Subrogation

By

Carlton Harker, FSA, MAAA

For www.ifebp.org/harker

Overview

Subrogation in Practice

Legal Review

Plan Document and SPD

Court Decisions

Overview

In General

The term subrogation means the substitution of the right of one person in the place of another, relative to a lawful claim. Subrogation is always possible in all self-funded plans; it is usually possible in fully insured plans where not specifically prohibited by state law or regulations. In a health plan, this type of provision allows the plan to step into the shoes of a covered person where such covered person has a cause for legal action against a negligent third party (tortfeasor). The health plan, acting on behalf of the covered person, might pursue legal remedies, even though the covered person might not wish it done. For this reason, many states object to the inclusion of a subrogation provision in a fully insured health plan.

Subrogation is usually difficult but often results in large recoveries. Recourse against the negligent party is generally through the negligent party’s insurance company:

· Automobile liability

· Physician’s malpractice

· Renter’s liability

· Product liability

· Business liability.

Recovery by the plan must never exceed the amount of the benefit payments. To effect subrogation, these three preliminary steps must have been taken:

· Right to subrogate must have been clearly announced to the participant in the booklet and plan document so as to prevent such participant from denying knowledge of the plan’s subrogation right.

· The participant must have signed over to the plan the right of subrogation as regards a particular incident.

· Attorney must have been assigned to subrogation claim. This may be participant’s attorney or employer’s attorney.

Spotting A Potential Subrogation Claim

These are candidates for subrogation review:

· Automobile accidents

· Malpractice by hospitals/doctors

· Product defects (food, appliances, e.g.)

· Accident on other person’s property

· Accident in a public place (restaurant, e.g.).

See UB-92 Claim Form, Occurrence Code 3 (Accident/Tort liability); see also ICD-9 codes which are suggestive of an accident/tort liability.

Commentary Of General Interest

Subrogation must be carefully handled because it defeats or diminishes another person’s right of recovery. There are numerous ways by which a subrogation claim may be thwarted.

· Plan language regarding subrogation is faulty or absent.

· Inadequate accident information is developed.

· Plan’s claim is not given to third party or insurer or covered person’s attorney.

· Assertion of right of subrogation is too weak.

· Claim is settled before subrogation claim is legally asserted.

· Court fails to honor subrogation.

Plan Language. Be certain the plan document and certificate booklet give the plan the right to subrogate.

When potential subrogation arises, the plan may have the assertable rights against any of the following:

· The third party causing the loss or injury

· The third party’s liability insurer (personal, business, school, athletic, etc.)

· A state financial responsibility or catastrophe fund under the state’s motor vehicle law

· Homeowner’s coverage.

Rules of Subrogation. There are numerous rules, which if followed, will make recovery more likely or at least easier.

· Make clear that subrogation extends to covered dependents as well as the employees.

· Do not pay benefits until establishment of subrogatable right is as clear as possible.

· Make clear that plan does not have to prove in court that it has a subrogatable right.

· Plan’s subrogation right is a full dollar first lien against the covered person’s recovery. See paragraph regarding legal representation.

· Plan reserves the right to compromise.

· Plan has right to sue plan participant to effect recovery.

· Before any claim payment is made, be sure that the recovery path is clearly determined and that the insurer, e.g., is formally notified of the plan’s subrogation rights.

· Be sure and get all the accident reports.

· Do not be dilatory in paying the benefit. It may be withheld until the Subrogation Recovery Authorization is received; it must be paid promptly thereafter.

· Be certain that the plan’s rights are known to the insurer and/or an attorney representing the plan.

When Notifying Insurer. When the plan notifies the liability insurance company of the third party of its right of subrogation, these items of information must be provided.

· Plan’s identity as an ERISA employee benefit plan governed by the federal law only

· The dollar amount of the plan’s claims

· Description of the plan’s rights to subrogation.

Pending Claims. No claims should be paid until a Subrogation Authorization is signed, the liability established, and an attorney relationship established, or the insurer notified of the plan’s subrogation right.

Assertion of Plan Rights. The claims examiner should realize that under ERISA, the plan is obligated to aggressively seek recovery. To do less may well be a failure in fiduciary duties.

Legal Representation. One course of action is for the plan to have its own legal counsel and seek recovery directly from the third party or its insurer. The recovery is 100%; the plan, or the employer, is obligated for the legal fees. With most claims, it is usually more practical for the plan to hire the participant’s attorney with the understanding that such attorney will take care of the plan’s interest as well as the participant’s if the attorney is paid the same percent of the recovery as the balance of the settlement. For small recoveries, it is quite practical.

Pending Claims. No claims shall be paid until a subrogation statement is signed, the liability established, and an attorney relationship established, or the insurer notified of the plan’s subrogation right. If the plan’s assertion of rights is too weak, there could conceivably be no award.

Subrogation And Stop-Loss Claims

As is well known, the stop-loss carriers nearly always require the plan document to have a subrogation provision. The stop-loss agreements cover the subrogation recovery in one of two ways:

· Pro rata (the majority practice)

· Full recovery (the minority practice).

The benefit administrator should be aware of the distinction and file stop-loss claims accordingly.

The circumstance in question is limited to the instance where the stop-loss carrier has paid and, thereafter, there is a subrogation settlement. The pro-rata method splits the recovery in an equitable manner; the full recovery method requires that the benefits and stop-loss claim be reworked.

Two Sample Pro Rata Wordings. First: All remaining amounts should be paid to the employer. If the payment received from a third party is less that the amount required to fully satisfy the covered person’s claim or loss, the carrier should be entitled to receive, in addition to repayment of collection expenses, a pro rata share amount of such payment. Second: The carrier should be entitled to its pro-rata share of any claim recoveries, with respect to a covered person, effected by the employer whether by way of subrogation or otherwise.

Two Sample Full Recovery Wordings: First: Any amounts recovered by the carrier shall be used to pay the expenses of collection and reimbursement of the carrier for any amount they may have paid or have become liable to pay to the participant. Any remaining amounts shall be paid to the participant. Second: Any repayment due must be made to the extent of the carrier’s original reimbursement, and must be made regardless of whether the Employer’s coverage is under this policy, or this policy is in force, and may be reduced by the reasonable and necessary expenses incurred by the Employer in recovering amounts from the third party. It is important to note that in both methods a percent (for the attorney) is permitted by the stop-loss carrier. In the sample wording above, carrier means stop-loss carrier.

Comparison of Methods. The share of recovery claimed by stop-loss carrier will always be less with the pro rata than with the full recovery method.

Subrogation in Practice

Significant Court Decisions

In General

These are the various subrogation issues that have been settled at the Supreme Court level either by specific decision or by a denial of hearing:

· Preemption of state insurance laws

· What being made whole means

· Plan’s pro rata share of attorney fees

· Why the participant’s attorney should also be the attorney for the plan

· ERISA-related litigation by plan supervisor (ASO).

Preemption of State Insurance Laws

State laws that deny the right of subrogation to fully insured plans are ERISA-preempt. State law would have health care benefits be a deduction against the liability of the tortfeasor where automobile liability is concerned. Court held this law was ERISA-preempt.

What Being Made Whole Means

Self-funder sought to recover, by subrogation, the claims that it paid as a result of an automobile accident. In a structured award, the participant was paid a large amount, not related to his medical bills (education fund, e.g.). Self-funder wished its recovery to come from such settlement; participant demurred. Court held self-funder had a right to recover from such settlement.

Argument that participant’s settlement from the automobile insurer was for pain and suffering and therefore not available for subrogation reimbursement to the self-funder was rejected by the court. In a subrogation recovery, court did not make plan give up any of its recovery on a sharing basis with other statutory medical liens.

Where ERISA plan unambiguously asserts that plan has full recovery right, the courts will not apply the make whole doctrine. The Supreme Court held that ERISA does not require that either the plan or the participant be made whole. This decision was a victory for both the plan and the participant. In effect, both the plan and the participant must come to agreeable terms on a case-by-case basis.

Plan’s Pro Rata Share of Attorney Fees

Obligation of self-funder was to honor the common fund theory and thereby share with the participant the attorney fees in a subrogation recovery. ERISA plan is entitled to the recovery of all its expenses under a subrogation recovery without any allowance for pro rata attorney fees. To not pay the pro rata attorney fees in a subrogation settlement would allow the plan a free ride and would run counter to the common fund doctrine. If such unfairness were allowed to stand, participants would be discouraged from pursuing their tort rights.

Why the Participant’s Attorney Should Also Be the Attorney for the Plan

Self-funder was irate when beneficiary’s attorney gave the insurance recovery check from an automobile accident to the beneficiary and not the employer. Court held that attorney was not a plan fiduciary, did not handle plan funds and had every right to pay it to its client. The plan was not his client. Had the attorney also been hired by the plan, the interest of the plan would have been attended to by such attorney as a matter of ethics.

ERISA-Related Litigation by Plan Supervisor (ASO)

Insurer with an ASO contract sued participant to collect under subrogation provision. Participant claimed insurer did not have standing to sue. Court held it did have standing under unjust enrichment theory.

Fully Insured Plans

In General. The conflict between fully insured plans having or not having subrogation was fought out over many years. The courts have held that it can be in fully insured plans (majority view) as opposed to the minority view that holds it cannot be. The purpose of this subsection is to briefly outline the logic that supports the majority and the minority views so that the benefit administrator can more fully understand the legal difficulties, problems and opportunities found with subrogation.

Position of State Courts. Most states have held the subrogation clause valid; some states, however have held it to be invalid. What has been typically the conflict is that the state statutes have some roadblocks that would defeat the insured’s plan subrogation rights, deemed to be in the best public interest. The state court had to find some way of either removing or getting around this statutory roadblock.

Statutory Roadblocks. Some of the state statutes and common law practices that have instituted a roadblock to subrogation are these:

· Personal injury cannot be assigned.

· Subrogation is contrary to public policy.

· Cause of action cannot be divided.

Majority Position. In arriving at the majority view, the courts followed this logic:

· Assignment and Subrogation are different.

To assign would give the insurer the right to recover everything and not merely its medical costs.

Clearly, subrogation does not do this.

· Subrogation is not dividing a cause of action.

Subrogation is not dividing because there are two causes of action – the participant’s and the insurer’s.

· Subrogation is not contrary to public policy.

Logic that subrogation unjustly enriches the insurer is poor; lack of subrogation unjustly enriches the participant.

· Other compelling reasons.

In holding for the subrogation, courts have been mindful of the evils of double recovery, because the state statutes specifically allow for it.

Minority View. In arriving at the minority view, the courts have followed this logic:

· Subrogation is an assignment.

As such, to permit it could amount to violating the state’s statute.

· Subrogation is contrary to public policy.

Pandora’s box of litigation and repugnance of insurer suffering when tortfeasor may be a close friend or relative of participant are examples.

· State law prohibits it.

Where the state law specifically prohibits such, the courts, by the minority view, will honor this statute.

ERISA Preemption Issues

In General. A number of legal skirmishes have clearly established that self-funded plans may have subrogation but a fully insured plan may not (if state law prohibits) solely due to ERISA preemption factor. If, however, a state wishes to enact a general law that forbids subrogation, as a state policy, in both insured and self-funded plans, such statute will not be necessarily preempted.

A self-funded plan stated clearly in booklet that the plan had the right to subrogate; this right was sufficient for the plan to demand a subrogation release to be executed. The plan’s action to enforce its right to subrogate was neither arbitrary or capricious. Missouri’s insurance laws forbade subrogation in fully insured plans based in state’s repugnance with assigning personal injury claims – including medical expenses. Such state laws clearly related to the plan, which perforce made preemption appropriate.

