Defendant Ordered to Pay Full Settlement Amount Despite Payment to CMS

November 18, 2025 / 13 min read

In an interesting unpublished opinion^[1]from the Superior Court of New Jersey, Appellate Division, the court in Cabezas v. Penske Truck Leasing Co., 2025 WL 3012182 (N.J. Super. Ct. App. Div. October 28, 2025) addressed a situation where a defendant’s third-party administrator (TPA) reimbursed Medicare’s conditional payment claim (“lien”) directly, even though it was the plaintiff who was required to do so under the settlement agreement. The question became whether the defendants could reduce the settlement amount by the TPA’s payment, or if the plaintiff was still owed the full settlement amount notwithstanding this payment.

judge-and-gavel-in-courtroom

The following outlines this interesting case:

Case Summary

The parties settled a wrongful death claim for $500,000. Under the settlement, the plaintiff agreed to reimburse the Centers for Medicare and Medicaid Services (CMS’s) conditional payment claim. However, despite this agreement, the defendants’ TPA directly reimbursed CMS for its “final” lien in the amount of $39,365.09. The defendants then issued payment to the plaintiff for $460,634.91 ($500,000 minus the TPA’s payment to CMS). The plaintiff objected and moved to enforce the settlement.

The Superior Court of New Jersey, Union County (“trial court”) ruled for the plaintiff and ordered the defendants to pay the plaintiff the full $500,000, even though the TPA reimbursed Medicare’s lien. Applying contract principles, the trial court found that the settlement agreement was a valid contract which, in pertinent part, was not contingent on Medicare issues being resolved and required the plaintiff to reimburse CMS’s lien. Accordingly, the court found that the TPA’s payment to CMS violated the settlement agreement.

The defendants appealed to the Superior Court’s Appellate Division. The Appellate Division affirmed the trial court’s ruling stating, in pertinent part: “The plain language of the settlement agreement is clear and unambiguous: defendants were to pay plaintiff $500,000 in exchange for plaintiff releasing all claims related to the incident, and the plaintiff was solely responsible for the Medicare lien. The defendants did not comply with either provision, and the trial court correctly enforced the settlement agreement as written when it ordered defendants to pay the entire $500,000. For the trial court to hold otherwise would allow defendants to unilaterally alter agreed-upon terms after the fact.”^[2]

Thus, in the end, the defendants had to pay the plaintiff the full $500,000 (plus interest and attorney fees), even though the TPA paid Medicare’s lien.

As discussed more fully in the “Big Picture Considerations” section below, this case raises important compliance considerations for insurers, TPAs, and defense counsel in addressing Medicare recovery claims, including the importance of understanding the settlement terms, as well as, understanding and following any established insurer or TPA protocols regarding how Medicare issues are to be addressed and resolved.

In the interim, for those interested, the below provides a more in-depth review of this decision --- along with several considerations to help improve compliance practices, and how Verisk can help as follows:

Parties settle claim - plaintiff agrees to reimburse CMS

Leading up to the settlement, the plaintiff advised the defendants that any potential settlement would not be contingent on the Medicare reimbursement issue, as the plaintiff agreed to satisfy any Medicare liens.^[3]As such, the plaintiff advised that it was unnecessary to wait on “’any Net Refund documents from Medicare’” before payment of the settlement.^[4]

Shortly thereafter, the parties reached a settlement for $500,000 which, in pertinent part, required the plaintiff to reimburse any CMS conditional payment claim.^[5]On this point, as noted by the court, the pertinent settlement provision read as follows: “The plaintiff agrees to fully satisfy, indemnify, and hold defendant harmless from any and all penalties, liens, conditional payments, fines, demands, and actions in law or equity, or other payments that may be required if any of the plaintiffs’ representations as to their entitlement (or lack thereof) to Medicare or Social Security benefits is in any way misrepresented.” (court’s emphasis).^[6]

The defendants third-party administrator (TPA) then asked the plaintiff to provide documentation regarding Medicare’s lien.^[7]The plaintiff refused, stressing that it had agreed to assume exclusive responsibility for any Medicare lien under the settlement, which the plaintiff described as “’non-negotiable.’”^[8]The plaintiff subsequently sent the defendants CMS correspondence reflecting a “final” Medicare lien amount of $39,365.09, and noted again that it was assuming sole responsibility for CMS’s recovery claim, and demanded immediate payment of the $500,000.^[9]Of note, CMS’s final demand of $39,365.09 was substantially lower than an interim amount of $62,100.82 that Medicare provided the plaintiff about two years previous.^[10]

