set aside this amount to protect Medicare’s interests as a secondary payor for future medical expenses arising out of the injuries alleged in his lawsuit.  Smith, 2011 WL 3489806, at *5.

As part of its Order, the court stated that parties could “rely upon the Court’s acceptance of the MSA at $14,647.00 and shall proceed accordingly with the completion of the settlement process consistent with the conditions and terms of the settlement agreement”  Smith, 2011 WL 3489806, at *4-5.

In its Order, the court also included directives regarding the claimant’s obligation to set up of the MSA account and his self-administration of said account. The claimant was also ordered to satisfy any due and owing conditional payments.

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