Minnesota’s antisubrogation law was brought into context with a self-funded plan’s right to subrogate. The court looked intently at the savings issue as to whether the state’s statute was tenuous, remote or peripheral; it concluded that the law was not saved from preemption. That settled it remained only that the Minnesota antisubrogation clause was preempted by ERISA.

Virginia had an anti-subrogation state insurance law. The court held that this law was preempted by ERISA.

The court looked at the Arizona antisubrogation statute and held it could not be applied to a self-funded plan because of the ERISA preemption clause. The issue raised with case that gave it distinction was one of the stop-loss being deemed insurance. The court held stop-loss was not insurance for purposes of settling the preemption issue for these reasons:

· Participant is in no way the beneficiary.

· Insurer does not in any manner become involved in the administration of this plan.

· Companion life benefits are to be treated separately from the stop-loss coverage.

Pennsylvania passed a statute that banned subrogation in self-funded plans; this construction got into the state’s anti-subrogation statute by its reference to any insured plan or plan funded by any other arrangement. The court held that ERISA preemption did not mean that all state regulation of self-funded plans was forbidden.

State’s noninsurance law prohibiting subrogation was held by the court to be preempted. What was at issue with this plan was this: A child of the participant was hurt; the plan’s subrogation clause was not applicable. The court rejected this argument.

Federal Laws And Subrogation

In General. In 1985, Congress decided to take the Medicare subrogation in direct hand and state clearly that the federal government claimed a recovery right over Medicare, Medicaid, CHAMPUS, etc., medical payments that were subrogatable. Because of the uncertain law, Congress enacted the Medicare Recovery Act of 1985. Congress asserted the federal government’s rights to fiscal matters expressed repugnance at double recovery and believed it was necessary for budget purposes to obtain such recovery. The purpose of this subsection is to display for the benefit administrator the logic in the statute, and instances and methods by which its intent has been thwarted.

How Recovery Is Supposed to Work. The key elements set forth by Congress that were to achieve a smooth and effective recovery were these:

· The federal government can sue directly if participant declines to take action after a six-month waiting period.

· The federal government can sue to recover in either a federal or state court.

· Federal law preempts procedural state defenses (interspousal community property, statute of limitations, e.g.).

· Award to federal government is gross; that is, not reduced by attorney fees.

· All courts have struggled with a precise definition of subrogation.

· Recovery is limited to reasonable value of services, as may be provided by federal Office of Management and Budget.

Federal recoveries have perfected the technique of the participant and the federal government using the same attorney to represent their combined interests. Because this technique is so useful with private self-funded plans, some pains will be given to describing this method of seeking recovery. Interestingly, this method, now popularly used, is not even mentioned in the Medical Recovery Act.

What essentially is done is this: The participant’s attorney agrees to represent the plan’s recovery right (i.e., the amount of the benefit paid) along with the rights of the participant (pain and suffering, e.g.). This arrangement may only be done on the express authority of the plan sponsor. Often the tag teaming may be done even after the participant’s attorney has filed a cause of action. It must be kept in mind that tag teaming is done only if such is in the best interest of the plan participant; the participant’s attorney may refuse. Once the agreement between the plan sponsor and the plan participant’s attorney is made, such attorney may assist the plan sponsor’s claim but the court may (or must) be shown the proof of this right in the form of the authorization-to-hire agreement. The attorney for the participant is not seeking a separate settlement; however, both the participant and the plan sponsor must abide but the court’s decision to prevent double jeopardy.

In paying the attorney for legal services, the plan or plan supervisor may do one of two things:

· Percent of settlement (one-third, e.g.). This is not done with federally sponsored plans because of the Medical Recovery Act’s wording and relevant court decisions.

· An agreed-upon fee basis; hourly, for example.

The attractiveness of the agreement lies in the fact that the participant’s attorney is personally and professionally obligated to act in the best interest of the plan as judged by usual fiduciary standards. The attorney will receive any settlement sums and be honor-bound to hold them in trust for the plan. Failure to do so is a fiduciary breach. There are added inducements for the participant’s attorney to wish to cooperate with the plan seeing it is repaid for the medical expenses being subrogated. Some of these inducements include:

· Plan can furnish much valuable medical information that may be of considerable assistance to the attorney in prosecuting the case.

· Statements as to reasonable treatment costs for the plan claims adjudicator may be helpful, These may be supported by expert testimony.

· The help may be depended upon not to intervene, leaving the attorney free to develop the case for the participant’s best interests.

· The plan will often stand ready and willing to compromise and settle.

Defeating A Subrogation Claim

These are the usual ways by which an otherwise valid subrogation claim may be defeated:

· Statute of limitations applies.

· Settlement and release by participant is provided.

· Plan or employer somehow contributed to the negligence,

· State laws are no-fault (workers’ compensation and no-fault automobile, e.g.).

· Medical benefits are paid as a matter of right.

· Structured award is made by the court.

Conflicts Of Interest And Subrogation

Background. It is generally accepted that there is no conflict of interest in these circumstances:

· Participant P signs a subrogation statement favoring plan.

· Participant P retains Attorney A to represent his or her interest.

· Attorney A, with knowledge of P’s subrogation, agrees to represent both P and plan with the plan agreeing to pay a compensation percent (one-third, e.g.) to P.

The practice set forth above is widely followed in Medicare, workers’ compensation and health care plans. The reason is that the double employment does not involve differing interests where full disclosure of parties’ interest has been made.

Potential Conflicts of Interest. These are areas where conflicts may arise:

· Instance No. 1. In illustration, suppose Attorney A has an existing relationship with the insurer against which, as P’s attorney, he will be attacking.

· Instance No. 2. In illustration, suppose Attorney A was also the counsel for the employer sponsoring the plan.

Equitable & Legal Issue

Subrogation against the self-funded plan was denied because the so-called reimbursement agreement involved outside-the-plan remedies and was of legal, and not equitable, nature. ERISA does not contemplate any type of legal relief; only equitable relief.

In another subrogation lawsuit, the Great-West Life Ins. Co. v. Knudson, 122 S.Ct. 708 (2002) equitable legal difficulty was overcome because the plan’s reimbursement action imposed a constructive trust on third party settlement funds and was specifically identifiable. That is, the reimbursement action sought equitable and not legal relief. The court usurped the participant’s right of recovery in a subrogation matter because the participant engaged in misconduct by failing to inform the employer of the third-party action of the participant. A participant who is guilty of misconduct may not gain from the make whole doctrine. ERISA does not preempt the common fund doctrine which permits attorney fees to be paid from insurance proceeds under subrogation actions. Plan, in a subrogation dispute, sought money damages based upon contractual obligations; under ERISA, only enjoining of practices or equitable relief is permitted.

Most federal courts have taken the position that both the make whole doctrine and the common fund doctrine are preempted by ERISA. Further, the Supreme Court decision in Great-West v. Knudson does not apply where recovery is made as an equitable, rather than as a legal matter; i.e., the so-called constructive trust solution. The make whole doctrines or statutes of the states are preempted by ERISA.

Employer sought to subrogate by using a constructive trust thereby avoiding the obstacles clearly set forth in Great-West v. Knudson. Subrogation recovery, as a consequence, becomes possible. Where employer, with a self-funded plan, seeks recovery under subrogation as a legal, not equitable, remedy, it will be denied such recovery by the court.

The court permitted ERISA plan to have full recovery in a subrogation dispute; i.e., the make whole and common fund theories were both ignored. Also, the court did not review with the Great-West v. Knudson in sight. Participant’s medical bills had been entered as a recoverable item from such participant’s estate; death had resulted from an automobile accident and estate was to pay the medical bills as a subrogation settlement. Estate trustee objected, invoking state law; court held that any state law blocking such settlement was preempted by ERISA. The Great-West v. Knudson decision was used by the court to deny a subrogation-related recovery by the self-funded health care plan. Notwithstanding Great-West v. Knudson, the court held that a subrogation-related reimbursement agreement was an equitable lien upon ERISA plan assets and therefore enforceable.

Avoiding Pitfalls To Subrogation Recoveries

In General

The doctrine of subrogation and reimbursement have always been a part of insurance contracts. Certain doctrines of case law have limited such recoveries, however:

· Make-Whole Rule

This precludes the insurer from recovering any paid benefits until the insured has been fully compensated for all losses.

· Common Funds Rule

This requires the insurer to contribute a proportionate share of its recoveries for attorney’s fees.

The question is this: to what extent will these two concepts apply where subrogation becomes part of an ERISA self-funded plan?

Make-Whole Rule

There is an exception to the make-whole rule in common law. This exception is where the contract specifically provides otherwise. If there is a no contractual exception, the make-whole rule concept will apply.

With ERISA plans, even though the plan language is silent on make-whole, some courts have not invoked the make-whole rule. See Sunbeam – Oster Co. v. Whitehurst 103 F.3d 1368 (5th Cir. 1996). Most ERISA plans do include the make-whole does not apply language.

Typically, courts have been lenient in permitting self-funded plans to not follow the make-whole rule, if the plan is silent thereon. There is the minority practice, however. Where the plan states with specificity that the make-whole rule will not be followed, the courts will honor such plan language.

Common Fund Rule

The courts have, in the majority, not invoked the common fund rule even though the plan does not say so with specificity. That is, courts will favor the self-funded plan or give it the benefit of the doubt where there is no clear language to do so: See Harris v. Harvard Health Care, Inc., 208 F.3d 274 (1^st Cir.2000). This is the majority rule. There is, of course, the minority rule.

The court will follow the plan document where it specifically states that the common fund rule will (or will not) apply.

Conclusion

The plan document should state with specificity whether the common fund and the make-whole rule will or will not apply.

Plan Document and SPD

Plan Document Language

Right of Plan Recoveries

The Plan may recover any payments made to or on behalf of any covered person (including dependent spouse and children) arising out of any claim, cause of action or legal settlement of any kind which may accrue to such covered person, or such person’s successors in interest (including by way of illustration and not limitation, personal representative, executors, legal representatives, heirs, and assigns) because of, or arising as a result of any of the following:

· Any illness, injury, disease or other condition incurred or suffered by the covered person for which any party may be liable or legally responsible by reason or contract, tort or other legal cause.

· A medical malpractice settlement for which the Plan reimbursed the participant for the cost of the medical procedure(s) giving rise to such malpractice settlement.

· A reduction in the charges of the provider for which the Plan reimbursed the participant because of a medical error, regardless of whether or not any liability was assessed against the provider.

· A court award (typically, but not necessarily, because of a class action type of settlement) by which a participant may be given a disgorgement payment.

· A reduction in Plan obligation because of ministerial-type errors.

In addition to the Plan’s subrogation rights, as a condition of participation under the Plan, each covered person shall agree to reimburse the plan from any monies or other property recovered from any party by judgment, settlement or otherwise for any illness, injury, disease or other condition or event(s) for which benefits were provided under the plan, to the extent of such benefit payments and as provided herein.

The Plan Administrator (or the Plan Supervisor, where appropriate) may, in its sole and absolute discretion, determine whether or not to pursue Plan’s rights if recovery and reimbursement.

Notwithstanding the foregoing, any payments received by or with respect to a covered person from any insurance company pursuant to a policy under which such covered person is the owner (or dependent of the owner of such policy) and a named insured shall also be subject to this Section. The Employer shall pay fees and costs associated with the enforcement of the Plan’s rights. No Plan benefits will be paid until liability has been established by the Plan Administrator (or Plan Supervisor where appropriate) and the form and structure of the settlement has been established and agreed by the Plan Administrator (or Plan Supervisor where appropriate). Such form and structure will, at a minimum, allocate the settlement between the following as set forth in the Schedule of Benefits as Allocation of Settlement:

· Recovery by or reimbursement of the Plan

· Attorney fees

· Educational or similar

· Pain and suffering or similar

· Economic loss to the covered person or similar

· Annuity to fund future income or similar.