TPA reimburses CMS directly and defendants attempt to reduce the settlement amount by this payment – the plaintiff moves to enforce the settlement

At some point during the above events, the TPA directly reimbursed Medicare’s final demand ($39,365.09) – even though the plaintiff had already “asserted . . . sole responsibility for the lien.”^[11] The defendants then advised the plaintiff that it had issued the settlement check for $460,634.91 ($500,000 minus the TPA’s $39,365.09 payment to CMS)^.[12]The plaintiff objected and demanded the full $500,000 payment per the settlement.^[13]After the defendants refused to pay the full $500,000, the plaintiff moved to enforce the settlement for the full payment of the $500,000, plus interest and attorneys’ fees.^[14]The defendants opposed enforcement, arguing that the plaintiff had incurred no damages.^[15]

Trial court orders the defendants to pay the full settlement amount, even though its TPA separately reimbursed CMS

The Superior Court of New Jersey, Law Division, Union County (the “trial court”) enforced the settlement agreement based on contract law and awarded the plaintiff counsel fees and costs stating as follows:

The [c]ourt is going to grant the motion to enforce the settlement. The settlement of a legal claim between parties is a contract, like any other contract, which may be freely entered into and which a court, absent demonstration of fraud or other compelling circumstances, should honor and enforce as it does other contracts. The parties agreed to a settlement agreement in which the defendants agreed to pay the plaintiff [$500,000] which would resolve the matter. The settlement agreement said the plaintiff would hold the defendant harmless from any Medicare liens or Medicare penalties. The settlement agreement was not contingent on Medicare issues being resolved. By paying the Medicare lien, defendants violated the terms of the settlement agreement which the plaintiff ... was required to satisfy all Medicare liens. Defendants also eliminated the opportunity for plaintiff to negotiate with Medicare to possibly have the lien removed. Defendants, therefore, are ordered to pay the entire $500,000. Cabezas v. Penske Truck Leasing Co., 2025 WL 3012182 (N.J. Super. Ct. App. Div.) at *2.

The defendants moved for reconsideration arguing that the trial court’s decision resulted in a “’double recovery’” or a “’windfall’” and the plaintiff had suffered no damages since its inability to negotiate the lien was speculative.^[16]The trial court, however, rejected this argument stating: “’This was not a damages application. I did not find damages. I said they were entitled to the contract that they agreed to, $500,000. If your client paid something outside of the contract, that’s on your client’” and reaffirmed: “’I did [not] award them ... extra money. I gave them what they bargained for. Your client voluntarily paid something else.’”^[17]As such, the trial court found the defendants’ Medicare payment fell outside the agreement, did not excuse their obligation to plaintiff, and was “’gratuitous.’”^[18]

The defendants then appealed to the Superior Court of New Jersey, Appellate Division (“Appellate Division”).

Appellate Division affirms trial court decision

On appeal, the defendants conceded that their payment to CMS was a “’technical’” breach of the settlement agreement.^[19]However, the defendants continued to emphasize that the plaintiff presented no evidence showing a likelihood the lien could have been further reduced or any actual loss stemming from their inability to negotiate, rendering any damages speculative.^[20] The Appellate Division was unpersuaded. The Appellate Division, applying contract law principles, affirmed the trial court’s decision finding that “’it was undisputed the parties entered into a valid settlement agreement that defendants breached. Indeed, the language of the agreement is explicit in assigning the responsibility for satisfying any Medicare liens to plaintiff.’”^[21]

Further, the Appellate Division noted that the defendant’s primary contention sounded in “damages,” arguing the plaintiff’s possible ability to reduce CMS’s lien was speculative.^[22] However, the Appellate Division noted that this argument was belied by two critical facts. First, the Appellate Division noted that both the trial court, and defense counsel, acknowledged that CMS typically negotiated liens as part of its standard practice.^[23]Second, and more importantly from the Appellate Division’s view, the trial court did not find damages. Rather, the trial court found that the defendant’s payment to CMS was “’entirely outside the settlement agreement’” and that the trial court “’was asked to enforce a settlement agreement, not opine on a breach of contract action.’”^[24]Accordingly, the Appellate Division noted that the trial court “was not required to find damages; it was required to enforce the plain language of the settlement as written.”^[25]

Based on the above, the Appellate Division ruled, in pertinent part, as follows:

The plain language of the settlement agreement is clear and unambiguous: defendants were to pay plaintiff $500,000 in exchange for plaintiff releasing all claims related to the incident, and plaintiff was solely responsible for the Medicare lien. Defendants did not comply with either provision, and the trial court correctly enforced the settlement agreement as written when it ordered defendants to pay the entire $500,000. For the trial court to hold otherwise would allow defendants to unilaterally alter agreed-upon terms after the fact. Cabezas v. Penske Truck Leasing Co., 2025 WL 3012182 (N.J. Super. Ct. App. Div.), at *3.

