Alabama's top court ruled on June 12, 2026 that courts can sort out hospital liens on insurance money - even against a state hospital.
The decision matters to insurers and claims teams sitting on settlement money that competing liens have tied up.
The story starts with a 2022 crash. Sally Wood was a passenger seriously hurt in a collision in Montgomery County in October 2022. She was treated at Baptist Medical Center South, then transferred to USA Health University Hospital.
Both hospitals later filed liens to secure payment from any recovery she might win. USA filed first, for $51,403.92, in the Mobile Probate Court in November 2022. Baptist followed a year later, for $125,726.30, in the Montgomery Probate Court.
Here is the insurance piece. The policy on the car Wood was riding in carried $25,000 in liability coverage and $50,000 in underinsured-motorist coverage. In July 2023, Wood settled in principle for $75,000. The $50,000 in underinsured-motorist money was paid and now sits in trust with her attorney. The $25,000 in liability money has not been paid, because the insurer "is retaining those proceeds until all liens have been satisfied."
When she took the first payment, Wood signed a release. She freed the insurer from further liability but promised to "satisfy all liens and subrogation interests, as required by law, from the proceeds."
To break the logjam, Wood asked a court to step in through interpleader - the tool for handing disputed money to a court so rival claimants can sort it out. She filed in April 2024 and amended in June 2024, asking the court to either void the liens or set fair and reasonable amounts, and telling the court she "stands ready to tender the funds."
USA tried to shut the case down. As a state agency, it claimed State immunity under the Alabama Constitution, which bars making the State a defendant. The case was sent to mediation but did not settle, and in January 2025 the trial court dismissed everything with prejudice - including the claim against Baptist, which it called a case that could not proceed without USA.
The Alabama Supreme Court reversed. An interpleader claim, it held, "did not implicate State immunity and, thus, did not deprive the trial court of jurisdiction." The court also noted that, unlike a patient in a recent case who dropped her interpleader claim and lost, Wood had kept hers alive. The case now returns to the trial court.
It was not unanimous. Justice Shaw dissented, joined by Justices Sellers and Parker, arguing that naming a state agency as a defendant violates the Constitution no matter the procedure. Justice Mendheim dissented separately.
For claims teams, the takeaway is practical. Interpleader stays open as a way to resolve competing liens on limited proceeds, even when a state-run hospital holds the lien. That can be the difference between money stuck in trust and money a court can free up.