Until such liability has been established, the claim shall be deemed to be an Indeterminate Claim, as defined herein.

Each covered person shall agree to promptly furnish the Plan Administrator (or Plan Supervisor, if appropriate) such information concerning his or her right if recovery from any other party, and to fully assist and cooperate with the Plan Administrator (or Plan Supervisor, if appropriate) in protecting and obtaining the Plan’s recovery and reimbursement rights. The covered person shall further agree not to allow the Plan’s recovery and reimbursement rights to be limited or harmed by any other acts or failures to act on the covered person’s part. In such event, the Plan Administrator (or Plan Supervisor, if appropriate) shall be authorized in its sole discretion to suspend or terminate the payment or provision of any further benefits to or for the benefit of the covered person.

The covered person agrees to do whatever is necessary to enable the Plan’s right of subrogation to be exercised. The covered person shall hold in trust and reimburse the plan for any payment it made for which the covered person recovers damages, regardless of the damages designation in any settlement agreements, document or court order.

A covered person must cooperate in every way including claims investigation, completing promptly an accurately the Right of Recovery Agreement, recovery or overpayments, furnishing information and assistance, executing and delivering necessary instruments as may be required and not to prejudge the rights of the Plan. Failure to cooperate or prejudicing a right of the Plan may result in loss of benefits. Specifically, the Plan may require, as set forth in the Schedule of Benefits, as a condition to the payment of any benefits, that the covered person direct such covered person’s attorney in any legal action instituted by such participant, to represent both the interest of such covered person and the interest of the Plan. The Plan reserves the right to appoint an attorney in its own right as an alternative to its using such covered person’s attorney.

In the event that a settlement is made by another person or insurance company to the covered person prior to the Plan’s rights being honored, the liability of the Plan shall be reduced by the amount of such settlement.

The Plan will aggregate all claims otherwise payable which are covered by the Right of Recovery Agreement; such claims will be subject to coordination by the Plan with the Plan taking an always secondary position. Health care expenses directly paid by a third party shall not be recognized as a Plan liability.

The settlement by the Plan of such claims will be governed by three rules:

Rule Number 1

During the period of investigation, or prior to the execution of the Right to Recovery Agreement by the covered person or prior to the final settlement at which time the total Allowable Expenses are determinable, the Plan will aggregate and process but not pay such claims.

Rule Number 2

Once the Allowable Expenses are determined and the Allocation of Settlement Adjustment made; the claims will be paid with the Plan taking its always secondary position.

Rule Number 3

This rule applies when (a) the investigation is complete and the Right to Recovery Agreement is signed but (b) the amount of Allowable Expenses (if any) are not determined. The claim at this time will be deemed an Indeterminate Benefit and treated as provided herein.

Schedule Of Benefits

Right of Recoveries (Subrogation)

Allocation of Settlement

· Recovery by or reimbursement of the Plan __________ %

· Attorney fees __________ %

· Educational or similar __________ %

· Pain and suffering or similar __________ %

· Economic loss or similar __________ %

· Annuity to fund future income or similar __________ %

Obligation of Attorney Representing the Covered Person to Also Represent the Plan?

May the Plan require double representation by attorney of covered participant at Plan Administrator’s discretion? _________

SPD Language

Subrogation Provision

If the Plan pays a benefit for a claim which was the result of another party’s fault, the Employer expects, and you agree to permit, recovery by the Plan against such party at fault. Such recovery will be from any and all payments you or a covered dependent may have received as compensation from such fault as set forth and described in the Schedule of Benefits. The right of recovery of the Plan must be honored notwithstanding the manner or form of the actual settlement and the Plan specifically reserves the right of first reimbursement from any recovery the covered person may obtain, even if the person or participant is not made whole by such recovery. The manner of settlement is set forth and described in the Schedule of Benefits. You will be asked to sign and agree to a subrogation agreement, agreeing to apply any money you received as a result of the liability of a third party to the benefits provided by this Plan. The Plan Supervisor will not pay any benefits until the covered person has fully cooperated by providing information and executing this and other necessary documents. The Plan Supervisor may also require, as a pre-condition to the payment of any benefits, that you direct your attorney in any legal action instituted by you, to represent both your interests and the interests of the Plan. This Plan right is set forth and described in the Schedule of Benefits. The Plan reserves the right to appoint an attorney in its own right as an alternative to its using your attorney.

For example:

If you broke your leg because of faulty front steps at A’s home, or because of an automobile accident where the other person, A, was at fault, the cost of treating your injuries would be paid by the Plan. However, the Plan, in turn would expect recovery from the homeowner’s or automobile insurance policy issued to A. Acceptance of this Summary Plan Description constitutes agreement on your part to cooperate and to permit the Plan to fully recover the benefits paid as a first priority obligation from any settlement you or your covered dependents may receive, whether or not you made whole by such recovery.

Court Decisions

Overview

Most litigations involving health care plan subrogations are reviewed as follows under these topic headings:

· Attorney Fees

· Barebones Plans and Similar

· COB v. Subrogation

· Constitutional, Public Policy or Tort Issues

· Dependent’s Involvement

· Great West v. Knudson and Beyond

· Homeowners Policy

· HMO Plan

· Make whole, Structured Settlement, Etc.

· Manufacturer’s Product Liability

· Medical Malpractice

· Medicare and Medicaid

· No-Fault Automobile Insurance

· Plan Language Faulty

· Uninsured and Underinsured Automobile Policies

· Workers’ Compensation.

Attorney Fees

Mathews v Bankers Life and Casualty Company, 690 F. Supp 984 (M.D. Ala. 1988)

Goodwin, an insured of Bankers, was hurt due the fault of a third party. The attorneys for Goodwin were successful in arranging a large settlement for him. Out of the large settlement, Goodwin's medical bills were paid. The payout for Goodwin's medical expenses were in question:

· Gross with no allowance for attorney’s fees?

· Net of reasonable attorneys fees?

The court held that they should be net of reasonable attorney’s fees.

Chapman v. M. Klemick, P.A., 750 F.Supp. 520 (S.D. Fla. 1990)

Wilson, plan participant, was hurt in an automobile accident caused, it was believed, due to the negligence of another party. As a condition of the plan paying the benefits, Wilson signed the plan's subrogation agreement with the knowledge and consent of his attorney, M. Klemick. The bills were paid. Wilson's case was pleaded and won by Klemick and the liability insurer made a large settlement to Wilson and Klemick. The attorney, Klemick, refused to pay the money over to the plan as was expected. The plan administrator, Chapman, proceeded against the attorney for recovery. The court held that Klemick was an ERISA fiduciary in his capacity as attorney for Wilson's subrogation claim because of his discretionary authority. Klemick was fully aware of the subrogation agreement. The court allowed that Klemick should be paid his legal fees but the balance needed to be paid to the plan. The court did not condone Klemick's behavior. Klemick's argument of conflict of interest was not acceptable to the court. By stonewalling payment to an ERISA plan, Klemick was guilty of an ERISA breach.

Holland v. Miami Systems, Inc., ---N.W.3d--- (Ind.Ct.App. 1993)

In an auto accident case, the participant's attorney was able to recover attorney's fee from settlement proceeds that had been obtained by his client and later recovered by the plan.

Gossum v. Moore, Filed Aug. 22, 1991 (Tenn.Ct.App. 1991)

Gossum, injured due to the fault of another, was covered as a dependent on his wife's group Blue Cross Plan. Blue Cross paid and then sought recovery. Gossum had independent legal action against the tortfeasor's insurer. Gossum wanted Blue Cross's demand to be invalid because he claimed that he never

signed the subrogation agreement; the court held that his wife's signature was binding because it was her group plan. Court held that is was appropriate that Blue Cross pay Gossum's attorney based upon a percent of the sum recovered by the plan.

Alleman v. Blue Cross Blue Shield of Illinois, 231 F.Supp.2d 822 (S.D. Ill 2002)

When the attorney for the participant, in a subrogation matter, recovered $100,000 from the auto liability insurer, the plan expected $10,000 of it to reimburse it for the participant's medical expenses. The attorney was willing to give back only $7,500 ($10,000 less attorney fees). A legal dispute over the $2,500 ensued. Attorney claimed the right to the $2,500 on common fund doctrine, which should prevail because his $2,500 has nothing to do with ERISA. The plan wanted the full $10,000 recovery because that is what the ERISA plan called for. The court held for the attorney opining that common law would prevail since the issue was essentially non-ERISA.

Palmerton v. Associates’ Health and Welfare Plan, 29 EBC 2913 (Wisc.Ct.App. 2913)

Medical bills were $100,000; participant settled for $75,000 of which the attorney kept $20,000. Plan sought recovery of the $75,000; participant objected on make whole theory. Because of the well-written document and reimbursement agreement, the court held that the plan could recover the full $75,000 leaving both the attorney and the participant with nothing.

Bishop v. Burgard, 764 N.E.2d 24 (Ill. Sup. Ct. 2002)

ERISA does not preempt the common fund doctrine which permits attorney fees to be paid from insurance proceeds under subrogation actions.

Yerby v. United Healthcare Ins. Co., 27EBC 2420 (Miss. Sup. Ct. 2002)

Most federal courts have taken the position that both the make whole doctrine and the common fund doctrine are preempted by ERISA. Further, the Supreme Court decision in Great-West v. Knudson does not apply where recovery is made as an equitable, rather than as a legal matter; i.e., the so-called constructive trust solution.

Barebones Plays and Similar

Hartman v. Tennessee, 30 EBC 2183 (Tenn. Ct. of App. 2003)

Dependent child, hurt in an athletic-related accident where the child was given an athletic scholarship which provided free medical services. Where plan paid could it proceed against the school by subrogation? The court said that it could proceed for the recovery of the claims it paid.

COB v. Subrogation

Morin v. Massachusetts Blue Cross, Inc., 311 N.E.2d 914 (Mass. Sup. Ct. 1974

Morin, a participant in a group plan, was hurt while riding as a passenger in a car driven by Reilly. Reilly's automobile coverage had a $2,000 optional medical benefit. When both Blue Cross and Morin claimed the $2,000 medical benefit check, the insurer wrote a $2,000 check to Morin and

Blue Cross jointly and put the check in escrow. The $2,000 medical benefit was not subject to subrogation by the auto carrier. Blue Cross could not coordinate with the $2,000 because the COB is for group coverages only. Question was – could Blue Cross attach the $2,000 using its right of subrogation? Blue Cross coverage would expect subrogation from all sources except insurers on policies of health insurance. The $2,000 coverage by the auto insurer was held by the court to be a policy of health insurance.

Lesson:

· Plan coordinates with indemnity insurance, regardless of how NAIC model COB bill is written as to other coverages.

· Plan subrogates with liability insurance.

Reynolds Metal Company v. Smith, 241 S.E.2d 794 (Va. Sup. Ct. 1978)

Plan had a coordination of benefits provision only; it did not have a provision for subrogation. The practice of the employer was to obtain a reimbursement agreement, in effect a subrogation agreement, from a participant when double recovery was anticipated. In Smith's case, the participant refused. The plan went to court to force Smith to sign using the plan's coordination provision as its reason. The court held that Smith had every right to decline to sign the reimbursement agreement. The holding was based on the clear distinction between coordinating and subrogating.