Accordingly, the trial court’s decision was affirmed – meaning the defendants had to pay the plaintiff the full $500,000 per the terms of the settlement agreement, despite the TPA’s payment to CMS.

Big picture considerations

The court’s decision in Cabezas provides a nice opportunity for insurers, TPAs, and defense counsel to revisit key consideration points when settling CMS conditional payment claims (or any other type of Medicare lien claim for that matter). In this regard, up front, it is recognized that there are certainly many balls in the air when dealing with Medicare secondary payer (MSP) compliance issues and the whole MSP area is anything but an exact science in many respects. Yet, there are important steps that can be taken to help make it work better, improve compliance practices, and minimize risk.

To start, in Cabezas, the exact reason why the TPA decided to directly reimburse CMS when the plaintiff had assumed that responsibility was not addressed in the court’s decision. Regardless of the exact reasons, we can proceed with exploring some “bigger picture” considerations regarding addressing Medicare recovery claims as part of claim settlement as follows:

First, proactively addressing potential CMS conditional payment claims prior to settlement is an important first step to make sure potential recovery claims are not missed. This is important given the significant recourses CMS has against insurers if its claim is not properly reimbursed. For example, CMS can seek recovery from the insurer notwithstanding settlement language pinning this responsibility on the plaintiff.^[26]CMS can also seek “double damages” against the insurer.^[27] Further, proactively addressing potential Medicare lien claims can help in terms of getting an idea of what the lien amount range may be prior to settlement. This allows the time necessary to seek the removal of unrelated or inappropriate claims, which is helpful to get a more accurate idea regarding the potential lien payback amount, and in terms of assessing the claim’s overall settlement value. From the author’s point of view, this was not necessarily the main issue in Cabezas as the parties recognized CMS’s potential lien and took steps regarding how it would be handled. Unfortunately, it all went sideways in terms of execution.

Second, another point to consider is establishing protocols addressing how Medicare recovery claims will be addressed, disputed, and resolved, including which party will be responsible for tendering payment to Medicare, along with applicable settlement language. It is unclear in Cabezas if the insurer or TPA had set protocols on these points.

Third, and importantly, if there are established protocols, the related instructions and guidelines in terms of addressing Medicare liens should be discussed by the parties prior to settlement and followed as part of claims handling and settlement. Again, in Cabezas it is unknown if the TPA perhaps had a protocol whereby it was the TPA that wanted to assume responsibility for reimbursing Medicare. If so, then there was an apparent disconnect between defense counsel and the TPA based on the settlement terms.^[28]

Fourth, it is important that defense counsel and the frontline claims handler are on the same page in terms of understanding how Medicare related issues will be handled under the specific terms of the settlement agreement at hand. In Cabezas, there was an apparent disconnect on this point as the settlement charted one-course of action, the plaintiff agreed to reimburse CMS, but contrary to the agreed handling, payment was made directly to Medicare by the TPA.

On a final and important note that, from the author’s view, should not be overlooked, an argument can certainly be made that regardless of whatever went wrong, the TPA presumably tried to do the “right thing” in this case by making sure CMS’s claim was resolved and paid as part of the settlement resolution. Unfortunately, the ultimate outcome in disputes involving settlement agreements, as demonstrated by the court’s analysis and ruling in Cabezas, may often be evaluated by strict principles of contract law which could have unforgiving consequences despite a party’s best intentions to make sure Medicare’s interests are addressed. This further underscores the importance of having a coordinated approach, with everyone on the same page, in addressing and resolving Medicare recovery claims. On this point, the above considerations provide a great starting point toward improving compliance and settlement practices on this front to avoid the type of dispute (and result) that surfaced in Cabezas.

