Articles Posted in Subrogation

My law review article, "’Made-Whole" Made Fair:  A Proposal to Modify Subrogation in Tennessee Tort Actions," is among the top ten down loads in its category on the Social Science Research Network.

Here is an abstract of the article:

This Article proposes the adoption of the “Modified Made-Whole Doctrine Proposal." Part I begins by explaining the roots of the law of subrogation rights and its current jurisprudential inconsistencies. It also explores the relationship between such subrogation rights and the made-whole doctrine in the context of Tennessee tort law as well as how this doctrine would be applied in Tennessee today. Part II briefly outlines some of the general questions regarding Tennessee’s current application of the made-whole doctrine, particularly the unresolved issues surrounding the impact of comparative fault on subrogation rights. These are questions which the author’s suggested Proposal is designed to directly address. The detailed framework of this Proposal, including its five fundamental Principles and their underpinning rules, are set forth at length in Part III. Finally, Part IV concludes by analyzing the practical application of this Proposal throughout the various stages of the litigation process and offers guidance to judges, attorneys, and litigants alike as to how such subrogation disputes can be equitably resolved. In sum, the Modified Made-Whole Doctrine Proposal is meant to provide for the efficient, just application of the made-whole doctrine to subrogation interests with respect to Tennessee’s law of comparative fault.

Click on the link above for free access to the article.  The article is published in the inaugural edition of the Belmont Law Review beginning at page 71.

 

 

The Belmont Law Review published an article I wrote about the made-whole doctrine in its inaugural issue.  Here is a description of the article.  

 
This Article proposes the adoption of the “Modified Made-Whole Doctrine Proposal." Part I begins by explaining the roots of the law of subrogation rights and its current jurisprudential inconsistencies. It also explores the relationship between such subrogation rights and the made-whole doctrine in the context of Tennessee tort law as well as how this doctrine would be applied in Tennessee today. Part II briefly outlines some of the general questions regarding Tennessee’s current application of the made-whole doctrine, particularly the unresolved issues surrounding the impact of comparative fault on subrogation rights. These are questions which the author’s suggested Proposal is designed to directly address. The detailed framework of this Proposal, including its five fundamental Principles and their underpinning rules, are set forth at length in Part III. Finally, Part IV concludes by analyzing the practical application of this Proposal throughout the various stages of the litigation process and offers guidance to judges, attorneys, and litigants alike as to how such subrogation disputes can be equitably resolved. In sum, the Modified Made-Whole Doctrine Proposal is meant to provide for the efficient, just application of the made-whole doctrine to subrogation interests with respect to Tennessee’s law of comparative fault.
 
It is available for download here:  
 
Those of you who are fighting made-whole challenges or who are attempting to establish new law in the area may find the article helpful.  The article does not address ERISA subrogation issues – it concerns itself only with "made-whole" law in Tennessee.
 
Thanks to Ryder Lee for his help on this article.

Georgia lawyer David T. Lashgari thought it was a good idea to distribute $500,000 in personal injury settlement proceeds knowing that there was an ERISA-protected subrogation interest for $180,000. 

Then he thought it was a good idea to fight an effort by the subrogee to get the money from him and his client. 

Then he thought it was a good idea not to obey a court order that required him and his client to put $180,000 into his trust fund pending final judgment in the case.  (He said he and his client didn’t have the money.)

After a year of waiting for the money to be deposited, the district judge held both Lashgari and his client in civil contempt, ordered them to produce financial records that would establish their financial situation, and ordered Lashgari to report himself to the State Bar of Georgia. 

The records produced were, in the opinion of the Seventh Circuit Court of Appeals, "absurdly inadequate."

Then, Lashgari thought an appeal was a good idea. The  appeal brief filed on behalf of him and his former client was a "gaunt, pathetic document," their appeal to be deemed frivolous, and their conduct called "outrageous."

The remand requires the district court to determine whether Lashgari and his client should be jailed until they comply with the order to deposit the funds in a trust account.

