Effective July 1, 1996, NCGS Chapter 58 allows the Department of Health and Human Services (DHHS) to create a lien against insurance settlements due a noncustodial parent (NCP) for the payment of past-due child support obligations. When CSS sends an Insurance Settlement Lien Notice (DSS-4736) to notify an insurance company that a beneficiary or claimant owes past due child support, a lien is created upon any proceeds from this insurance settlement in favor of DHHS or the obligee. This notice certifies that the NCP is past due in meeting the child support obligation and must be accompanied by a certified copy of the original support order.
The settlement must be equal to or exceed $3000 either as nonrecurring payment or as periodic payments whose aggregate amount equals or exceeds that amount. If the amount of the settlement does not meet this criterion, the settlement can still be intercepted either through judicial means or through withholding procedures for income other than wages. This procedure can also be used if the NCP is located in another state, but the insurance company does business in North Carolina.
Types of insurance authorized in North Carolina (pursuant to NCGS 58-7-15) include, but are certainly not limited to, life insurance, annuities, accident and health, fire, property, water damage, burglary and theft, glass, boiler and machinery, elevator, animal, collision, personal liability, property damage liability, worker's compensation, fidelity and surety, credit, title, motor vehicle, aircraft, marine, and marine protection and indemnity insurance. For purposes of this procedure, the statute specifically includes disability income insurance.
When considering the placement of a lien on an insurance settlement as a possible enforcement action, CSS caseworkers should investigate who the beneficiary of the claim will be (for example, the insured could be the NCP, but the beneficiary of the claim could be another injured party), the amount of the settlement, the type of claim, the anticipated distribution date, the name of the attorney who is handling the claim (if applicable), and whether the claim is still pending, settled or denied. Caseworkers should also inquire as to whether or not the policy and the subsequent settlement are in more than one name. If it is not clear from the settlement that the NCP is the sole beneficiary of the claim, caseworkers should consult with the CSS attorney on whether or not to use the lien procedure.
Local CSS agencies might learn of an pending insurance settlement from the custodial parent or the NCP. Information can be verified by consulting the civil index books in the local Clerk of Court's office to determine if the NCP's name is listed and by reviewing estate records that list the NCP as a beneficiary of an insurance policy, newspaper articles that list local accidents or lawsuits, or civil court calendars.
CSS agencies can also learn of the settlement through testimony in a contempt hearing in which the NCP or custodial parent might testify that the NCP has been involved in an accident and is expecting a settlement. Caseworkers should gather as much detail as possible regarding the settlement in order to determine if the case is a candidate for the lien process.
The Deficit Reduction Act of 2005 (DRA) assists in the discovery of pending insurance claims. The Office of Child Support Enforcement (OCSE) Insurance Match Initiative is the result of this legislation. Individuals owing past due child support are compared to information that is maintained by insurers concerning insurance claims, settlements, awards, and payments.
Caseworkers can receive information about claims through a cooperative agreement with OCSE, the Insurance Service Office (ISO), state workers' compensation agencies from eleven (11) states, and the Department of Labor. ISO is made up of over three hundred (300) insurance agencies who have agreed to share their customer claim information with OCSE. The Department of Labor provides disability compensation to all civilian and Federal employees with work-related injuries.
OCSE matches the tax intercept file submitted by NC CSS with claim information provided by ISO, participating state workers' compensation agencies, and the Department of Labor. A report of the matches is forwarded to the CSS Central Office, where it is reviewed by the Insurance Match Coordinator, who forwards this information to county CSS supervisors.
Even if the settlement meets the criteria for placing a lien on the claim, in some instances using withholding on income other than wages could be more advantageous. For example, Workers’ Compensation claims can be periodic payments of short duration.
In this situation, income withholding procedures could be more desirable since payments might be more timely, and income withholding sanctions would apply if the insurance company does not comply. If the Workers’ Compensation claim is awarded as a lump sum, it would be more advantageous to use the lien procedure, since the CSS agency would not be restricted to applying the income withholding percentages to the award.
