Articles Posted in Subrogation

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:

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 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.

A personal injury attorney may be sued in federal court for the failure to pay a subrogation interest subject to ERISA and required to put money back into his trust account pending the outcome of the subrogation fight.

So holds the United States District Court for the Northern District of Illinois.  In Central States v. Lewis, No. 11 CV 4645 (N.D. Il. May 15, 2012a personal injury attorney settled a case for a client and disbursed funds to himself and the client without paying the subrogation interest claimed by Central States.  Central States sought a preliminary injunction against the attorney and client to restore the money to the attorney’s trust account so that the plan could proceed with an action against the trust account.  The court agreed, and stated that even the attorney’s fee must be restored to the account, even if the attorney has already commingled the monies with other funds.

The Lewis court cited with approval the Longaberger opinion from the Sixth Circuit Court of Appeals, a case familar to all tort practioners.

The Court of Appeals for the Fifth Circuit has ruled that the assets held in a special needs trust created out of the proceeds of a personal injury settlement are not available to satisfy an ERISA subrogation interest.

The Court held that the injured plaintiff never had possession or control over the money.  The Court also determined that the trust and trustee could not be sued because the only asset in the trust was the right to future periodic payments in an annuity held by another.

The case is ACS Recovery Services, Inc. v. Griffin,  No. 11-20266 (5th Cir. April 2, 2012).   Footnote 4 of the opinion distinguishes a decision from the 8th Circuit involving a special needs trust.

The Court of Appeals for the Third Circuit has had that equitable principles such as unjust enrichment apply to the subrogation rights of an employer under an ERISA plan.

In U.S. Airways, Inc. v. McCrutchen,  No. 10-383 (3rd Cir. Nov. 16, 2011), McCrutchen was seriously injured in a car wreck.   He spent several months in physical therapy and ultimately underwent a complete hip replacement.  Since the accident, McCutchen, who had a history of back surgeries and associated chronic pain, has also become unable to effectively treat that pain with medication. The accident has rendered him functionally disabled.  McCutchen’s Health Benefit Plan (the “Plan”), administered and self-financed by US Airways, paid medical expenses in  the amount of $66,866 on his behalf.

Suit was filed on behalf of McCrutchen but a combination of multiple victims of the same wreck and limited liability insurance coverage meant that, after payment of fees and litigation-related expenses, McCrutchen’s net recovery was only $66,000.  His law firm  placed $41,500 in a trust account, reasoning that any lien found to be valid would have to be reduced by a proportional amount of legal costs.  

The Alabama Court of Civil Appeals has ruled that the common fund doctrine applies to the determination of the payment of attorneys’ fees when monies for payments made under  medical payments coverage are collected in a personal injury case. 

In Mitchell v. State Farm, No 2100184 (Ala. Civ. App.  10/7/11),  Mitchell’s attorney thought that State Farm, which paid monies for some of Mitchell’s medical bills, should have its subrogation interest reduced by the amount Mitchell paid the lawyer to recover the money for the benefit of State Farm. The attorney for the plaintiff relied on the common fund doctrine to assert the claim against State Farm.

The Court of Civil Appeals held that the common fund doctrine applied.  It then rejected State Farm’s argument that its policy voided any obligation to pay an attorney’s fee for the recovery of the med pay coverage for its benefit.  Finally, and perhaps most importantly, the Court rejected the argument that the common fund doctrine was voided by the "active participation" of its lawyer.  The Court noted that although State Farm said it didn’t need the plaintiff’s lawyer to collect its money for it, State Farm did nothing to collect the subrogation interest until after the plaintiff’s attorney negotiated the settlement.

On a weekly, if not daily, basis, plaintiff’s personal injury lawyers have to deal with subrogation interests.  Many of those subrogation claims involve the law of ERISA.  

This opinion out of the Illinois Court of Appeals addresses the issue of disputes over the amount of money to be re-paid to the holder of the subrogation interest.

Defendant had a personal injury claim.  Plaintiff sought subrogation and claimed that it was due almost $63,000.  Defendant claimed that some of the expenses sought did not arise from medical treatment caused in the incident giving rise to the personal injury claim.  Plaintiff countered with answers to interrogatories in the personal injury claim, in which Plaintiff contended that back surgery (the subject of the disputed medical claim) was related to the accident).  Defendant argued that her physicians did not causally link the back problems to the accident, and therefore Plaintiff’s subrogation interest in any future personal injury settlement or judgment proceeds should be reduced accordingly.  Plaintiff countered that one physician said the link was possible, that it determined the subrogation amount, and that under ERISA the court should defer to its decision and order that the amount of the subrogation interest include amounts for the surgery.

AAJ Education’s Breaking News in Medicare Secondary Payer Requirements: Moratorium on Reporting Teleseminar, November 23, will give you the breaking news and latest on Medicare Secondary Payer reporting requirements, the Bradley v. Sebelius 11th Circuit decision, what the moratorium means, and what happens next. To view the agenda and faculty, and to register, go to www.justice.org/education/medicare or call 800-622-1791 or 202-965-3500, ext. 8612.