And briefing is being held on sanctions for a frivolous appeal.

One must ask – could this situation have been handled any worse?  Lashgari tried to argue that the settlement did not cover injuries in the original car wreck but only post-accident tortious conduct by the defendant.  I do not know enough about the facts to say whether such an argument could be plausibly made or not.  I do know that it is poor judgment to disburse money claimed by a subrogee before resolving the matter.  How do you bring the issue to a head assuming that it cannot be negotiated?  Keep the disputed money in your trust account and file declaratory judgment action.

The case is Central States, Southeast and Southwest Areas Health and Welfare Fund v. Lewis, No. 13-2214  (7th Cir. Mar. 4, 2014).

 

The 9th Circuit Court of Appeals has ruled that a private Medicare Advantage Organization plan cannot sue a plan participant’s survivors for reimbursement of medical payments out of the proceeds of an automobile insurance policy.

The case is Parra v. PacificCare of Arizona, No. 11-16069 (9th Cir. April 19, 2013),  Parra was struck by car and was seriously injured.  His medical expenses were paid by Defendant, a Medicare Advantage Organization ("MAO").  Parra died from his injuries, and his survivors brought a claim under Arizona’s wrongful death law.  The MAO also asserted a claim for monies it paid for medical expenses.  GEICO, the tortfeasor’s insurer, issued a joint check to the parties for the full amount of the MAO’s claimed interest, to be held in trust pending the outcome of the dispute between the survivors and the MAO. 

The survivors sued PacificCare, saying that it had no right to seek recovery of monies from the wrongful death settlement.

The 9th Circuit affirmed dismissal of the MAO’s claims, holding that it did not have a right to pursue its claim under the statutes that creates MAOs.  The Court also ruled that a private right of action did not exist under the facts.  The decision includes an extensive discussion about Medicare subrogation generally and the rights of MAOs in particular.

Neither the district court nor the appellate court reached the issue of whether the contract between Parra and the MAO gave MAO a right in the recovery.  (Note:  Arizona law has a provision similar to that in Tennessee that provides that wrongful death proceeds are free from claims of the decedent’s creditors.)  Presumably, that issue will be hashed out in state court.

 

The United States Supreme Court has released its opinion in U.S. Airways v. McCutchen, No. 11-1285 (USSC April 16, 2013), a case that raised the issue of whether "equitable doctrines and defenses," such as the "common fund" doctrine and the "made whole" doctrine applied to subrogation interests governed by the Employees Retirement Income and Security Act of 1974 ("ERISA").

McCutchen was injured in a car accident and received $110,000 in a personal injury settlement – $10,000 from the defendant’s liability insurer and $100,000 from his underinsured motorist insurance carrier.  His attorneys’ fees were 40% of the recovery, leaving McCutchen with $66,000.  U.S. Airways had paid the medical bills incurred to treat the injuries in the accident, and demanded repayment of 100% of the monies it paid – $66,866.  When McCuthen refused to do so, U. S. Airways filed suit in federal court.

The USSC ruled that U.S. Airways had the right to enforce what it called an "equitable lien by agreement." and thus had a right to recover its money notwithstanding any argument that McCutchen was not made whole.

The issue of whether the U.S.Airways recovery should be reduced by the amount of money paid in attorney’s fees to secure the recovery was a different story.  The Court found that the U.S. Airways plan was silent on whether the common fund doctrine applied and therefore the common fund doctrine applied.  The Court made it clear that a properly draft Plan could trump the common fund doctrine.  Here is a summary of the Court’s language on this point:

The rationale for the common-fund rule reinforces that  conclusion. Third-party recoveries do not often come free: To get one, an insured must incur lawyer’s fees and ex­penses. Without cost sharing, the insurer free rides on its beneficiary’s efforts—taking the fruits while contributing nothing to the labor. Odder still, in some cases—indeed,  in this case—the beneficiary is made worse off by pursuing a third party. Recall that McCutchen spent $44,000 (rep­resenting a 40% contingency fee) to get $110,000, leaving  him with a real recovery of $66,000. But US Airways claimed $66,866 in medical expenses. That would put  McCutchen $866 in the hole; in effect, he would pay for the privilege of serving as US Airways’ collection agent. We  think McCutchen would not have foreseen that result  when he signed on to the plan. And we doubt if even US  Airways should want it. When the next McCutchen comes  along, he is not likely to relieve US Airways of the costs of  recovery. See Blackburn v. Sundstrand Corp., 115 F. 3d  493, 496 (CA7 1997) (Easterbrook, J.) (“[I]f . . . injured  persons could not charge legal costs against recoveries,  people like [McCutchen] would in the future have every reason” to make different judgments about bringing suit,  “throwing on plans the burden and expense of collection”).  The prospect of generating those strange results again  militates against reading a general reimbursement provi­sion—like the one here—for more than it is worth. Only if  US Airways’ plan expressly addressed the costs of recovery  would it alter the common-fund doctrine.

Opinion, Page 16.

Thus, lawyers representing plaintiffs now will need to scour the relevant documents to determine whether the common fund doctrine has been adequately trumped by the language of the Plan.  To be sure, there will be a rush by many Plans to re-write Plans with this decision in mind.  

As a lawyer who represents plaintiffs in personal injury and wrongful death litigation, we see more and more greed by those with subrogation interests.  That those insurers are permitted to receive money from another policy that the insured paid for – like an uninsured motorist insurance policy – is particularly offensive.

I happen to believe that a health insurer should be reimbursed the expenses it incurs that are later recovered as part of a recovery by the insured in a third-party claim.  And I believe that that the insured should not be able to structure a settlement in such a way that can defeat that interest.  But the common fund doctrine should apply in all cases, and the health insurer’s recovery should be reduced to reflect a reduced recovery of the insured because of collectability issues, liability issues, etc.  Current law wrongfully favors the economic interests of employers and their health insurers at the expense of employees and their families.  The USSC has made it clear that it has deferred to Congress on the issue and the chances are virtually nil  that Congress will modify ERISA  to actually benefit an employee.

 

The United States Supreme Court has agreed to consider E.M.A. ex rel. Plyler v. Cansler, 674 F.3d 290 (4th Cir.2012), in which the 4th Circuit Court of Appeals said that North Carolina’s one-third cap on the state’s recovery against a Medicaid recipient’s settlement proceeds as provided in its third-party liability statutes, which inherently raised unrebuttable presumption in favor of the state that allocation of one-third of a lump sum settlement was consistent with federal law, violated anti-lien provision in federal Medicaid law.

The Court said that

As the unanimous [Arkansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006)] … decision makes clear, federal Medicaid law limits a state’s recovery to settlement proceeds that are shown to be properly allocable to past medical expenses. In the event of an unallocated lump-sum settlement exceeding the amount of the state’s Medicaid expenditures, as in this case, the sum certain allocable to medical expenses must be determined by way of a fair and impartial adversarial procedure that affords the Medicaid beneficiary an opportunity to rebut the statutory presumption in favor of the state that allocation of one-third of a lump sum settlement is consistent with the anti-lien provision in federal law.

The petition was granted on September 25, 2012. 

Fortunately, the Tennessee statute is much fairer than the North Carolina statute, and takes into account many factors that impact a plaintiff’s recovery and uses those factors to fairly reduce the Medicaid (Tenncare) subrogation interest.

Thanks to Roger Baron for bringing the granting of the cert petition to my attention.

The United States Court of Appeals for the Eighth Circuit has ruled that a law firm that was admittedly aware of an ERISA subrogation interest and disbursed settlement  funds from a third-party claim  to its client could not be held personally liable for failure to pay the funds to an ERISA plan.