Corello v. Superior Court of the State of Arizona, 698 P.2d 213 (Ariz. Ct. App. 1985)

Fully insured medical plan permitted coordination but was silent on subrogation. In an accident involving a third party liability, insurer sought to also recover from the liability insurer. Court properly made the clear distinction between coordination and subrogation. Insurer’s argument that such right to subrogation was implied by judicial fiat or legislation permission does not give the insurer right to subrogation unless clearly stated in the contract.

Constitutional Public Policy or Tort Issues

Waye v. Bankers Life Insurance Company, ---S.W.2d--- (Mo. Ct. App. 1990) (No. WD 43074)

Waye refused to sign the plan’s subrogation agreement; the plan, fully insured, had such a requirement as a valid provision. Waye claimed such subrogation was against the public policy of Missouri. The court agreed with Waye, ignoring such case law in Missouri which said that subrogation was not contrary to Missouri’s public policy.

Land v. Chicago Truck Drivers

Helpers and Warehouse Union Health

And Welfare Fund, ---F.2d--- (7th Cir. 1994)

Land, with $1,000 medical expenses from an automobile accident caused by X, received a $1,200 settlement check from X's auto insurer. Land was out $400 in legal fees netting him $800. The self-funded plan has the usual subrogation terms. The court was asked to determine what was due the plan:

Answer 1: $1,000, $400 or $800

Answer 2: $1,000

The court looked to the plan terms without regard to Land’s alleged constitutional rights. The plan, by its terms, was due $1,000.

Collins v. Blue Cross of Virginia, 193 S.E.2d 782 (Va. Sup. Ct. 1973)

Collins protested the application of subrogation claiming it violated his rights under the state’s assignment of tort claims rules. The court held that, since all parties had agreed to the agreement ahead of time, that it was a run-of-the-mill contractual subrogation arrangement and therefore enforceable.

Shook v. Pilot Life Insurance Company, 373 S E.2d 813 (Ga. Ct. App. 1988)

Shook, objected to signing a subrogation release claiming it would violate the state's law on prohibited assignment of a right of action for personal injuries. The court distinguished the subrogation from the right of action ruling that these were quite different. As a result, the plan was successful in its subrogation.

Brockman v. Metropolitan Life Insurance Company 609 P.2d 61 (Ariz. Sup. Ct. 1980)

Recordkeeping confusion existed as to whether or not Brockman's wife had terminated on December 15 or January 8. It made a difference because the wife had a major automobile accident December 22 due to the fault of a third party. The Metropolitan made a settlement agreement by which they would pay the claim but Brockman should sign a subrogation agreement. This was done; the Metropolitan paid; Brockman made a large settlement with the tortfeasor's liability carrier. However, Brockman refused to give the Metropolitan the pay back for claims paid because it would violate Arizona's anti-subrogation law. Court held that the Metropolitan was not entitled to any recovery.

Group Hospital Services Inc. v. State Farm Insurance Company, 517 S W 2d 897 (Tex. Ct App. 1974)

Plan paid benefit and then notified automobile insurer of its right to subrogate. Automobile insurer declined to honor the plan's right to subrogate. Automobile insurer settled with their insured and received a full release from any further liability. Plan sued; court held their subrogation right was valid and not contrary to public policy as claimed by insurer. Automobile insurer apparently had to pay twice or to extent of the plan's subrogatable rights at least.

Sorge v. National Car Rental System, Inc. -N W 2d- (Wise. Ct. App. 1991)

Sorge got from the liability carrier of the tortfeasor the sum of $23,500 which represented what she would have received from a jury less a reasonable deduction for her contributory negligence. The medical bills were $15,000. The insurer wanted $15,000 of the $23,000 as a reimbursement; Sorge argued that only a portion should go to the insurer of the contributory negligence pro rata reduction. The court held for the Plan; for Sorge to have any medical expenses double paid would have amounted to unjust enrichment.

Dependents’ Involvement

Hamrick v. Hospital Service Corporation of Rhode Island 296 A.2d 15 (R.I. Sup Ct 1972)

Hamrick's child, a covered dependent, refused to abide by the plan's subrogation rules claiming such child was not a party to the agreement and therefore free to declare the subrogation null and void. The court held that child had to abide by the subrogation rules as much as the participant.

Hagerman v. Mutual Hospital Insurance Inc. 371 N.E.2d 394 (Ill Ct App 1978)

Hagerman's son was the subject of the subrogation action. The Hagermans believed the subrogation requirement might not be applicable to the son because he was not a direct party to the plan. The court held not so; the child could be bound by her parents to the plan's subrogation clause.

Costello v. Mutual Hospital Insurance, Inc., 441 N E 2d 506 (Ind. Ct. App. 1982)

Costello received an accident settlement check on account of his daughter's automobile accident. Plan, under its subrogation provision, sought recovery. Costello believed that because the accident involved his daughter, a mere dependent under the plan, the subrogation provision had no effect. The Court held the claim on the daughter was definitely subject to the subrogation provision.

Blue Cross/Blue Shield of New Hampshire-Vermont v. St. Cyr, 459 A.2d 227 (N.H. Sup. Ct. 1983

Plan had a subrogation provision. Dependent child was the claimant. Plan attempted to subrogate to recover expenses paid on the child. Parents refused saying that the minor could not subrogate until reaching maturity. The plan could subrogate against the rights of the father, however. Plan gave negligent third party's liability insurer notice of the subrogation provision in the plan; the liability insurer chose to negligently ignore the notice. As a result, the Plan had a cause of action against the liability insurer.

Colonial Rubber Works v. Box, Filed July 31, 1989 (Tenn. Ct. App. 1989)

Box was able to successfully challenge the plan's subrogation agreement by showing that the spouse of Box and the injured party was not a party to the plan. As such, the plan's subrogation provision would not apply to her.

Peck v. Dill ---S.2d--- (Ala. Sup. Ct. 1991)

Dill, an eleven-year old child, was hurt in an automobile accident, the fault of which was with Peck. The child's parent had signed the subrogation form. Later the parent wished to abrogate the agreement arguing that the child had not agreed to the subrogation. The court held that the subrogation agreement would prevail even if it was not agreed to by the child but only by such child's parent.

Serembus v. Mathwig 817 F.Supp. 1414 (E.D. Wisc. 1992)

Serembus represented a self-funded union fund which covered Mathwig (a child) as a dependent. Mathwig was hurt in an automobile accident due to the fault of another person. The plan obtained a subrogation release for the participant and paid the child's claims. A large structured settlement was made; provision was made for all parties except the plan. When the plan was not allowed any recovery, it sued. One of Mathwig’s arguments was that, as a child, she never agreed to the subrogation terms. This agreement was not acceptable to the court. The court believed the language gave the plan a clear contractual right to recover. The self-funded nature of the plan preempts the application of any state laws. That is, the state subrogation doctrine of being made whole has no applicability. The court was left with no conclusion but to honor the plan’s subrogation language which meant that it could be reimbursed for its benefits to Mathwig.

Great–West v. Knudson And Beyond

Great-West Life and Annuity Insurance Co. v. Knudson, 122 S. Ct. 708 (U.S. 2002)

Subrogation against the self-funded plan was denied because the so-called reimbursement agreement involved outside-the-plan remedies that were of a legal, and not equitable, nature. ERISA does not contemplate any type of legal relief; only equitable relief.

Ensuing Cases

Numerous recent cases have addressed the post-Knudson issue as regards the use of the constructive trust. In the Knudson decision, the Supreme Court expressly permitted the use of constructive trusts (and other forms of equitable relief) against persons in possession of funds which (a) have not been dispersed, (b) are identifiable and (c) belong, good conscience to the plan pursuant its subrogation reimbursement provisions.

With ERISA plans, even though the plan language is silent on the make-whole doctrine, some courts have not invoked the make-whole rule. See Sunbeam - Oster Co. v. Whitehurst 102 F.3d 1368 (5th Cir. 1996). Most ERISA plans do include the make-whole does not apply language. Typically, courts have been lenient in permitting self-funded plans to not follow the make-whole rule if the plan is silent thereon. There is the minority practice, however. Where the plan states with specificity that the make-whole rule will not be followed, the courts will honor such plan language.

Forsling v. J. J. Keller, 241 F.Supp.2d 915 (E.D. Wisc. 2003).

The automobile liability carrier (Shelby Mutual) agreed to pay its $50.000 settlement pay withheld distribution pending the formal determination of the terms of settlement. The employer, having spent $35,000 to pay Forsling’s legal expenses brought a suit against Shelby Mutual for recovery as a subrogatable matter. The court held for the employer holding the issue to be equitable in nature. The court further enunciated four principles which if followed, would avoid the Knudson pitfalls:

1. The target defendant must be in possession of the plan funds.

2. The disputed funds must not have been spent.

3. The employer must not impose any personal liability on the plan participant or opposing party.

4. The money or property at issue must be clearly traceable and in good conscience belong to the participant according to the plan’s subrogation provisions.

Since all of these four principles had been followed, the court permit full recovery by the employer.

Allison v. Wellmarks, Inc. ---F.Supp.2d--- (N.D. Ia. 2002)

The underinsured motorist insurance proceeds had been paid directly to the plan participant but had not been spent because the insurer wanted to impose a constructive trust over such funds. The court found that it would not be equitable for the plan participant to retain such proceeds in light of the plan’s subrogation provisions; i.e., the opposite would be more proper, Thus, the court held for the insurer, Wellmark, Inc.

Wellmark, Inc. v. Deguara, ---F.Supp.2d--- (S.D. Iowa 2003)

The automobile liability insurer paid the settlement amount into a separate fund because the participant was covered under two separate group policies. Both policies had the same subrogation provisions and both were administered by Wellmark. The fund was effectively in the control of such participant. The court held that the insurer could impose a constructive trust on such proceeds because such recovery was equitable, no legal, in nature.

Administrative Committee of the Wal-Mart Stores, Inc, Associates Health and Welfare Plan v. Varco, F.3d (7th Cir. 2003)

The proceeds from the automobile liability insurer for the settlement of the claim involving a tortfeasor went into a reserve account in the participant’s name. The court held that the plan could recover its medical bills as a subrogatable right because such recovery action was equitable in nature. The reasons:

· Funds sought for recovery are identifiable.

· Funds sought are in the control of the participant.

· Plan is rightfully entitled to such funds.

The plan specifically said that attorney fees would not be recognized by the plan. The court honored this plan provision thereby causing pain to the attorney; had the plan not been specific as to such fees, the court would have applied the common fund theory.

Westaff, Inc. v. Arce, ---F.3d--- (9th Cir. 2002)

In this instance the plan paid the contested sums in escrow (not a trust) believing this would constitute an equitable solution. The court said that it would not.

Hotel and Restaurant and Bar Employees Fringe Benefit Fund v. Trong, 27 EBC 1657 (D.C. Minn. 2002)

Plan, in a subrogation dispute, sought money damages based upon contractual obligations; under ERISA, only enjoining of practices or equitable relief is permitted.

Asbestos Workers Local No. 42 Welfare Fund v. Brewster, 227 F.Supp.2d 226 (D.C. Del. 2002)

Court applied Great West v. Knudson doctrine because subrogation action was legal and not equitable in nature.

Sunbeam-Oster Co. Group Benefits Plan v. Whitehurst, 28 EBC 1182 (5th Cir. 2002)

The court permitted the ERISA plan to have full recovery in a subrogation dispute; i.e., the make whole and common fund theories were both ignored. Also, the court did not review with the Great-West v. Knudson sight.

O’Brien v. Two West Hanover Co., 795 A.2d 907 N.J Sup.Ct. App. Div. 2002)

The make whole doctrine or statutes of the states are both preempted by ERISA.

