A Curveball for Minor’s Settlements

October 9, 2013 § 5 Comments

For those of you who handle minor’s settlements, here is what should be a familiar scenario:

Minor’s arm broken in a car wreck. Insurance company is to pay policy limits of $25,000. Medical bills to the local hospital in amount of $17,500 are to be paid from the proceeds. Minor is to receive balance of $7,500.

Not much to it, right?

Well, there just might be quite a lot to think about after you read Memorial Hospital at Gulfport vs. Guardianship of Proulx, decided by the MSSC on September 12, 2013.

In that case, the minor was injured in a car wreck and the parents were appointed his guardians. They petitioned the court to approve a policy-limits settlement of $50,000. They also petitioned the court to disapprove claims against the proceeds asserted by several medical providers, including Memorial, that totalled more than $80,000. Memorial’s claims alone were $71,000. The chancellor disapproved the claims, and Memorial appealed.

Justice Chandler wrote for a unanimous court, beginning in ¶ 7:

 … Memorial has no lien against the funds. Unlike some other states, Mississippi has no statutory hospital lien, nor has this Court recognized a common-law lien under these facts. Indeed, Memorial does not argue that it has a lien, or does it assert a right to recovery through a contract or under an implied-contract theory. It does not assert that it is the beneficiary of an assignment of the settlement proceeds. Memorial cited no authority for its argument at the hearing that it has a right to a pro rata share of the settlement proceeds.

¶8. Memorial’s position in this case is comparable to that of the hospitals that sought payment of medical bills in McCoy v. Preferred Risk Ins. Co., 471 So. 2d 396 (Miss. 1985), and Methodist Hospital of Memphis v. Guardianship of Marsh, 518 So. 2d 1227 (Miss. 1988). In McCoy, a minor, David James McCoy, was hospitalized after a car accident, and his parents executed an assignment of all liability insurance benefits in favor of the hospital. Id. at 397. Later, the parents disputed the validity of the assignment, and the insurer interpleaded the benefits, which consisted of $20,000 in uninsured-motorist liability benefits and $4,000 in medical benefits. Id. The Court held that the parents had lacked authority to assign the uninsured-motorist benefits due to David. Id. at 397-98. However, because the medical-expense benefits under the policy authorized Preferred to pay all reasonable medical expenses to the entity rendering medical services, the Court permitted the hospital’s recovery of the $4,000 in medical benefits. Id. at 397.

¶9. In Methodist, another minor, Stephen B. Marsh, was injured in a car accident. Methodist, 518 So. 2d at 1228. At the hospital, his mother signed a document entitled “Hospital Lien” in which she agreed to pay Stephen’s medical expenses from any insurance settlement or judgment she recovered. Id. The insurer settled for the policy limits of $25,000 in liability coverage and $2,000 in medical-payments coverage, and the hospital claimed a lien on those funds. Id. This Court rejected the claimed lien on the liability coverage because the mother had no legal authority to execute any document binding Stephen’s estate without prior chancery court approval. Id. (citing McCoy, 471 So. 2d at 396). The Court remanded for a determination of whether the hospital was a direct beneficiary under the medicalpayments coverage and “due these benefits irrespective of any lien or assignment.” Methodist, 518 So. 2d at 1228.

¶10. In McCoy and Methodist, once the assignment or lien was found to be invalid, the hospitals had no further rights against the liability insurance proceeds due the minor, and the claims were denied. McCoy, 471 So. 2d at 399; Methodist, 518 So. 2d at 1228. Memorial does not claim that it has a right to recovery under a lien, an assignment, or a contractual theory. Memorial’s sole argument supporting its claim of a right to the settlement proceeds is that it has a legal duty to seek recovery from any legally liable third party prior to billing Medicaid. This argument does not avail Memorial. The third-party insurers were not legally liable to pay Memorial for the medical bills. McCoy, 471 So. 2d at 397-98; Methodist, 518 So. 2d at 1228. The third-party coverage at issue here was general liability coverage, not medical-pay coverage that reimburses the hospital for medical bills. See McCoy, 471 So. 2d at 397; Methodist, 518 So. 2d at 1228. Memorial does not dispute this basic fact. Because no law entitled Memorial to payment from the settlement proceeds, we affirm the chancery court’s dismissal of Memorial’s claim.