If the CSS agency determines that this insurance claim meets the criteria for a lien, caseworkers should obtain a certified copy of the original court order, a certified copy of the most recent order for adjudicated arrearages. Caseworkers should mail the Insurance Settlement Lien Notice (DSS-4736), the orders, and a copy of the State Statute regarding the insurance settlement lien process to the insurance company or the attorney that is handling the claim.
The Insurance Lien Information Letter (DSS-4737) can also be attached the notice, if needed. If the amount of the settlement does not meet the lien criterion, the settlement can still be intercepted either through judicial means or through withholding procedures for income other than wages. However, if the insurance company fails to respond to this request for information, the CSS agency is not barred from proceeding with the action.
Three (3) situations exist where the CSS agency might choose to file a motion in the cause to adjudicate the current amount of arrearages:
CSS agencies can also consult with the CSS attorney to consider asking the court to enter a temporary restraining order to block distribution of the settlement until the amount of arrearages can be established. If unsuccessful service of process has made establishing an order for arrearages difficult, it might be possible to serve the NCP's attorney who is currently handling the insurance settlement action.
If a new arrearage amount is established after the initial certification to the insurance company, the certification can be updated by sending another Insurance Settlement Lien Notice (DSS-4736) and the new order reflecting the current amount of adjudicated arrearages. CSS needs to advise the insurance company that this certification is not new, but rather an update to the amount of arrearages to be certified.
If all parties to the action agree on the current arrearage amount, it is permissible to send a certified copy of the obligor's payment record to the insurance company rather than the most recent order for adjudicated arrearages.
Caseworkers should send this notice to the insurance company and the attorney handling the claim (if applicable) by certified mail (return receipt requested) with a copy also sent to the NCP by regular mail.
It is also recommended that a copy of this notice be included in the court record of the NCP along with an affidavit of service as a way to document that this enforcement technique was employed by the CSS agency. This information could be useful in subsequent court actions.
When arrearages are paid off or the CSS case closes and no arrearages are owed before the distribution of funds is made by the insurance company, the local CSS agency must notify the insurance company to remove the lien on the settlement. It is recommended that this letter also be sent to the insurance company by certified mail. A substantial period of time could pass between when the arrearages are certified and the funds are actually distributed. If the settlement amount is larger than the arrearages at the time of distribution, the local CSS agency must take action to refund the difference to the NCP immediately upon identifying this payment as a future balance without requiring the NCP to request the refund. The local CSS agency must employ a method to track the distribution of insurance settlements so that money can be properly refunded, if necessary.
CSS should be monitor the case to determine whether or not the lien was successful.
If the insurance settlement is being handled by an attorney, the settlement is sent to the attorney, who distributes the funds to the appropriate parties. If the insurance company has already sent the settlement to the attorney but the attorney has not yet distributed the funds, the agency can still certify the arrearages to both the insurance company and the attorney and intercept the insurance claim.
Upon receipt of the notice, the insurance company or the attorney determines whether the settlement meets the criteria for placing a lien on the payments. Before retaining any amount of the settlement for child support arrearages, the insurance company or the attorney first retains the attorney fees (if applicable), then any claims for drugs, medical supplies, ambulance services, medical attention, and hospital services.
If the NCP owes past due support for more than one order, each arrearage must be certified separately to the insurance company. If the total amount of the settlement is not sufficient to cover all the certified arrearages, payments are prorated among all the NCP's cases in ACTS.
If an insurance company does not send the payment to the NC Child Support Centralized Collections (NCCSCC) operation as directed in the notice, CSS caseworkers should consult with the CSS attorney to decide what, if any, action should be taken against the insurance company. It could be more cost effective to take a court action against the NCP rather than the insurance company in order to prevent the NCP from spending the settlement before the court can order him/her to apply it to his/her child support arrearages.
For questions or clarification on any of the policy contained in these manuals, please contact your local county office.