Adelstein v. Unicard Life and Health Insurance Co., 135 F.Supp.2d 1240 (N.D. Fla. 2002)

The court usurped the participant’s right of recovery in a subrogation matter because the participant engaged in misconduct by failing to inform the employer of the third-party action of the participant. A participant who is guilty of misconduct may not gain from the make whole doctrine.

Iron-Workers Tri-State Welfare Plan v. Jaraczewski, ---F.Supp.2d--- ( N.D. Ill. 2002).

As a result of an accident, the liability insurance company of the tortfeasor paid the participant $100,000 to settle all claims including hospital bills. Then, the plan paid the participant $50,000 to his submitted medical claims without realizing that they had been already paid. Realizing its error, plan sought to recover on the grounds that such were mispaid claims. Participant sought to keep the $50,000 on the alleged legal nature of the attempted recoveries. The court held for the plan but noting the ease with which the plan could have discovered the true facts; the court also noted the borderline fraud by the participant in failing to disclose the fact that the submitted medical bill had been paid.

Estate of Zienowicz v. Metropolitan Life Ins. Co. 28 EBC 2044 (D.N.J. 2002)

Notwithstanding Great-West v. Knudson, the court held that a subrogation-related reimbursement agreement was an equitable lien upon ERISA plan assets and therefore enforceable.

Bauhaus-USA Inc. v. Copeland, 27 EBC 2633 (5th Cir. 2002)

An employer, with a self-funded plan, seeking recovery under subrogation as a legal, not equitable, remedy, will be denied such recovery by the court.

IBEW-NECA Southwestern Health and Benefit Fund v. Douthitt, 211 F.Supp.2d 812 (N.D. Tex. 2002)

The issue rested on the status of the automobile insurer’s settlement payment which was in the participant’s trust account held by the participant’s attorney. The court held that these funds were traceable to the participant and therefore could be deemed to be in a constructive trust therefore, they could be used to reimburse the plan under its subrogation provision.

Thomas v. Wal-Mart Stores, Inc. Health Plan Administrative Committee. 28 EBC 2781 (7th Cir. 2002)

Participant’s medical bills had been entered as a recoverable item from such participant’s estate; death had resulted from an automobile accident and the estate was to pay the medical bills as a subrogation settlement. Estate trustee objected, invoking state law; court held that any state law blocking such settlement was preempted by ERISA.

Bauer v. Gylten, 27 EBC 2580 (W.D.N.C. 2002)

Employer sought to subrogate by using a constructive trust thereby avoiding the obstacles clearly set forth in Great-West v. Knudson. Subrogation recovery, as a consequence, was denied.

Primax Recoveries, Inc. v. Goss, 29 EBC 1150 (S.D.N.Y. 2002)

Recent Supreme Court decision Great West v. Knudson is thwarting the efforts of the subrogation recovery vendors to recover plan benefits. Such was the result in this case.

Corporate Benefit Service of America, Inc. v. Stempf, 30 EBC 2179 (W.D. Wisc. 2003)

As part of the participant’s insurance settlement in an automobile accident involving a tortfeasor, the liability insurer paid part of the settlement with a revocable trust. The court held that Great West v. Knudson permitted the plan administrator to proceed against the trustee of such trust. That is, the plan won.

Primax Recoveries, Inc. v. Lee, 30 EBC 1311 (D.C.C. 2003)

Where the money from the automobile liability insurance company was put in a trust (as suggested by the Supreme Court in the Great-West v. Knudson case) the court held the recovery by the plan was equitable (not legal). Thus, the plan won.

Board of Trustees of the San Diego Electrical Health and Welfare Trust v. Doyle, ---P.2d--- (Cal. Ct. App 2003)

Doyle was hurt in an auto accident due to the fault of another. He signed the subrogation agreement but refused, when paid by the auto insurance, to repay the plan. Doyle ignored the signed agreement. The plan sued in state court; Doyle said that the state court had no jurisdiction since the plan was governed by ERISA. This being said, the Supreme Court decision in Knudson v. Great-West could apply; Doyle, in effect, won.

Mark v. Green, 30 EBC 2169 (D. Me. 2003)

Participant was hurt in an auto accident, settled the claim with the tortfeasor’s insurer, divided the proceeds between himself and his attorney and then filed to have his hospital bills paid. The court held, under Great-West v. Knudson, that plan had to pay with no chance of recovery.

Conclusion

A plan administrator will be successful in making its subrogation provision effectual if it does these things:

· Bring litigation seeking to impose a constructive trust.

· Assert the right of the plan to the funds in question.

· Request an order that such funds be paid as an equitable matter to the plan.

· Seek injunctive relief that such funds be not released so as to harm the rights of the plan.

Homeowners Policy

Physician’s Health Plan of Minnesota, Inc., v. North Star Mutual Insurance Company, ---N.W.2d--- (Minn. App. 1992)

Four participants of a health plan were injured on premises and were covered by a third party’s homeowner’s policy. The HMO treated the members and subsequently filed a subrogation claim against the insurance company that issued the homeowner’s policy. The homeowner’s insurance company argued that a Minnesota law only allowed HMO subrogation rights against a third-party tortfeasor. The insurer claimed the HMO could not seek subrogation of the member’s rights under the homeowner’s policy, because the HMO’s claim was not based on an alleged tort-like negligence. The court found that, under Minnesota case law, subrogation rights based on explicit contracts are not limited to cases where the liability of the third-party is based on a tort claim. The court held any indemnification right established through a contract is passed from the member to the health plan upon payment by the plan, even if the third-party’s payment to the member did not fully compensate the member for the loss.

HMO Plan

Brown v. Snohomish County Physicians Corporation, ---P2d--- (Wash. Sup. Ct. 1992)

Brown was injured in an automobile accident while operating a bicycle; the fault of the accident was the automobile driver; Brown was a participant in his employer's health care plan, underwritten by an HMO. The HMO would pay as secondary to benefits provided by any automobile plan of insurance. Brown recovered from his automobile plan as follows:

· Tortfeasor’s automobile policy - Liability $25,000

- No-Fault 10,000

- Underinsured plan 50,000

- Medical plan 10,000

TOTAL $95,000

Following the accident, Brown suffered a divorce which was expensive; Brown's medical expenses were $160,000. Brown's plan paid $90,000 expecting Brown to pay the balance ($70,000) from his $95,000 automobile insurance settlement. Brown's reasons for not repaying the $70,000 to the HMO were these:

· Brown received from his automobile plan that which he was due; he had assigned or subrogated his right to sue to the HMO; the HMO should attack the automobile insurer for repayment.

· The HMO's agreement regarding available benefits under any automobile policies was ambiguous.

The HMO argued their rights to be perfectly clear. The court held that since Brown had settled with no residual claims or subrogatable rights assignable to the HMO, that the HMO had, in effect, an empty bag.

Samura v. Kaiser Foundation Health Plan Inc. 22 Cal. Rpr. 20 (Cal. Ct. App. 1993)

Samura, an HMO subscriber, received medical care due to the fault of a tortfeasor and also recovered from the tortfeasor's insurance company. The HMO attempted to subrogate. The HMO had varied and complicated rules by which it pursued subrogation recoveries. The difficulty was that the insurance settlement to Samura was so small as to leave him little for pain and suffering after the plan had been reimbursed. The court said such result was appropriate. That is, Samura lost.

McKandes v. Blue Cross Blue Shield of Maryland, 30 EBC 1363 (D. Md. 2003); Popoola v. Maryland Individual Practice Assn., Inc., 30 EBC 1367 (D. Md. 2003)

Maryland law forbids HMOs from asserting subrogation against it subscribers. The HMO, claiming to be an ERISA plan, sought relief under preemption logic. The court held the subrogation law to not be preempted by ERISA.

Make Whole, Structured Settlements, Etc.

Aetna Life Insurance Company v. Martinez, 454 N.E. 2d 1338 (Oh.Ct. App. 1982)

Plan had Martinez sign a subrogation form. The dispute was that the plan was to be reimbursed only for what Martinez got for medical expenses. Facts and court’s decision were these (illustrative only):

· Total recovery $10,000

· Legal and other expenses 2,000

· Net recovery 8,000

· Medical expenses 15,000

· Other expenses of participant 15,000

· Total expenses of participant 30,000

· Allocation of the $8,000 to participant 4,000

½ of the $8,000

Foremost Life Insurance Company v Waters, 329 N.W.2d (Mich. Sup. Ct. 1983)

Plan had subrogation provision; participant received a $120,000 settlement check; plan had paid $26,714.77 in expenses. Lower court held for the plan. Supreme court of Michigan looked at plan's language and believed it went too far outside normal plan language. Plan permitted recovery for any reason (e.g., court-directed payment to a trust for future educational costs). The Court indicated the $120,000 settlement was for non-economic loss. As such, it belonged 100% to Waters.

Blue Cross and Blue Shield of Florida, Inc. u Mathews, 498 So.2d 421 (Fla. Sup. Ct. 1986)

Florida law prohibits double recovery from an automobile accident. Florida law is silent on subrogation but court-cases have allowed subrogation recovery by plans. Participant collected $100,000 from third party’s liability carrier but had $10,000 withheld to pay the hospital bills. Participant believed Florida law should be construed as allowing full recovery and not prohibiting double recovery. As such, Participant believed reduction for insurer’s subrogatable right to the $10,000 medical bills to be incorrect. Court disagreed and held the settlement proper.

Guy v. Southeastern Iron Workers’

Welfare Fund, 877 F.2d 37 (11th Cir. 1989)

Son of participant was seriously injured in a motorcycle accident. The father sued and the son's mother also sued on behalf of the son; the defendant was the owner/driver of the car in which the son was hurt. The structured settlement was as follows:

· Annuity to son (capitalized value) $2,130,000

· $500,000 to parents and son as follows:

Father $15,000 (paid medical costs in parts)

Mother 50,000

Son 93,000

Fees/Costs 342,000

Total $500,000

Father had signed a subrogation release prior to the settlement. The structured settlement left nothing for the plan. The father thereafter submitted some large medical bills of his own which bills were denied pending a payback of the plan’s outstanding and unpaid bills of some $94,000. The father sued the plan alleging its denial to have been arbitrary and capricious. The court noted that the plans' denial of the father's claims was a holdup in that it was not paid only because it was waiting a payback from the subrogation release. The court also noted that no payback was needed by the plan until the son had been made whole by the settlement, which had not been accomplished. The plan, in brief, did act arbitrarily and capriciously in denying the father's bills for which action it had to pay the participants attorney fees.

Sharpley v. Sonoco Products Company, So.2d (Ala. Sup. Ct. 1991)

See Powell v. Blue Cross and Blue Cross of Alabama v. Lewis below. The courts decided these cases together. The crux of the decision was that an insurer, by subrogation, could not recover any sums until the insured had been made whole.

Powell v. Blue Cross and Blue Shield of Alabama, ---So.2d--- (Ala. Sup. Ct. 1991)

As in Sharpley v. Sonoco above, the court held that the insurer would not recover any sums by means of subrogation until the insurer had been made whole. Consider three examples to illustrate the logic of the court.

