The State Is Entitled to Full Reimbursement of Certain Medical Costs It Covers for State Employees


By Anne E. McClellan

On March 19, 2013, the Arizona Supreme Court denied review of State of Arizona, ex rel. David Raber v. Wang, 230 Ariz. 476, 286 P.3d 1085 (App. 2012), ending any possible doubt as to whether the State of Arizona must reduce its recovery rights under A.R.S. § 12-962 to account for attorneys’ fees or costs.  The State does not.

A.R.S. § 12-962 provides, in part, as follows:

A.        If this state . . . provides medical care and treatment to a person who is injured . . . under circumstances creating tort liability upon a third person, the state . . . may recover from the third person or the injured . . . the reasonable value of the medical care and treatment. …

B.        To enforce this right, the state . . . may do the following:

. . .

3.         Recover the cost of care from the injured . . . to the extent that such person has received money in settlement of the claim or satisfaction of a judgment against the third party.

A.R.S. § 12-962(A)-(B) (emphasis added).  The statute is intended to convey to the State a fiscal benefit not otherwise available under the law, i.e., recouping certain medical costs paid by the State health plan in order to ensure the State can continue to afford to provide health coverage for its employees.  See 1999 Ariz. Sess. Laws, Ch. 17, §1; Arizona State Senate, Fact Sheet for S.B. 1346.

In State v. Wang, Hongliang Wang was injured in a bicycle accident.  As an employee of the State, Mr. Wang’s accident-related medical care was covered by the State health plan, and the State paid $15,758.26 for that medical care.  Mr. Wang thereafter successfully asserted a claim against the person who caused the accident and received a $50,000 settlement.  Mr. Wang incurred $16,666 in attorneys’ fees and $250.85 in costs to obtain the settlement. 

Pursuant to A.R.S. § 12-962, the State demanded payment from the settlement for the $15,758.26 in accident-related medical care it provided to Mr. Wang.  Mr. Wang refused to reimburse the State, forcing the State to file a lawsuit.  Mr. Wang argued that the State must reduce its recovery under the Common Fund Doctrine.

The Common Fund Doctrine is an equitable theory that requires apportionment of a recovery to account for a pro rata share of attorneys’ fees and costs.  The purpose of the doctrine is to compensate counsel for producing benefits for a class of persons and prevent the unjust enrichment of those who receive the benefits. Kerr v. Killian, 197 Ariz. 213, 218, 3 P.3d 1133, 1138 (App.  2000).  If the statutory language clearly defines the right of recovery as being exclusive of attorneys’ fees and costs, application of the common fund doctrine is improper.  Hobson v. Mid-Century Ins. Co., 199 Ariz. 525, 531, 19 P.3d 1241, 1247 (App. 2001). 

After the State obtained summary judgment at the trial court level, Mr. Wang appealed to Division One of the Arizona Court of Appeals.  Consistent with Division Two in Ariz. Dep’t. of Admin. v. Cox, 222 Ariz. 270, 272, 213 P.3d 707, 709 (App. 2009), Division One held that the plain language of A.R.S. § 12-962 precludes application of the Common Fund Doctrine or any other equitable theory requiring reduction for attorneys’ fees or costs.  In the decision authored by Justice Randall Howe, the Court of Appeals explained that the statute grants the State a right to recover “the cost of care” from the injured person “to the extent that such persons has received money in settlement of the claim,” and attorneys’ fees and costs are to be deducted from a settlement or judgment prior to disbursement to the injured person, meaning the injured person never “receives” that portion of the fund. 

The State’s right under § 12–962(A) to recover the reasonable value of the medical care it has provided, however, is limited by § 12–962(B)(3) “to the extent that [the] person has received money in settlement of the claim or satisfaction of a judgment.” (Emphasis added.) As we have recognized, a person does not “receive” attorneys’ fees under this statute. By limiting the State’s recovery to the amount that Wang “has received in settlement” of his tort claim, § 12–962(B)(3) effectively removes litigation fees and costs from consideration.

Wang, 230 Ariz. at ¶ 12-14, 286 P.3d at 1087-88.  The Court of Appeals therefore upheld the trial court’s grant of full recovery of the medical costs to the State.

Arizona law is undeniably clear.  When a person covered by the State health plan is injured because of the negligence of another and receives a settlement, judgment or other payment for his or her injuries, the State is entitled to recover the amount it paid for the injured person’s medical treatment and is not required to reduce its recovery to share in the injured person’s attorneys’ fees or costs.