When treating personal injury (PI) patients on a lien basis, chiropractors often find themselves at the negotiation table with attorneys who aim to reduce payment. A common tool used by attorneys is the invocation of “pro rata” distribution — the idea that medical lienholders must accept a proportionate share of what remains after attorney fees and client disbursements. This white paper clarifies what the law actually says, citing California case law, statutory authority, and professional conduct standards. It is written for healthcare professionals but grounded in legal research.
“Pro rata” is a Latin term meaning “in proportion.” In personal injury settlements, it refers to the proportional reduction of medical lien payments when the remaining settlement funds are insufficient to pay all lienholders in full.
California courts acknowledge pro rata as an equitable tool, used only in limited circumstances. It is not a license to reduce medical bills arbitrarily.
Attorneys get paid first. Because if attorneys didn't get paid in full, there wouldn't be anyone left to provide these lawsuits. Under California law, an attorney’s lien for fees and case-related costs takes precedence over any other lien, including medical liens.
Attorneys’ Charging Liens and Priority: California law recognizes that an attorney’s contractual lien for fees and costs (a “charging lien” on the recovery) often takes priority over medical liens. In Gilman v. Dalby (2009), the Court of Appeal held that, as a matter of public policy and equity, the amount a plaintiff recovers in a personal injury case must first satisfy the attorney’s lien for fees and litigation costs before any medical lien is paid. In that case, the attorney’s costs exceeded the settlement, leaving nothing for the medical assignee; the court ruled this was proper because the attorney’s lien had priority, defeating the doctor’s conversion claim. The rationale is that giving attorneys first priority ensures competent counsel will pursue the claim, indirectly creating a fund from which medical providers might later be paid. Other courts have agreed that an attorney’s right to fees and costs is “essential” and superior to non-attorney liens, regardless of which lien arose first. This priority means that in limited settlements (e.g. policy limits cases), it is legally permissible for attorney fees and the client’s share to be fully paid even if that exhausts the fund, leaving a medical lienholder underpaid or unpaid. Attorneys also routinely secure their priority by including lien provisions in fee agreements, and California courts enforce these liens to encourage representation of injury victims.
Key Takeaway: Chiropractors should be aware that attorneys are entitled to deduct their contractual fees and costs before any remaining funds are used for medical lienholders.
Courts have consistently placed medical providers above general creditors or non-lien claimants when it comes to receiving payment.
Contractual and Statutory Rights of Lienholders: From the medical provider’s perspective, an agreement to treat on lien is a binding contract giving the provider a direct security interest in the settlement funds. Typically, the patient (and often the attorney) signs a lien letter guaranteeing payment from any recovery. Such a contractual lien or assignment means that a portion of the settlement belongs to the provider by right, and unilaterally reducing or ignoring it can violate the provider’s legal rights. California law recognizes various liens: hospitals have a statutory lien under Civil Code §3045.1 et seq. for emergency care, and counties or certain insurers have statutory reimbursement rights. Even when no statute applies, a provider’s equitable lien or assignment can be enforced. In Kaiser v. Aguiluz, for example, the injured patient had agreed to reimburse Kaiser for medical expenses from any recovery and authorized his attorney to pay Kaiser directlycaselaw.findlaw.com. The attorney nonetheless disbursed the entire settlement to himself and the client without paying Kaiser. The Court of Appeal held the attorney liable to the provider for the full lien amount, reaffirming that an attorney who knowingly disburses funds in disregard of a third-party lien does so “at his own risk”caselaw.findlaw.comcaselaw.findlaw.com. The court applied the rule from Miller v. Rau (1963) that a noticed third-party contractual lien creates an equitable lien on the recovery, and an attorney may be compelled to honor itcaselaw.findlaw.com. Providers argue that Aguiluz remains strong authority: even though later cases limited insurers’ rights in some contexts, an attorney’s knowing failure to pay a valid medical lien can give rise to claims for breach of contract, conversion, or imposition of a constructive trust over the fundscaselaw.findlaw.comcaselaw.findlaw.com. Moreover, a medical creditor with an assignment of proceeds effectively “owns” that portion of the settlement – the attorney cannot ethically or legally appropriate those funds to fees or to the client without the lienholder’s consent.
Statutes also protect providers’ lien interests. The Hospital Lien Act gives hospitals a direct lien of up to 50% of the recovery (after prior liens) for emergency carecaselaw.findlaw.comcaselaw.findlaw.com, which evidences a legislative intent that hospitals are entitled to a substantial share of the funds. While that statute limits hospital liens to ensure the patient isn’t left with nothing, it still guarantees the hospital up to half of the net proceedscaselaw.findlaw.com. Providers argue it would be contrary to this policy to let an attorney take, for example, 40% in fees and the client 60%, leaving 0%for a hospital that saved the patient’s life. They also point out that certain liens (like those under Government Code §23004.1 for county-provided care, or workers’ compensation liens under Labor Code §3856) have statutory first priorityor defined priority that must be respected. In short, when a provider perfects a lien or has a clear reimbursement right, an attorney cannot simply subordinate that right by an arbitrary formula.