	Example A	Example B	Example B
Insured's Loss
Property	$10,000	$10,000	$10,000
Medical Plan	50,000	50,000	50,000
Disability-Lost Wages	15,000	15,000	15,000
Pain and Suffering	55,000	55,000	55,000
TOTAL LOSS	$130,000	$130,000	$130,000
Insured's Recovery
Group Medical	$50,000	$50,000	$50,000
Other Sources	25,000	25,000	25,000
Tortfeasor	50,000	200,000	125,000
TOTAL RECOVERY	$125,000	$275,000	$200,000
Amount to be Subrogated
to Medical Plan	$0	$50,000	$46,667*

*200,000 - 130,000 x 50,000 75,000

Blue Cross and Blue Shield of Alabama v. Lewis, 754 F.Supp. 849 (N.D. Ala. 1991)

This is a continuation of earlier decisions where the courts held that nothing is subrogatable to the participant until such participant has been made whole. The facts before the court were these:

· Medical expenses $87,751

· Liability settlement $300, 000

The court said that Blue Cross could get none of the $87,751 back so long as the $300,000 did not cover all of Lewis’ direct and indirect costs.

Dugan v. Nickla, 763 F.Supp. 981

(N.D. Ill. 1991)

Nickla had emergency surgery which resulted in a malpractice award to Nickla. The award of the court was as follows:

· Medical expenses $7,000

· Pain and suffering 56,000

· Disability and disfigurement 55,000

· Lost earning 23,000

Total $141,000

Nickla signed the standard subrogation agreement. The plan, which was responsible for Nickla’s bills, paid $69,000 and expected to be reimbursed accordingly. Nickla acknowledged the obligation to reimburse but only for the $7,000 since this was what the court awarded. The court, at the outset, believed that the contract was an ERISA one and proceeded accordingly. In its review, the court believed that the language in the subrogation agreement which said that upon any recovery would mean that Nickla’s pain and suffering award could be used to repay the plan. The court deemed that one-third of the $69,000 was to be returned by the plan’s attorney for legal fees.

Germany v. Operating Engineering Trust Fund, 789 F.Supp. 1165 (D.D.C. 1992)

Germany was injured as the result of another party and incurred nearly $200,000 in medical bills. The pertinent financial details are these:

· Maximum recoverable from the tortfeasor’s insurer was $50,000.

· Maximum payable by the health care plan is $60,000.

The plan was a self-funded plan with the usual subrogation language therein. Germany refused to execute the subrogation agreement because the $50,000 recoverable from the tortfeasor's insurer would not come close to compensating him for his lost wages, pain and suffering, etc. By signing the agreement, Germany would give what little recovery he did get to the plan. The purpose of the subrogation agreement was to avoid double benefits which in this instance were obviously not possible, argued Germany. Since Germany refused to sign the agreement, the plan locked up the money. Germany sued. The court reviewed de novo and found the trustees' decision to be arbitrary and capricious. The proper interpretation of the subrogation agreement is to avoid the participant obtaining double benefits. The court believed that the interpretation of this court would do injury to the basic purposes of the plan. As a result, the court held that Germany did not have to complete the subrogation form.

Hershey v. Physicians Health Care Plan of Minnesota Inc., ---N W 2d--- (Minn. Ct App 1993)

Even though the plan agreed that the participant was not fully compensated for his injuries following an automobile accident the participant was still obligated to reimburse the plan for medical expenses paid. The plan contained an express subrogation provision that required reimbursement regardless of whether you have been fully compensated. Case law had established an exception to the general state rule of no subrogation for less than full recovery and that exception occurred when the policy contained language to the contrary.

McIntosh v. Pacific Holding Company, 992 F.2d 882 (8th Cir. 1993)

McIntosh objected when the plan demanded reimbursement for the amount the plan paid for an accident due to the fault of another. McIntosh had $430,000 of bills paid by the plan and received a $250,000 pain and suffering award. The health care plan contained a specific clause that mandated reimbursement because the payment from the plan was conditioned on reimbursement. It was no defense to reimbursement that the third-party payments were given to compensate for pain and suffering and not for medical bills incurred. Pursuant to the contract both economic and noneconomic damages were subject to the insurer's claim or right to recovery. The third party payments were the product of an accident and under the health plan were reimbursable.

Sanders v. Scheidler, ---F.Supp.--- (W.D. Mo. 1993)

The court awarded the covered person damages for pain and suffering. The plan, through its subrogation agreement, wanted the award for medical expenses. The court held that since the subrogation did not specifically state that only medical award might be used to pay medical expenses, the plan had no right to any of the pain and suffering award.

Cutting v. Jerome Foods, Inc., 993 F.2d. 1293 (7th Cir. 1993), cert. denied, ---U.S.--- (1993)

Cutting was covered under Jerome Foods self-funded plan with a subrogation clause. Cutting's spouse was hurt in an automobile accident due to fault of a third party who was not insured. The Cutting's collected:

· Uninsured motorist provision of Cutting’s automobile policy $126,000

· Product liability pay off. 500,000

$626,000

The Cutting's estimated their losses to be $1,000.000. The Cutting's refused to pay the plan any reimbursement because they had not been made whole. The employer took issue in court. The court held that Jerome Foods did not act unreasonably in seeking to recover amount paid out in health benefits under self-funded health plan to participant's spouse injured in auto accident. In this situation, the participant and spouse recovered from third party compensation for nonmedical costs amount that exceeded medical costs. The court found that the plan language stated clearly that plan would be subrogated to all claims by covered individual against third party to extent of any and all payments made by plan.

Fields v. Farmer Insurance Company -F2d- (10th Cir. 1994)

The participant was made to reimburse the plan for sums it paid to treat injuries he had received in a motor vehicle accident, despite the fact that the participant had not yet been fully compensated from the other motorist for his damages. Since the clear language of the plan provided that the plan had to receive reimbursement from any sums recovered by the participant from a negligent third party or its insurer, the participant could not wait until he received full compensation before reimbursing the plan. Although state law seems to follow the general principle that a plan is not entitled to equitable subrogation (which is not dependent on contract, but upon the equities of the parties) until the participant has been fully compensated, this rule can be overridden by provisions in the plan.

Barnes v. Independent Automobile Dealer’s Association of Calif. ---F.3d--- (9th Cir. 1996)

Facts were these:

· Barnes was hit by Clark.

· Of Barnes’ $23,075 in medical bills, her auto medical paid $5,000 and she paid $18,075.

· Barnes received $25,000 from Clark’s auto liability carrier.

· Barnes demanded the plan pay $18,075; the plan refused, citing subrogation rights.

· Barnes claims the subrogation was not of concern because her out-of-pocket and pain/suffering were at least $65,000.

The court said Barnes’ $18,075 of expenses had to be paid by the plan and that she could keep the $25,000 recovery.

Galusha v. Pass, 30 EBC 1625 (Ohio Ct. App. 2003)

The rule being followed by the courts is that the made whole common law doctrine may be asserted unless the ERISA plan document clearly provides otherwise. That is, silence by the plan document means that the participant has the advantage over the employer. In this case, the plan documents disavowed the made whole doctrine which meant that the participant lost.

Manufacturer’s Product Liability

Metro Health System v. Glepko,

---F.2d--- (6th Cir. 1992)

Glepko was hurt in an accident arising from a tractor accident due to the fault of the tractor maker. Glepko was found by the plan to have instigated several lawsuits against the tractor maker; he also refused to sign a subrogation agreement. The plan withheld claims. The court agreed that the plan could withhold payment of medical bills from an injured participant until he signed a form subrogating his interests in the two lawsuits he had filed because a plan provision allowed the insurer to receive reimbursement for amounts paid to the participant by a third party arising out of the injury. The court ordered the insurer to pay the medical bills so long as the employee signed the subrogation form. On appeal, the court agreed with the lower court ruling.

Medical Malpractice

California Physicians Services v Gilmore, 610 P.2d 1201 (Cal. Ct. App. 1980)

Wanda Gilmore, an insured of California's Physician's Services, Inc., underwent surgery for a hysterectomy which resulted in complications and alleged negligence by the physician, including the use of certain respiratory equipment. California Physician's Services, Inc. paid approximately $500,000 in hospital and medical bills. The Gilmore’s agreed in writing to a compromise agreement by which they were to make a good faith effort to recover the costs of the medical benefits for California Physician’s Services if a personal injury action was taken. This agreement amounted to a subrogation agreement. The Gilmore’s then repudiated their signed agreement and settled with the liability insurer of the surgeon and the manufacturer of the respiratory equipment for $700,000. California Physician’s Services, Inc. intervened and brought suit. The law, expressed by the court, was most complex. The gist of the decision was that Gilmore’s recovery from the malpractice suit did not have to be given back to California physician’s Services, Inc. under the compromise agreement.

Schulte v. Frazin, ---N.W.2d--- (Wash. Sup. Ct. 1993).

Schulte's settlement with the insurer for a malpractice claim was for less than his loss of income, active life style, etc. Because of this fact, the court held the subrogation provision to be of no avail the insurer.

Metropolitan Life Insurance Company v. Porter, 12 EBC 277 (E.D.Pa. 1990)

Porter, an accident victim, was paid $32,667 as reimbursement for his medical expenses by his health care plan. Porter recovered a like sum from the third party causing his accident. Plan provided for subrogation. The Metropolitan, under an ASO arrangement, sought recovery from Porter. Porter, on advice of counsel refused to give up any of his second recovery. Metropolitan sued both Porter and his attorneys charging the attorneys with malpractice. Metropolitan claimed ERISA; Porter claimed preemption. Court held that ERISA should apply and recovery permitted; ERISA is broad enough to encompass actions of parties who are not participants, or beneficiaries, or fiduciaries. Court held that malpractice claim against attorney was unfounded. Metropolitan could not hold Porter’s attorneys liable for anything.

Holloran v. Larrieu,

---N.F.2d--- (Penn. Super. Ct. 1994)

The plan incurred large medical expenses when Holloran suffered alleged negligent medical care in the hospital by Dr. Larrieu. When Holloran added his recovery of medical expenses as a recoverable item in his malpractice suit, Holloran's health care plan wanted subrogation recovery. Holloran objected. The court held for the plan. It, indeed, has the right to recovery in a malpractice suit.

Ryan v. Federal Express Corporation, ---F.3d--- (3d Cir. 1996).

Participant did not want to share his malpractice claim recovery with his plan because he theorized that the plan would be unjustly enriched. The court found to the contrary; the plan’s terms were clear and presented no conflict with ERISA.

Medicare and Medicaid

Kittle v. Icard, 405 S.E.2d 456 (W. Va. Ct. App. 1991)

Child, Kittle, was severely injured in an automobile accident in which Icard was at fault. The child's mother was on welfare and Medicaid paid $10,000 of some $27,000 of medical bills. The claims by the child's attorney were $200,000 to $250,000. The automobile liability insurer of Icard paid the full amount of $100,000.

· Attorney for Kittle wanted nothing for Medicaid since the $100,000 settlement had failed to make child financially whole.

· Medicaid stonewalled by refusing to pay any more of the $27,000 until it was able to subrogate the full sum.

The court held that the full $100,000 should go to the child and nothing should go to Medicaid.

Casualty Reciprocal Exchange v. Johnson, ---F.Supp.--- (E.D. La. 1992)

The federal government's claim for reimbursement for services paid by Medicare out of the proceeds of a liability insurance policy was paramount to all other claims. The Medicare program paid medical expenses incurred by a beneficiary following an automobile accident and sought to recover these expenses from the automobile insurer of the driver who allegedly caused the accident. The automobile insurer maintained that the government's motion for summary judgment was premature because liability for the accident had not yet been established. The court held that the government was clearly subrogated to the beneficiary with respect to the right to the insurance proceeds under the Medicare statute; it could only exercise the right, however, after the automobile insurer's liability was established.