In Treasurer, Trustees of Drury Industries, Inc. Health Care Plan v. Goding , No. 11-2885 (8th Cir. Sept. 7, 2012), Goding was hurt in a slip and fall accident.  He received medical insurance benefits from an employer-sponsored health insurance plan.  He also brought a third-party claim and settled the case. Goding’s attorneys, Casey and DeVoti, P.C. ("Casey"), were aware of the subrogation interest but distributed all of the proceeds of the settlement (after deduction for attorney’s fees and expenses) to Goding.  The Plan pursued collection efforts against Goding, but he declared bankruptcy and the obligation to the Plan was discharged.  The Plan then pursued a recovery against Casey, asserting multiple theories of recovery.

The trial judge and appellate court rejected all theories.  The ERISA claims were rejected because the Plan had the right to seek equitable remedies only and, since Casey no longer had the money, no equitable claim could be asserted against it.  The Court noted that Casey never agreed to protect the subrogation interest – it only acknowledged the existence of it, The state law claims were rejected because they were preempted by ERISA.

 

 

The United States Supreme Court will determine whether an employee benefits plan govered by ERISA is subject to equitable limitations when it demands reimbursement of benefits paid a covered employee who recovers money in personal injury and wrongful death litigation.

The case that will be reviewed is U.S. Airways, Inc. v. McCrutchen, No. 10-383 (3rd Cir. Nov. 16, 2011), ,which is discussed at length in a blog post titled "Third Circuit Says Equity Applies to Subrogation Rights Under ERISA Plan."

Here is the issue as stated in the cert petition:

Whether the Third Circuit correctly held — in conflict with the Fifth, Seventh, Eighth, Eleventh, and D.C. Circuits — that Section 502(a)(3) of the Employee Retirement Income Security Act (ERISA) authorizes courts to use equitable principles to rewrite contractual language and refuse to order participants to reimburse their plan for benefits paid, even where the plan’s terms give it an absolute right to full reimbursement.

Not necessarily what you would call a neutral statement of the issue, would you?  Then again, they call it "appellate advocacy" for a reason.

Unfortunately, the McCruthchen opinion does not directly address the application of the "made whole" doctrine in these cases. Why? The made-whole doctrine was not raised by McCrutchen.

Nevertheless, this is an important development in the law. Hopefully, the SCOTUS will apply some common sense and equity to these health insurance contracts. Although some insurers will behave in a responsible way, all too many of them refuse to reduce their lien even by the amount it cost the plaintiff to acquire the money for them. These insurers will need clear direction from the SCOTUS before they will behave in an equitable way.

Note: The Ninth Circuit Court of Appeals reached a similar result in CGI v. Rose, No. 11-35127 (9th Cir. June 20, 2012).  That subrogation decision was addressed in a recent post on this blog.

 

The United States Court of Appeals for the Ninth Circuit has ruled that an employer-based health insurance plan did not have a right to full reimbursement from a personal injury plaintiff who recovered only a fraction of her damages from the wrongdoer.

The case is CGI v. Rose, No. 11-35127 (9th Cir. June 20, 2012).

In denying the insurer’s claim against Rose, the Court held that “parties may not by contract deprive [a court] of its power to act as a court in equity.”  In a concurring opinion, Circuit Judge Schroeder observed that it would be “manifestly unfair” to allow the plan to recoup 100% of its medical expenses. Such a result, Judge Shroeder observed, would “leav[e] the beneficiary vastly undercompensated for her actual damages” and “unjustly enrich” the ERISA plan, which had been paid premiums for the expenses it was now seeking to recoup. 

The opinion is consistent with US Airways v. McCutchen, a case decided by before the Third Circuit. 

Is the tide beginning to shift to fairness and common sense?  It sure feels like it.

Thanks to Public Justice for its work on this case.

The Centers for Medicare & Medicaid Services have issued proposed rules to address the issue of how Medicare beneficiaries will protect Medicare’s interest when future medical care is claimed or the settlement or judgment released (or has the effect of releasing) claims for future medical care.

Here are the proposed regulations issued by CMS.  The proposed regulations have 7 different options, the first four of which are available to current and future Medicare beneficiaries.  The final three options are available only to current beneficiaries.