Civil Code § 3040 CCP – “Medical Liens” in California

Civil Code § 3040 CCP is the California statute that limits how much health insurance carriers can take from an accident victim’s personal injury settlement. The insurance company can recover the lesser of:

1. the cost of medical services,
2. one-third of the total settlement if the victim had an attorney, or
3. one-half of the total settlement if the victim had no attorney.

The full text of the statute reads as follows:

3040. (a) No lien asserted by a licensee of the Department of Managed Care or the Department of Insurance, and no lien of a medical group or an independent practice association, to the extent that it asserts or enforces a lien, for the recovery of money paid or payable to or on behalf of an enrollee or insured for health care services provided under a health care service plan contract or a disability insurance policy, when the right of the licensee, medical group, or independent practice association to assert that lien is granted in a plan contract subject to the Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code) or a disability insurance policy subject to the Insurance Code, may exceed the sum of the reasonable costs actually paid by the licensee, medical group, or independent practice association to perfect the lien and one of the following:
(1) For health care services not provided on a capitated basis, the amount actually paid by the licensee, medical group, or independent practice association pursuant to that contract or policy to any treating medical provider.
(2) For health care services provided on a capitated basis, the amount equal to 80 percent of the usual and customary charge for the same services by medical providers that provide health care services on a noncapitated basis in the geographic region in which the services were rendered.

(b) If an enrollee or insured received health care services on a capitated basis and on a noncapitated basis, and the licensee, medical group, or independent practice association that provided the health care services on the capitated basis paid for the health care services the enrollee received on the noncapitated basis, then a lien that is subject to subdivision (a) may not exceed the sum of the reasonable costs actually paid to perfect the lien, and the amounts determined pursuant to both paragraphs (1) and (2) of subdivision (a).

(c) If the enrollee or insured engaged an attorney, then the lien subject to subdivision (a) may not exceed the lesser of the following amounts:
(1) The maximum amount determined pursuant to subdivision (a) or (b), whichever is applicable.
(2) One-third of the moneys due to the enrollee or insured under any final judgment, compromise, or settlement agreement.

(d) If the enrollee or insured did not engage an attorney, then the lien subject to subdivision (a) may not exceed the lesser of the following amounts:
(1) The maximum amount determined pursuant to subdivision (a) or (b), whichever is applicable.
(2) One-half of the moneys due to the enrollee or insured under any final judgment, compromise, or settlement agreement.

(e) Where a final judgment includes a special finding by a judge, jury, or arbitrator, that the enrollee or insured was partially at fault, the lien subject to subdivision (a) or (b) shall be reduced by the same comparative fault percentage by which the enrollee or insured’s recovery was reduced.

(f) A lien subject to subdivision (a) or (b) is subject to pro rata reduction, commensurate with the enrollee’s or insured’s reasonable attorney’s fees and costs, in accordance with the common fund doctrine.

(g) This section is not applicable to any of the following:
(1) A lien made against a workers’ compensation claim.
(2) A lien for Medi-Cal benefits pursuant to Article 3.5 (commencing with Section 14124.70) of Chapter 7 of Part 3 of Division 9 of the Welfare and Institutions Code.
(3) A lien for hospital services pursuant to Chapter 4 (commencing with Section 3045.1).

(h) This section does not create any lien right that does not exist at law, and does not make a lien that arises out of an employee benefit plan or fund enforceable if preempted by federal law.

(i) The provisions of this section may not be admitted into evidence nor given in any instruction in any civil action or proceeding between an enrollee or insured and a third party.

Legal Analysis

California Civil Code 3040 CC puts a cap on what health insurance companies can recover from a personal injury settlement. Specifically, the insurer’s recovery is limited by the lesser of:

1. The cost of the medical services; or
2. A percentage of the total settlement.

As to the first factor, the cost of the medical services depends on how the insurance company paid the medical providers:

• In a non-capitated case, the cost is simply what appears on the victim’s medical bill.
• In capitated cases, the cost is no more than 80% of what providers typically charge in non-capitated cases.

Concerning the second factor, which percentage to use depends on whether the victim had an attorney or not.

• If there was an attorney, the percentage is one-third of the settlement amount.
• If the victim does not have an attorney, the percentage is 50% of the settlement amount.¹

Note that capitation is a flat cost the insurance company pays a doctor for each patient they treat, no matter which services are provided. In contrast, non-capitation is when an insurer compensates physicians based on their specific services.

Additional considerations

CC 3040 does not prevent health insurance companies from claiming reimbursement directly from the victim’s settlement amount rather than asserting a lien against the third party. However, insurers cannot double dip – if an insurer seeks reimbursement from the victim, it loses entitlement to a provider lien.

CC 3040 is also silent regarding equitable apportionment and allocation. Therefore, if multiple medical providers treat the victim and perfect liens, disputes can arise over each one’s share of the available recovery funds.

If this happens, courts may order parties to negotiate an equitable allocation in good faith. If needed, judges ultimately determine reasonable apportionment.

See our related articles How are medical bills paid after a car accident? and How do medical liens get paid in a personal injury settlement? 

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Legal References