Hill v. State of Iowa, ---N.W.2d--- (Ia. Sup. Ct. 1993)

The Iowa Medicaid agency's subrogation claim against a recipient injured in a motorcycle accident was properly reduced by the agency's share of attorney fees and costs incurred by the recipient's family in collecting a personal injury settlement. The agency paid the recipient over $1,300 in Medicaid benefits and, after the recipient settled his case against the person responsible for the accident for $20,000, demanded subrogation for the full amount of benefits paid. Under state law, the agency's right of subrogation was limited to the total amount it paid the recipient. State law also provides that the agency's subrogation claim, rather than the recipient's total recovery, is subject to the payment of reasonable attorney fees and costs. Accordingly, the agency was obligated to pay a proportionate share of the attorney fees and costs incurred in obtaining the settlement.

No-Fault Automobile Insurance

Auto Club Insurance Association v. Mutual Savings & Loan Association, 672 F.Supp. 997 (E.D. Mich. 1977)

Auto club auto policy gave member the right to elect either to coordinate or not to coordinate with other health coverage. Member elected not to coordinate only to find, when a claim came due, that the no-fault was held to be primary, thereby not collecting primary from the group plan. Member protested in court. Court held that self-funded plan would preempt the Michigan no-fault but that a fully insured plan would not preempt the law.

Foremost Life Insurance Company v. Waters, 337 N. W.2d 29 (Mich. App. Ct. 1979)

Plan had a subrogation clause allowing recovery for the plan from damages from any person or organization. Plan paid benefit; participant recovered from a no-fault policy; plan sought subrogation; participant refused claiming the no-fault benefit was a non-economic benefit. Court made these observations:

· Plan was ambiguous.

· No-fault benefits are non-economic benefits and not of the nature of a liability settlement in the normal sense.

Court decided that plan could not get any of the no-fault recovery.

Kilmer v. Central Counties Bank, 623 F.Supp. 994 (W.D. Pa. 1985)

Self-funded plan claimed exemption from state no-fault law. That is, plan declared itself to be secondary. Participant contested in court. Court held that state’s no-fault law was preempted by the ERISA self-funded plan.

Blue Cross and Blue Shield of Florida v. Ryder Truck Rental, Inc., 472 So.2d 1373 (Fla. Ct. App. 1986).

Ryder truck renter, while driving a truck, was hurt; routine medical expenses were paid by Ryder's group plan, a fully-insured Blue Cross plan. Blue Cross sued Ryder, claiming its renter's contract made Ryder liable for renter's medical expenses, caused by negligence of Ryder. Because Florida had a no-fault law, Blue Cross was barred from any subrogation or indemnification rights.

Northern Group Services, Inc. v. Auto Owners Insurance Company, 833 F.2d 85 (6th Cir. 1987)

Facts are similar to those of Auto Club v. Mutual Savings, 9 EBC. 1033 (N.D. Mich. 1987) in that preemption of Michigan's no-fault law was being questioned. The case in point was a self-funded plan. The court held that the state's no-fault law was not preempted. Decision was reversed following the Supreme Court decision in FMC v. Holliday.

Winstead v. Indiana Insurance Company,

855 F.2d 430 (7th Cir. 1988).

Winstead purchased a no-fault auto policy and had a choice:

· Auto medical would be primary to his health care plan – premium was $100.

· Auto medical would be secondary to his health care plan – premium was $80.

Winstead chose the $80 premium. Winstead’s medical plan coordinated with no-fault auto. Accident occurred. Both plans claimed to be secondary. Court held both plan and no-fault insurer equally right/wrong and agreed with the lower court that pro rata settlement was appropriate solution.

Allstate Insurance Company v. The 65 Security Plan, 879 F.2d 90 (3rd Cir. 1989)

Issue was between a no-fault auto insurer and a fully insured MET over which plan would be primary. Each plan was written so as to claim a secondary position. Proceedings got to the federal courts. Since neither side claimed any ERISA preemption the federal court refused to decide and rather referred the case back to the state court for handling.

Liberty Mutual Insurance Group v. Iron Workers health Fund, 879 F 2d 1384 (6th Cir. 1989)

Michigan's no-fault law mandates the purchasers to have the right to either:

· Coordinate with other health plans (at a lower cost).

· Not coordinate with other health plans (at a higher cost).

Would an ERISA plan preempt this state law? The court held that an ERISA plan would, indeed, preempt this state law so long as the plan is self-funded. See FMC v. Holliday discussed below.

FMC v. Holliday, 110 S.Ct. 1109 (1990)

Holliday, a covered person in a self-funded medical plan, was injured as the result of a negligent third party in Pennsylvania which state's automobile no-fault law precludes subrogation. Employer, believing such no-fault anti-subrogation law would be preempted by ERISA, sought to recover its payments in the courts. Previous circuit court decisions had held the subrogation law would be preempted; the Third Circuit held to the contrary. Supreme Court was called upon to decide the issue. The Supreme Court held that automobile no-fault statutes, as in Pennsylvania, are preempted by ERISA. The court believed the intent of congress was clearly stated. Especially clear is the wide scope of ERISA. What is not expected is for employers to draft their plans with state requirements in mind; to make ERISA work, there must be a single standard and not multiple standards. Supreme Court took specific note that ERISA permits self-funders to subrogate, however, fully insured plans may not subrogate.

Auto Club Insurance Association v. Health and Welfare Plans, Inc. 961 F.2d 588 (6th Cir. 1991)

Spina was injured in an automobile accident. He was covered for medical benefits by Health and Welfare Plans, Inc., a self-funded group plan. In addition, Mr. Spina was covered for auto accidents by the Auto Club Insurance Association. The group health plan claimed it excluded coverage for injuries from auto accidents otherwise covered by no-fault, and the Auto Club cited Michigan state law that required the group health plan to be liable. Both plans claimed to be secondary. The district court had dismissed the suit, saying that the Michigan law which the Auto Club cited was preempted by ERISA for the self-funded group plan. On appeal, the Circuit court agreed that ERISA preempted the state statute, but it also held that it was the court's responsibility to decide liability for health benefit payments. The appeals court thus instructed the lower court to first decide whether the group plan had the discretion to deny benefits and then to resolve the coordination of benefits conflict.

Dunn v. Detroit Auto Inter-Insurance Exchange, 29 EBC 2849 (Mich. Ct. App. 2002)

Participant's medical bills of $96,000 were paid by his employer's self-funded plan. Such plan was successful in being reimbursed for the $96,000 by participant's no-fault insurer under the plan's subrogation clause. Participant sued for payment under his no-fault policy because it was liable only if employer's plan did not pay (which it did not). Court held against participant.

Plan Language Faulty

Frost v. Porter Leasing Corporation, 436 N.E.2d 387 (Mass. Super. Jud. Ct. 1982)

Plan attempted to recover on the theory of implied subrogation. This had to be done because the plan had no subrogation provision therein. Court held that there could be no recovery without a formal plan subrogation provision.

Cunningham v. Metropolitan Life Insurance Company, 369 N.W.2d 33 (Wise. Ct. App. 1983)

Plan was absent a subrogation provision. Participant was hurt and received a settlement from the tortfeasor's liability insurance company. Plan wanted reimbursement; Cunningham resisted. Court held that the plan could recover. Reason: the plan was one of indemnity and not one of investment. Double recovery was not contemplated in an indemnity contract.

Wheelahan v. Eller, 446 So.2d 442 (La. Ct. App. 1984)

Where plan was silent as to subrogation, the court would not permit the plan to attempt such subrogation.

Palmer v. Blue Cross and Blue Shield of Alabama. 460 So.2d 199 (Ala. Ct. App. 1984)

Palmer, a Blue Cross subscriber, was hurt in an automobile accident due to the fault of third party. Blue Cross paid the medical bills. Palmer, on settlement, also got $15,000 from the automobile insurer of the third party. Blue Cross plan clearly had a subrogation provision; they obtained no subrogation agreement from Palmer, however. When asked to pay back Blue Cross for the medical bills Palmer objected and sued. Court held that Palmer had to repay Blue Cross even though he had not signed subrogation agreement.

McCain Foods, Inc. v. Gerard, 489 A.2d 503 (Me. Sup. Jud. Ct. 1985)

Plan was silent on subrogation. Plan had a claim on which it attempted to subrogate. Court held the plan was estopped from subrogating because it failed to so state in the plan. The plan had the obligation to pay - unless it could be excused by some provision such as the subrogation provision; that failing, the plan stands fully liable.

Martz v. Union Labor Life Insurance Company, 757 F.2d 135 (7th Cir. 1985)

Trusteed union negotiated medical plan was amended to provide for the subrogation right of the plan; the amendment effective date clearly stated.

· Amendment effective November 1

· Amendment executed December 1

· Trust document showed amendment November 1

· Employer notified participant December 1

Participant hurt November 15; refused to subrogate; lawsuit followed. Is suit between:

· Participant and Employer?

· Participant and Trustee?

Answer: Between the participant and the Trustee. The Trustee was obligated to notify Participant on/before November 1, 1990 and not the Employer.

Smith v. Manville Forest Products Corporation, 521 So.2d 772 (La. Ct. App. 1988)

This is an example of a poorly written subrogation agreement. Facts are these:

· Medical claims paid by insurer. $10,000

· Recovery from liability $25,000

· Pro rata expenses of the participant. $30,000

Court held that insurer was eligible for a subrogation reimbursement only if the $30,000 had been less than the $25,000. In this instance the court held no recovery to insurer was possible.

Poche v. City of New Orleans, 518 So.2d 1137 (La. Ct. App. 1988)

Plan had standard subrogation provision. Participant was injured as the result of the fault of another party. Participant signed a subrogation release and proceeded to sue; the suit was settled before reaching trial with these court-determined terms:

· $450,000, none of which was for medical expenses.

· Participant and third party, anticipating a suit by the insurer to recover $150,000 in medical costs already paid, agreed to split it $50,000 by third party and $100,000 by participant. The $100,000 of participant was deposited in escrow.

Court denied Insurer s right to full recovery noting what would have been a drafting oversight by the Insurer.

· Plan said: right to any recovery.

· Plan should have said: right of subrogation to all of the rights of recovery.

The language error permitted participant to waive her right to sue for medical costs and permitted Insurer to sue. Insurer's recovery was limited to the $100,000, however.

Blue Cross v. Platt, ---A.2d--- (Pa. Ct. Comm. Pleas 1989) (No. 83-00132 and No. 88-00133)

The plan document had the subrogation agreement but the certificates did not. When asked to subrogate, Platt said no because he was not a party to the plan agreement; that was between the employer and Blue Cross. The court agreed and Platt did not have to give back his settlement from a third party's automobile insurer.

Community Mutual Insurance Company v. Johnson, ---N.E.2d--- (Ohio App. 1992)

The court held that the group contract provisions, which included the reimbursement and subrogation clauses, were not effective until after the date of the member's accident, at which time the group certificate was amended. Before that time, the group contract had no subrogation clause. The court held that to the extent the member received treatment for her injuries before the effective date of the contract amendments, the plan was not entitled to reimbursement or subrogation for funds relating to the car accident. The plan can only recover medical expenses incurred after the effective date of subrogation clause. The court's decision points up the dangers created when a health plan has inadequate contractual documents. In this case, the health plan's failure to include an adequate subrogation provision in its contract allowed the member to receive duplicate payments for certain medical expenses.

Health Care Cost Controls v. Wardlaw, ---F.Supp.--- (W.D.Ky. 1993)

Wardlaw’s group plan excluded coverage for claims accruing from acts of a tortfeasor; such exclusion was expressly waived if the participant agreed to a subrogation arrangement. This waiver option was not included in Wardlaw's booklet, however. Wardlaw never received the agreement to sign; the plan paid the claims without the agreement. When discovered, the plan sued to get its money back. Since a participant's certificate did not contain a requirement that he or his wife agree in writing to reimburse the carrier from the proceeds of any third-party settlement in order to receive benefits, the participant's wife was not required to reimburse the insurance company out of such proceeds.