Ethical Duties to Lienholders: The California Rules of Professional Conduct impose duties on attorneys handling settlement funds that directly counter a “pay self and client first” approach. Rule 1.15 (formerly Rule 4-100) requires lawyers to safeguard funds held for third parties and prohibits disbursing funds if a third party has a known interest, absent resolution of that interestplaintiffmagazine.complaintiffmagazine.com. If an attorney has assumed a duty to a lienholder by contract or law, they must treat the lien amount as trust property of the lienholderplaintiffmagazine.com. For example, when an attorney signs a medical lien agreement, the attorney has a contractual obligation to pay that provider from the recoveryadvocatemagazine.com. Failure to do so is not only a civil breach but an ethical violation: Matter of Riley (Cal. State Bar Ct. 1994) disciplined a lawyer for “willful failure to pay a medical lien” after settlement, since the attorney’s signature on the lien created a direct duty to payadvocatemagazine.com. Even if the attorney did not sign the lien, if the attorney personally assured payment or acted as a stakeholder, an ethical duty attaches. The State Bar’s Formal Opinion 1988-101 instructs that when a client and a lienholder dispute entitlement to settlement funds, the attorney must not simply heed the client’s demand to ignore the liencalbar.ca.govcalbar.ca.gov. Instead, the “safest course” is to hold the disputed funds in trust or interplead the funds into court until the lien is resolvedcalbar.ca.gov. In that opinion, a client tried to forbid payment to a doctor despite a lien; the Bar advised that the lawyer should either get both sides to agree to hold funds or file an interpleader, because paying the client and leaving the doctor unpaid could violate the lawyer’s fiduciary dutiescalbar.ca.gov. This ethical guidance reflects the broader principle from Johnstone v. State Bar (1966) that money received by a lawyer for a third party must be handled with the same care as client funds, and deliberate misappropriation or refusal to pay a known lien claim can amount to moral turpitude warranting disciplineplaintiffmagazine.com. In sum, California ethics rules and opinions make clear that an attorney cannot unilaterally favor their own fee or the client’s demands over a known medical lien without risking professional misconduct. At minimum, the attorney must negotiate an agreed reduction or seek court guidance; simply doing a 33/33/33 split without the lienholder’s assent could be seen as concealing or diverting funds owed to a third party, implicating honesty and fiduciary duties (Cal. Bus. & Prof. Code §6106).
Case Law Favoring Lien Enforcement: Medical providers can cite ample authority cautioning against the routine pro-rata slashing of their liens. Aside from Kaiser v. Aguiluz, providers rely on decisions like Farmers Ins. Exchange v. Zerin (1997) and Farmers Ins. Exchange v. Smith (1999), which, read together, suggest that if a lien is not supported by statute or contract, an attorney may lawfully disburse to the client – but where a valid lien or assignment exists, the lienholder’s rights attach to the fund. In Zerin, the court distinguished mere reimbursement provisions (which do not create an equitable lien) from true liens or assignments. A physician’s lien signed by the client is the latter. Thus, unlike an insurer’s med-pay reimbursement clause deemed too weak to bind the attorney, a doctor’s lien letter signed by the client (and especially by the attorney) is a strong equitable assignment of a portion of the recovery. California courts acknowledge that a lienholder’s property interest arises in the settlement to the extent of the debt. If an attorney were free to disregard that by paying himself and the client first, it would amount to conversion of the lienholder’s property. Indeed, even Gilman v. Dalby, which is often cited by attorneys for priority of fees, affirmed that had the attorneys not proven their own lien for costs, they could have been liable for converting the medical assignee’s share. That case was remanded specifically because the attorneys failed to show a basis (such as a proper contractual lien) for taking the funds – implying that absent an attorney’s lien, the provider’s lien would have been valid against the settlement. Providers emphasize that Gilman’s holding is narrow: it gives priority to an attorney’s actual lien for reasonable fees/costs, but it does not license paying the client’s general damages or other non-lien claims ahead of a medical lien. Thus, if an attorney tries to justify a 33/33/33 split when the fee contract did not expressly create a lien, or tries to prioritize the client’s non-economic recovery over a doctor’s bill, the provider can argue no legal precedent condones that. To the contrary, California’s overarching policy is that valid liens – whether from doctors, hospitals, or insurers – follow the fund and should be paid in the order of their legal priority, not arbitrarily shrunk so the client or lawyer can get more. When disputes arise, courts have mechanisms like quantum meruit hearings (for attorney vs. medical lien priority disputes) or interpleader actions to ensure fairness, rather than endorsing a one-size split.
Key Takeaway: Chiropractors treating on lien are legally favored over unrelated debts when it comes to payment from a PI settlement.
When a settlement amount is insufficient to pay all medical providers in full, California courts have allowed proportional reductions only after attorney fees and costs are paid.
Key Takeaway: Chiropractors should reject any pro rata reduction that is not court-ordered or mutually agreed upon.
Attorneys sometimes argue that providers should discount their liens because the attorney “created the fund.” However, California courts have rejected the mandatory application of this doctrine to contractual medical liens.
Key Takeaway: You are not required to “help pay” the attorney’s fee unless your contract says so.
Attorneys who are aware of your lien have specific legal and ethical duties.
