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Medicare Compliance Update:
Settlement Language in the Medicare Age
A Case Study


In the recent case of Holmes v Solon Automated Services, 2013 N.C. App. LEXIS 1238 (Dec. 3, 2013), the North Carolina Court of Appeals determined that the passing of a plaintiff prior to the execution of a settlement agreement did not release defendants from paying a portion of a Medicare Set-Aside to plaintiff’s widow.

The facts in this case are not in dispute. Mr. Holmes was injured during the course and scope of his employment in 1990. In 2010, the parties participated in a voluntary mediation and agreed to payment of $250,000 to Mr. Holmes in addition to the funding of a Medicare Set-Aside through an annuity. This agreement was memorialized in an Industrial Commission Form MSC8 Mediated Settlement Agreement (“Agreement”), and the parties signed the same. The Agreement provided for “$19,582.37 seed money for the Medicare Set-Aside for the benefit of Washington Holmes and payments of $9,247.23 annually beginning on September 15, 2011, payable 18 years only if Washington Holmes is living."

Prior to the execution of the final settlement documents, Mr. Holmes passed away unexpectedly. Defendants thereafter paid claimant’s widow $250,000 but refused to pay any monies to fund the Medicare Set-Aside. Mr. Holmes’ widow was substituted as plaintiff in the case and filed Industrial Commission Form 33 seeking to enforce the payment of the Medicare Set-Aside as outlined in the parties’ Mediated Settlement Agreement.

The Industrial Commission denied plaintiff’s request. The Commission concluded that the Medicare Set-Aside was for Mr. Holmes’ future medical care, and the implied condition of funding a Medicare Set-Aside was his survival. Applying the doctrine of frustration of purpose, the Commission went on to note that defendants could not have foreseen Mr. Holmes’ untimely passing, and his death operated as a defense excusing defendants from satisfying this portion of the Agreement. Plaintiff thereafter appealed to the North Carolina Court of Appeals.

On appeal, the court reversed in part and affirmed in part the Commission’s determination. The court agreed that the payment of the annual amounts to Mr. Holmes was not warranted under the terms of the Agreement. The court held that the Agreement specifically stated that surviving 18 years was a condition precedent to Mr. Holmes receiving the annual payments. However, with respect to the seed money, the court determined that the Agreement had no such provision. The court found that, unlike the annual payments, the seed money was a guaranteed specific sum and there was nothing in the Agreement stating that Mr. Holmes would have to survive to get this money. Also, the court went on to note that, while the seed money was for Mr. Holmes’ benefit, the money would pass to his estate upon his death. The court noted that the defendant would be unjustly enriched if they were allowed to keep this amount. The court stated that the defendants could have specifically bargained that the payment of the seed money was conditioned on Mr. Holmes’ survival, but they failed to do so.

This case clearly illustrates the importance of drafting comprehensive settlement language to address Medicare issues. Settlement documents should outline what will happen in the event of the plaintiff’s death as it relates to lump sum payments, annual payments, seed money, and how conditional liens, if any, will be satisfied. The parties must come to a “meeting of the minds” regarding how Medicare issues will be addressed and failure to do so can have a significant impact on clients.

Attorney Bridget Langer Smith Bridget Langer Smith
Dickie, McCamey & Chilcote, P.C.


For further information regarding this alert, or for any Medicare compliance assistance, please contact:

Charles G. Brown, Esq., 412-392-5204,
Bridget Langer Smith, Esq., 412-392-5624,
Katherine S. Gallagher, Esq., 412-392-5413,