If your minor’s settlements don’t look like what happened in Proulx, you might read it carefully several times and start trying to figure out whether you need to do anything differently.

There are lots of ramifications flowing from this opinion. A few you might want to consider:

  • Shouldn’t you open a guardianship and publish notice to creditors before presenting the final settlement proposal to the chancellor? I sent some lawyers back to the drawing board several weeks ago to do that very thing in a case remarkably close to what happened in Proulx. Why? Well, it just didn’t seem right to me that the parents could negotiate away their children’s money like that.
  • If you represent the insurance company in a case where the settlement amount is under the statutory amount required to present to a chancellor, how are you going to advise the parents about all of this when (a) you don’t represent them, and (b) you have an insurmountable conflict of interest that precludes you from advising them?
  • Why should children be required to pay their own medical bills? And if they should not, don’t the parents have a built-in conflict of interest in serviing as guardians, since they will likely be held responsible via guaranty?
  • Would Memorial have been successful in its argument if the third-party coverage in this case was med-pay (¶ 10)?

You need to read this case and be ready to discuss it with the next chancellor you go before on a minor’s settlement. That chancellor will likely be ready to discuss it, too.

INVESTMENT RESPONSIBILITIES OF FIDUCIARIES

July 30, 2012 § 4 Comments

Executors, administrators, guardians and conservators have a fiduciary duty to the beneficiaries or wards (trustees have their own, separate body of law, although they are fiduciaries also). The fiduciary’s duty (in the absence of explicit directions in a will) …

” … is to provide honest, intelligent management … [h]owever it might be more accurate to think of the [fiduciary] as a co-manager (and perhaps a junior co-manager at that) with the court being the other manager. The [fiduciary] can do very little without the prior approval of the court. The [fiduciary’s] responsibility is to be knowledgeable about the estate, to anticipate problems and dangers, as well as opportunities, to decide upon the intelligent and prudent thing to do, and then to go to the Chancellor to try to get the authority to do it.” Weems, Wills and Administration of Estates in Mississippi, 3rd Ed., §2.34, p. 65.

Absent directions in a will or court authorization, or specific authority by statute, the fiduciary has no authority to: bind the estate by contract such as a lease or note; purchase or sell real estate or any other asset; warrant title on behalf of the estate; borrow money for the estate; mortgage property of the estate; or even to continue a decedent’s business except to wind it up or as provided in MCA 91-7-173.

MCA §93-13-38 requires the guardian or conservator to improve the estate of the ward, and to “apply so much of the income, profit or body thereof as may be necessary for the comfortable maintenance and support of the ward and his family, if he have any, after obtaining an order of the court fixing the amount.” The duty of the fiduciary is to employ the funds in their hands profitably, and they may be liable on their bonds for failure to improve the estate.

Does that duty to improve the estate mean that there is a duty to invest?

The answer to that question, of course, is that every case is different, and several factors come into play, including:

  1. Whether the the amount of funds in excess of those needed in the immediate future to pay claims and administration expenses, and in the case of wards, the necessary, authorized expenses, make investment practical;
  2. The economic conditions in the markeplace;
  3. Whether in the case of a decedent’s estate that it will be open for a length of time that would make investment practical.

In the case of McNeil v. Hester, 753 So.2d 1075 (Miss. 2000), the court held that the fiduciary has no duty to invest because MCA 91-13-3 because that statute uses the permissive may rather than the mandatory shall.

But simply because there is no explicit statutory duty does not mean that not investing would be prudent. The fiduciary is under a duty to deal prudently with the estate, and in a given circumstance non-investment may be judged imprudent. MCA 91-13-3 says that the ” … fiduciary shall exercise the judgment and care under the circumstances then prevailing which men of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of the capital.”

MCA 91-13-3 and -5 allow certain investments to be made without specific authority of the court, giving the fiduciary some flexibility to park funds until a more prudent investment, if any, can be made. Those investments, unless prohibited by court order, include: time certificates of deposit; savings or other interest-bearing accounts of any state or national bank whose main office is located in Mississippi, and whose deposits are FDIC-insured; any state or federal savings and loan association whose main office is located in Mississippi, and the deposits of which are FSLIC-insured. Not included are credit union accounts, online banks, e-trade, Schwab or Fidelity, or the mayonnaise jar buried in the back yard.