Key Takeaway: Once notified, attorneys must protect your lien interest or risk personal liability.
To calculate a pro rata distribution among lienholders, use the following formula:
Pro Rata Payment = (Individual Lien ÷ Total Lien Amount) × Remaining Funds
Where:
Pro Rata Payments:
Each provider is paid in full, but the patient receives no net recovery in this scenario. This is common when the lien amounts and legal fees consume the entire settlement. If the patient is expected to receive compensation as well, the parties may need to negotiate reductions across the board — including attorney fees or provider liens — to preserve a portion of the funds for the client. California courts generally allow attorneys to prioritize fees, but a total denial of patient recovery may prompt scrutiny depending on the circumstances and fairness.
Pro Rata Payments:
Again, all lienholders are fully paid, but this is a special case where the remaining funds still cover the lien total.
Pro Rata Payments:
In this case, each provider receives a proportionate reduction of their billed amount due to the limited settlement funds.
Yes, in most cases, the injured patient (the plaintiff) is expected to receive some portion of the settlement as compensation for their pain, suffering, and inconvenience — beyond just covering medical bills and legal fees. While California law allows attorneys to deduct their fees and costs first and gives priority to medical liens, courts and ethical standards encourage that settlements not leave the patient with nothing. This is especially true when the injury involves significant hardship. When funds are limited, attorneys often attempt to negotiate lien reductions (either from medical providers or by lowering their own fees) to ensure that the patient receives a fair net recovery. A complete denial of the client’s recovery can raise concerns of fairness and may prompt additional review, particularly if the attorney’s or provider’s share appears excessive relative to the overall amount recovered.
Disbursement:
In this example, the settlement is large enough that all providers are paid in full and the patient receives a substantial net recovery, which aligns with public policy favoring fair compensation for injury-related suffering.
Disbursement:
In this case, the attorney negotiated lien reductions with both providers to ensure the patient receives a modest portion of the settlement. Courts and ethics opinions support this approach when done transparently and in good faith to balance the interests of all parties.
These laws do not govern private medical providers like chiropractors who operate under lien contracts.
Key Takeaway: You are not automatically subject to caps or reductions unless you fall under one of these statutory categories.
Uninsured/Underinsured Motorist (UM/UIM) settlements are handled differently from traditional third-party settlements.
However, chiropractors may still enforce contractual liens, provided they are properly documented and disclosed.
Key Takeaway: Even in UM/UIM cases, if the patient signed a lien, you retain a right to the settlement funds.
| Party | Priority | Legal Basis |
|---|---|---|
| Attorney (fees/costs) | 1st | Gilman v. Dalby (2009) |
| Chiropractor (medical lien) | 2nd | Nicoletti v. Lizzoli (1981), Wujcik v. Wujcik (1994) |
| Other Creditors | After medical liens | Various |
You are not required to:
Attorneys must:
🧠 Why it works:
California courts (e.g., Gilman v. Dalby, 2009) confirm that once attorney fees and litigation costs are paid, contractual medical liens are next in line for payment — before the client or other creditors. This isn’t just preference—it’s backed by enforceable law. When attorneys attempt to prioritize their client’s payout above your lien, they’re overstepping legal precedent.
🧠 Why it works:
Many PI attorneys throw out an arbitrary “$100 per visit” figure with no legal basis. There is no statutory cap for chiropractors treating on a lien in California. If your care is reasonable, necessary, and well-documented, courts have upheld full payment. Citing Lovett v. Carrasco (1998) and the lack of a legal cap helps invalidate this talking point.
🧠 Why it works:
Once an attorney is put on notice of your lien (via signature or formal service), they have a fiduciary duty to protect it. In Kaiser v. Aguiluz (1996), the attorney was held personally liable for distributing funds to the client without satisfying a known medical lien. This reinforces that your lien isn’t optional or negotiable without mutual consent.
🧠 Why it works:
Pro-rata distribution is not an automatic right. It applies only when settlement funds are too limited to pay all lienholders and only with provider consent or court intervention (see Nicoletti v. Lizzoli, 1981). If attorneys cite “pro-rata” like it's standard practice, remind them they cannot impose it unilaterally.
🧠 Why it works:
Under the “common fund doctrine,” providers are sometimes asked to contribute toward the attorney’s fee. But Lovett v. Carrasco (1998) clarified that providers with written liens are not obligated to share in legal costs unless it’s clearly stated in the agreement. You are not co-counsel—you’re a healthcare professional owed for services.
🧠 Why it works:
If an attorney knowingly disregards a medical lien and disburses funds to the client anyway, they risk personal liability. Miller v. Rau (1963) and BAR Opinion No. 1988-101 make this clear: disputes over liens require the attorney to either hold funds in trust or seek court intervention. This statement encourages respect—and caution.
California case law supports the priority and enforceability of medical provider liens, especially when backed by clear contracts and proper notification. Chiropractors providing care on lien must understand the legal structure of settlement disbursement and resist arbitrary reductions masked as pro rata fairness.
By leveraging well-established case law and professional rules, you can protect your lien rights, assert your position in negotiations, and preserve the financial integrity of your practice.
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