How Verisk can help

As part of Verisk’s conditional payment services, we can help insurers and TPAs develop best practice protocols to help address Medicare conditional payment issues, which may help avert the type of issues experienced in the Cabezas case. We also offer a host of conditional payment services that can help you address CMS conditional payment claims, including our standard Medicare Advantage and Part D recovery services. In addition, our popular CP Link^® program provides a proactive approach to Medicare recovery claims that leverages your Section 111 data to initiate the conditional payment process. In general, CP Link helps speed up the conditional payment process by identifying potential conditional payment claims through Section 111 data, helps reduce adjuster time, and facilitates a holistic compliance approach to address conditional payment claims.

Through our experienced team, we consistently deliver extraordinary savings for our customers. For example, in 2024, our Medicare Advantage services delivered over $1.7 million in savings for our customers, while our CP Link program achieved over $160 million in conditional payment services. To learn about our services and how we can help, see Verisk’s Medicare Conditional Payment Resource Center – Improving Compliance With Automated Data-Driven Solutions

Please do not hesitate to contact the author if you have any questions regarding the Cabezas decision or Verisk’s Medicare recovery services.

[1] On this point, at the beginning of its decision, the court states: “UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING.” Cabezas v. Penske Truck Leasing Co., 2025 WL 3012182 (N.J. Super. Ct. App. Div. October 28, 2025), at *1.

[2] Cabezas v. Penske Truck Leasing Co., 2025 WL 3012182 (N.J. Super. Ct. App. Div. October 28, 2025), at *3.

[3] Id. at *1.

[4] Id.

[5] Cabezas v. Penske Truck Leasing Co., 2025 WL 3012182 (N.J. Super. Ct. App. Div. October 28, 2025), at *1.

[6] Cabezas v. Penske Truck Leasing Co., 2025 WL 3012182 (N.J. Super. A.D., October 28, 2025), at *1. It is also noted that the settlement contained this provision: “In accordance with the Medicare Secondary Payer Act, the interests of CMS (Centers for Medicare Services) have been taken into account and in accordance with the SCHIP law, no reporting is necessary with regard to this settlement.” Id. While this settlement provision is outside the scope and focus points of the dispute address by the court, and this article, the author notes that, contrary to this stated provision, this settlement would be reportable under the “SCHIP law” (also known more commonly as “CMS’s Section 111 reporting” law) as this would be considered a reportable total payment obligation to the claimant (TPOC). Very generally, under Section 111 reporting, settlements, judgments, awards, or other payments (“TPOCs”) greater than $750 for physical traumas (and no threshold amount for non-physical trauma claims) involving a Medicare beneficiary must be reported to CMS under Section 111. See e.g., CMS’s Section 111 NGHP User Guide (Version 8.1, May 5, 2025), Chapter III, Section 6.4.3.

[7] Cabezas v. Penske Truck Leasing Co., 2025 WL 3012182 (N.J. Super. Ct. App. Div. October 28, 2025), at *1.

[8] Id.

[9] Id. at *2.

[10] Id. at *1.

[11] Id. at *2.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Id.

[19] Cabezas v. Penske Truck Leasing Co., 2025 WL 3012182 (N.J. Super. Ct. App. Div. October 28, 2025), at *3.

[20] Id.

[21] Id.

[22] Id.

[23] Id.

[24] Id.

[25] Id.

[26] See, 42 C.F.R. § 411. 24 (h) which, in pertinent part, states:” (h) Reimbursement to Medicare. If the beneficiary or other party receives a primary payment, the beneficiary or other party must reimburse Medicare within 60 days. (i) Special rules. (1) In the case of liability insurance settlements and disputed claims under employer group health plans, workers’ compensation insurance or plan, and no-fault insurance, the following rule applies: If Medicare is not reimbursed as required by paragraph (h) of this section, the primary payer must reimburse Medicare even though it has already reimbursed the beneficiary or other party.” Id. (author’s emphasis).

[27] See, 42 U.S.C. 1395y(b)(3)(A) which states, in full, as follows: “There is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).” Id.

[28] It is important to note that even if an insurer or TPA establish a protocol where it wants to assume responsibility for reimbursing the Medicare recovery claim as best practice, this does not guarantee that a plaintiff will agree to it, and there are no provisions in the MSP statute, regulations, or CMS guidance that compel the plaintiff to do so. Many times, especially in liability claims, it is standard practice for the plaintiff to assume responsibility for the lien claim, just as was the case in Cabezas. In that instance where the plaintiff will be responsible for paying back the lien, as discussed above, it then becomes important that defense counsel and the frontline claims handler are on the same page to make sure the insurer or TPA does not go ahead and reimburse Medicare to avoid the very situation the TPA ultimately found itself in Cabezas.