Whether a given investment is prudent was the issue in the COA case of In re Estate of McGee, 982 So.2d 428 (Miss.App. 2007)in which the court held that, where the decedent had invested in the stock market for many years and the fiduciary had received his portfolio, which he put in the control of a reputable broker pursuant to court order, the fiduciary was not liable to the heirs when the portfolio declined in value after 9-11-01. The court pointed out that “administrators are not insurers or guarantors of the estate’s assets.” Citing Harper v. Harper, 491 So.2d 189, 198 (Miss. 1986).

So what exactly is and is not prudent? For guidance in addition to particular case law you might want to look at the Mississippi Uniform Prudent Investor Act, MCA 91-9-601- et seq., which actually applies to trustees, but would certainly be persuasive authority for any court to consider in weighing the prudence of any other fiduciary. Section 603 sets out factors for the court to consider as a standard of care. Other sections in the law address the duties of diversification, loyalty, impartiality, reasonability of cost, and care in delegation of management responsibility.

The attorney representing a fiduciary has a duty to advise him or her of the responsibilities involved, and to make sure that the fiduciary is acting prudently and in compliance with the law. The subject is more complex than the scope of this post, so consider this an introduction and prompt to study it in adequate depth to be of service to your clients.

[Much of the information here is derived from a presentation by Bob Williford, Esq. to the chancery judges last April]

ESSENTIAL PROCEDURES IN A GUARDIANSHIP AND CONSERVATORSHIP

September 7, 2011 § 1 Comment

MCA 93-13-38 (1)  states:

All the provisions of the law on the subject of executors and administrators, relating to settlement or disposition of property limitations, notice to creditors, probate and registration of claims, proceedings to insolvency and distribution of assets of insolvent estates, shall, as far as applicable and not otherwise provided, be observed and enforced in all guardianships.

MCA 93-13-255 provides that a conservator appointed by the court shall have “the same duties, powers and responsibilities as a guardian of a minor, and all laws relative to the guardianship of a minor shall be applicable to a conservator.”

That means that in your guardianship or conservatorship you will need to file your affidavit of creditors in the proper time, publish to creditors, file an inventory, and do all the other acts and things required of fiduciaries in estates.

And keep in mind that the MSSC has made it abundantly clear that there are dire consequences for both the fiduciary and the attorney for failing to do so.

DON’T FORGET THE THIRD DEGREE IN ADULT GUARDIANSHIPS AND CONSERVATORSHIPS

October 27, 2010 § 1 Comment

Frank Lewis appeared personally in court with his attorney and joined in a request that his son be appointed his conservator.  The idea for the conservatorship arose out of some financial dealings by other members of the family who had powers of attorney.  After a hearing with no record, the Chancellor ruled that a guardian should be appointed instead, due to Frank’s physical infirmities and need for regular kidney dialysis.  The judge appointed Frank’s then attorney as guardian of his estate, and his son as guardian of the person, and cancelled the powers of attorney.

 Frank retained another attorney and appealed the Chancellor’s decision.

The Court of Appeals reversed the trial court and remanded for further proceedings, In The Matter of The Guardianship of the Estate of Frank Lewis, decided October 5, 2010. 

There are several interesting arguments made by both sides, and I commend the decision for your reading, but the issue of interest in this post is that proper notice of the hearing was not given.

There is no question that Frank Lewis was present at the hearing with his retained attorney.  Ordinarily, a party’s presence in court would submit him voluntarily to the jurisdiction of the court.  In order to establish a guardianship, however, MCA § 93-13-281 requires that the proceedings shall join as defendants two of his adult kin within the third degree by proper process, joinder or waiver.  The petition did name two adult relatives within the third degree, but there is no evidence in the record that they were properly summoned, joined, waived process or personally appeared before the court.  The court of appeals reversed and remanded to allow proper notice to two relatives within the third degree and for the court to hear evidence whether Frank does need a guardian.

The moral of the story is that guardianships and conservatorships are creatures of statute, and the statutes must be strictly complied with.  If there are two relatives within the third degree, you must join them.  If there are not two relatives within the third degree, the court is required to appoint a guardian ad litem for the infirm individual.

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