You Cannot Prejudice the Insurer’s Rights
April 25, 2012 | 
Author To be sure, the tort victim cannot prejudice the subrogation rights of the insurer. In Metropolitan Life Ins. Co v. Ritz[1], the insured entered into a complete release of all claims against the tortfeasor without specifically referencing the insurer’s interest. The court found that the general release deprived the insurer of its subrogation rights and noted that the insurer was entitled to either reimbursement from the insured or to be subrogated to the insured’s claim for the medical expenses against the tortfeasor. The court then allowed the reimbursement, subject to the obligations to share proportionately in the expenses to obtain the settlement.
Conversely, in Leader Nat’l Ins. Co. v. Torres[2], both the insured and the tortfeasor were aware of the insurer’s subrogation right and the insurer did not consent to the settlement. Because the tortfeasor had additional assets, the court held that the settlement did not extinguish the insurer’s subrogation rights against the tortfeasor. Of interest is that the court held that the risk of loss in this context was to be borne by the tortfeasor, not the insured.
[2] 113 Wn.2d 366, 779 P.2d 722 (1989).
Two Tort Cases Limit Reach of ERISA and Medicaid
As reported by Professor Roger Baron two cases–one from the Nevada State Supreme Court and the other from the 4th Circuit limit the reach of ERISA and Medicaid laws.
Nevada Supreme Court Authorizes Tort Claim against ERISA entities
“The Nevada Supreme Court handed down its decision in Lynam v Health Plan of Nevada, No. 56165 (March 21, 2012). The insured was infected with hepatitis C in the course of medical treatment. He brought a tort claim against a number of entities operating in and through the Health Plan of Nevada, alleging common-law negligence in that he was referred to a medical facility which did not meet “quality assurance program” required by Nevada statute. The Defendants persuaded the trial court to dismiss the claim on the basis of ERISA preemption. This decision reverses and remands. The Nevada Supreme Court holds that ERISA preemption does not extend to “traditional police powers of the state” and makes a distinction between an ERISA plan which “facilitate[s] the selection of providers” and an ERISA plans which “lease[s] out its existing network of providers” or which “purchase[s] an insurance plan from a MCO or HMO.” The insured should be given the opportunity on remand to prove that “to prove that [the health plan] merely leased out their network providers or issued an insurance policy” and thereby avoid federal preemption. This decision is unanimous by the court, with one justice not participating. A copy of the decision is attached.” Roger Baron
The decision can be viewed here .
4th Circuit upholds Ahlborn over contrary North Carolina law
“The 4th Circuit Court of Appeals handed down E.M.A. v. Cansler, 2012 WL 956187. In this case, a child sustained serious injuries at birth due to medical malpractice. The state of North Carolina paid more than $1.9 million in medical bills. The tort recovery was $2.8 million. The federal trial court, applying North Carolina law as set forth in state statute and as interpreted by the N.C. Supreme court, awarded Medicaid reimbursement in the amount of one-third of the tort recovery or $933,333.33. This decision holds that North Carolina law, “as applied in this case, fail[s] to comply with federal Medicaid law as interpreted by the Supreme Court in Ahlborn. As the unanimous Ahlborn Court’s 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.” The case remanded “for an evidentiary hearing at which the district court shall determine the proper amount of DHHS’s Medicaid lien in accordance with Ahlborn …” Roger Baron
The decision can be viewed here .
Posted in Ahlborn, ERISA | 
Tags: Ahlborn, E.M.A. v. Cansler, ERISA preemption, Lynam v Health Plan of Nevada, Nevada Supreme Court, North Carolina | 
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Revictimization of Personal Injury Victims by ERISA Subrogation Claims
Often law review articles provide little help for practitioners. This is most certainly not the case with Prof. Roger Baron’s recent article, ” The Revictimization of Personal Injury Victims by ERISA Subrogation Claims.” 45 Creighton Law Rev. 325 (2012). I encourage you to read this and use it to argue your point in your ERISA cases. It provides a clear outline of the emergence of subrogation in the insurance industry, first used by property insurers. Interestingly, Prof. Baron points out that “[S]ubrogation by health insurers was uniformly prohibited in all jurisdictions until 1974 when ERISA was adopted into law.” This is despite those defending subrogation efforts who attempt to claim that the roots of ERISA subrogation are traceable to the Magna Carta.
This article also discusses how the insurance industry has escaped Federal regulation thanks to the holding in Paul v. Virginia[1], that insurance policy was not an item of interstate commerce and thus beyond Congress’ authority. But U.S. Airways v. McCutchen [2] provides us with an important entry point for all federal courts to reassess ERISA reimbursement.
Baron explains:
Not only do ERISA reimbursement recoveries provide a ‘windfall’ to the employer and their insurers, but also the judicial enforcement of reimbursement claims is tantamount to a ‘revictimization’ of personal injury victims.
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Memos from Center for Medicare & Medicaid Services Sheds Light
Take a look at this CMS Region VI memo. While the law does not apply directly here in WA, the language is surprising and will likely disturb some of you.
While CMS’ memo is not binding authority, it illuminates the government’s position. Moreover, it provides an interesting take on the defense’s role in this process.
Brief highlights from the memo::
- The law does not require a set-aside in any situation
- Medicare wants their future interest protected
- The preferred and recognized way of doing so is an MSA.
Here’s a link here to a recent memo from CMS Headquarters in Baltimore that outlines when a LMSA (Liability Medicare Set-Aside Arrangement) is not required. It isn’t required when there is written confirmation from the treating physician that there will be no accident related Medicare covered future care. More information about LMSAs here
Plaintiffs’ attorneys would be wise to develop a plan before getting to mediation.
WA Common Law: The Made Whole Rule of Thiringer
No insurance company that has paid the medical bills of its insured in Washington has a right to subrogation unless the injured person has first been fully compensated for his or her injuries. This rule is known as the “made whole” rule or “last dollar theory of subrogation.” It is based on Washington’s public policy in favor of full compensation for injured persons. “Washington law … places great emphasis on the just compensation of accident victims.” [1] The seminal case establishing this law is Thiringer v. American Motors Ins. Co.[2]
The general rule is that, while an insurer is entitled to be reimbursed to the extent that its insured recovers payment for the damage, it can recover only the excess which the insured has received from the wrongdoer, remaining after the insured is fully compensated for his loss. This rule embodies a policy deemed socially desirable in this state, in that it fosters the adequate indemnification of innocent automobile accident victims.[3]
Because the rule is based on public policy, an insurance company cannot place contract language into its policies to circumvent the made whole rule. In commenting on the insurance policy language in the American Motors Insurance Company policy, the court stated:
It does not provide that if the insured recovers less than his total damages from such party, the amount recovered shall be allocated first to those losses covered by the PIP endorsement and then to other damages suffered bythe insured. Such a provision, were it included, would be obviously unfair, since the insured pays a premium for the PIP coverage and has a right to expect that the payments promised under coverage will be available to him if the amount he is able to recover from other sources, after diligent effort, is less than his general damages.[4]
[1] Jain v. State Farm Mut. Auto Ins. Co., 130 Wn.2d 688, 693, 926 P.2d 923 (1996)
Posted in Uncategorized | Tags: Jain v State Farm, Last Dollar Rule, Made Whole Rule, Thiringer | No Comments »