Share Health Plan Inc. v Marcotte ---N.W.2d--- (Minn. Ct. of App. 1993)

Marcotte was hurt in an automobile accident and incurred $91,000 in medical expenses; these were paid by the plan after a subrogation agreement was obtained. Marcotte died; the trustees of Marcotte's estate eventually collected a large settlement from the automobile liability insurer. When the plan proceeded against the trustees for reimbursement the plan was told that the trustees had no legal status as required by the plan. Because of this quirk in the plan's language, the subrogation reimbursement failed.

Central States Welfare Fund v.,---F.2d--- (7th Cir. 1993)

The plan (of Central States) wanted the tortfeasor's insurer (State Mutual) to not settle the claim with the tortfeasor until the plan's right of subrogation had been honored. State Mutual refused arguing that the plan's language was faulty in not specifically requiring State Mutual to not settle; the plan required that the plan could be recovered from the participant after State Mutual had paid. If the participant took the money and ran that was the plan's problem. A court case ensued. The court held that the plan could not enforce plan's subrogation terms against insurance company, where plan's terms required covered individual to subrogate claims to plan. This was because ERISA imposes no obligation on insurer, who was not party to agreement, to enforce subrogation clause in the plan.

Mason v. Jones ---F.Supp--- (N.D.Ill. 1993)

Mason became a paraplegic due to an accident which was the fault of another. Mason signed a subrogation release. Mason settled. The plan demanded reimbursement. Mason refused. Reason: Neither the plan nor the authorization agreement constituted an enforceable subrogation agreement. Mason argued that he had met all the plan requirements by having submitted the requested authorization document. The plan filed suit pursuant to ERISA to enforce its terms. The court ordered the participant to reimburse the plan. The court concluded that the participant unsuccessfully attempted to create a genuine issue of material fact by claiming that neither the plan's benefit provision nor his authorization agreement contained language that could have been construed an agreement to reimburse the plan for the benefits paid. The court found that the plan and the authorization agreement's language unambiguously indicated that the plan conditioned its benefits on the participant's agreement to subrogate his rights against any third party liable to the plan. Even had the language in the plan or the authorization been ambiguous, the court would still have granted the plans' motion because it would defer to the plan's interpretation of the plan requiring reimbursement from those recoveries from third parties by plan participants for all benefits paid by the plan. The court determined that the plans' interpretation was reasonable.

Preemption (ERISA) Issues

Davis v. Line Construction Benefit Fund, 589 F.Supp. 146 (W.D.Mo. 1984)

Self-funded, negotiated medical care plan was funded with a trust; it was clearly an ERISA plan. Davis had major medical bills submitted to the plan; such bills were held up pending a subrogation agreement, which Davis refused to sign. Davis sued, claiming vexatious refusal to pay state law. ERISA preempts state’s anti-subrogation law as well as the state’s bad faith claim law.

Davis lost.

Dillard v. Teamsters Council 83 Health & Welfare Fund, 6 EBC 2558 (D.W.Va. 1985)

Self-funded plan claimed exemption from West Virginia law prohibiting subrogation provision on health care plan. Court found that ERISA would preempt such state law.

United Food & Commercial Workers Welfare Trust v. Pacyga, 644 F.Supp 633 (D.N.J. 1986)

Arizona insurance statute prohibited subrogation. Self-funded plan did subrogate. Court held the state subrogation prohibition to be preempted by ERISA.

Pugh v. Wilson

693 F.Supp. 1096 (S.D.FIa. 1988)

Wilson, plan participant, was hurt in a motorcycle accident; the expenses ($28,000) from the accident, were paid by the plan. The plan, prior to payment, had Wilson sign a subrogation agreement. Wilson received a check from the attorney in the amount of $15,000 ($25,000 insurance settlement less $10,000 legal fees). Wilson kept the $15,000. Plan sued to make Wilson pay over the $15,000 per the subrogation agreement. Wilson, attempting to hide behind state anti-subrogation law, lost; plan was self-funded and preempted the state subrogation law. Court ordered Wilson to pay the $15,000 over to the plan.

Wahl v. Northern Telecom, Inc., 726 F.Supp 235 (E.D.Wisc. 1989)

Self-funded plan had subrogation provision. Jennifer, dependent child, was hurt in an auto accident caused by another party's fault. Jennifer's mother asked the court to appoint an attorney to oversee her claims against the tortfeasor - which the court did. Jennifer's parents were in the process of a divorce. Jennifer's expenses were $42,000; the settlement: from the insurance company was $100,000. Jennifer's attorney sued the plan to wipe out the subrogation claim. That is, the state's anti-subrogation law could not be preempted. Court held the ERISA plan would preempt the state's anti-subrogation law. The self-funded plan was, however, blocked from recovery by having an attorney appointed for Jennifer ad litem (i.e., for this lawsuit only). The way the plan and the subrogation agreement were written, having a third party to replace both Jennifer and the parents finessed the plan and agreement requirements.

Sargeant v. Operating Engineers Local 478 Health Benefit Fund, 746 F.Supp. 241 (D.Conn. 1990)

Sargeant's wife was hurt when she fell at a fast food restaurant; she was covered as a spouse in Sargeant's self-funded medical plan. The chronology was:

· Injury was on February 29, 1984.

· Subrogation release signed August 11, 1986.

· Plan had paid $31,067.82 prior to settlement.

· Insurer for fast food restaurant settled for $175,000 and made offer to plan for $31,067.82.

· Wife at time of proposed settlement had many more medical expenses ahead (reconstructive surgery, e.g.).

· Plan informed wife that no further benefits would be paid after the settlement of the $31,067.82.

· Wife refused to pay over the $31,067.82 claiming that plan had an obligation for the ongoing expenses.

Court case resulted. Wife said the $175,000 was entirely too little and she took a large loss on the settled amount; since she was made only 50% whole, so should the plan be made only 50% whole. Plan argued that the plan was an ERISA plan and that any state law considerations were not appropriate. Court followed the logic:

1. If state’s subrogation law is preempted.

2. Federal common law will then be applied.

3. Federal common law permits the application of state’s common law when appropriate.

Court held that plan denial was entirely proper; and certainly not arbitrary and capricious. Participant's spouse should have received in the settlement, money for her ongoing medical care. The plan's right to recover was clearly indicated in the subrogation agreement.

Hampton Industries Inc. v. Sparrow 981 F.2d 726 (4th Cir. 1992)

Sparrow's covered spouse, Mary, was injured in an automobile accident due to the fault of the-other driver. Blue Cross administered the plan under an ASO arrangement; Blue Cross paid Mary's medical bills and sought reimbursement under its subrogation provision. Mary's attorney's contested by refusing to execute the subrogation release citing North Carolina's subrogation statute. The court held the Hampton's self-funded plan to be an ERISA plan which meant that the North Carolina statute would be pre-empted. Blue Cross was allowed to continue with its subrogation reimbursement.

Electro Mechanical, Corporation v. Ogan, ---F.2d--- (6th Cir. 1993)

The participant settled a malpractice suit involving their brain-damaged son. The self-funded plan sought subrogation recovery. The participant refused and the employer sued. The court rejected the Ogans' argument that since they were legally precluded from recovering medical expenses by the Tennessee statute, the plan should not be allowed to recoup its costs from the settlement, and found that the Tennessee law was preempted by ERISA. As a result, the plan was permitted the recovery under the subrogation provision.

McInnis v. Provident Life & Accident Insurance Company, ---F.2d--- (4th Cir. 1994)

McInnis was hurt in an automobile accident by a tortfeasor. McInnis's wife was killed in the accident. Between the tortfeasor's insurer and McInnis's insurer, a $200,000 settlement check was provided to McInnis. McInnis then wanted the plan of his wife to pay some $58,000 in unpaid medical bills. The plan of Mrs. McInnis denied coverage citing the self-funded plan's subrogation; since McInnis collected without providing the subrogation release, the plan believed its denial was proper. McInnis cited state law; the plan claimed such state law was preempted by ERISA. The court held that the state's wrongful death statute limiting reimbursement to a health insurer from a deceased employee's estate is preempted by ERISA. While the husband recognized that the terms of the plan required him to repay all benefits received from the plan if he recovered for his wife's injuries from third parties, he contended that the state wrongful death statute prohibited him from expending more than $1,500 in estate assets for such repayment. Thus, he claimed that under state law, he could not sign the payback agreement required by the plan. Disagreeing, the court found that to the extent the state statute altered the terms of a plan covered by ERISA, it is preempted by ERISA.

Frank Manufacturing Co. v. Franklin, 927 P.2d 944 (Kans. Sup. Ct. 1996).

Self-funded plan paid a large claim to a participant which was attributable to provider's malpractice. Because participant was comotose, husband, as court-appointed guardian, sued hospital and collected a large award without regard to plan's expectation under the subrogation provision. Employer sued husband to recover what was due it under the plan's subrogation clause. The dispute went all the way to the Kansas Supreme Court, which held that it lacked jurisdiction since it was purely an ERISA matter. Everyone has to go back to square on.

San Diego Electrical Health and Welfare Trust Board of Trustees v. Doyle, 30 EBC 1301 (Cal. App. Ct. 2003).

Court held that state law which could prevent the plan from a subrogation recovery is preempted by ERISA.

Carducci v. Aetna U.S. HealthCare, 30 EBC 1014 (D. N. J. 2003).

The New Jersey law which provides that insurers cannot subrogate was found to not be

ERISA-preempt. The logic of the litigation was apparently to test such preemption after the Pilot v. Dedeaux decision.

Kress v. Food Employees Labor Relations Association, 217 F.Supp.2d 682 (D.C. Md. 2002).

Participant refused to sign the subrogation release and sued when plan refused to pay claims. Plan won on preemption grounds. Participant used his claim for third party recovery as an insurance policy should plan refuse to pay. Such was, in effect, an optional ERISA funding^, device.

Procedures Faulty

Poynter v. Aetna Casualty & Surety Co. 163 N.W.2d 716 (Mich. Ct. App. 1968)

In filing his claim, Poynter was negligent in not completely filling in all of the needed information. At issue was an accident, possibly subrogatable. While Poynter was stonewalling, the plan held up the claim. Poynter then proceeded with its settlement with the negligent third party's insurer. After Poynter got his accident settlement, he completed the paper work and sued for his claim. Court held that the plan was correct in its denial.

Gidius v. Aetna Casualty Insurance Company, 337 A.2d 338 (Conn. Sup. Ct. 1974)

Gidius was reimbursed for his accident-related medical expenses by the plan. Gidius then settled with the liability carrier with there being no mention of any subrogation. The group medical plan of Gidius had lost its right of recovery even though its plan was properly written and permitted subrogation. Problem was that there was no subrogation agreement obtained from Gidius.

Kusserow v. Blue Cross/Blue Shield Plan of New Hampshire, 437 A.2d 1114 _(Vt. Sup. Ct. 1981)

Kusserow's group plan had a subrogation clause; Kusserow refused to abide by the rules and provide a subrogation release and cooperate. What had happened was that the settlement from the liability insured was not structured so as to preclude any recovery by Kusserow. Blue Cross objected and the Court held that Kusserow had been wrong in the manner by which he had settled with his liability insurer. This meant that the Blue Cross subrogation right proved to be effective.

Martz v. Union Labor Life Insurance Company, 513 F.Supp. 580 (N.D. Ill. 1983)

Plan was modified at time t, adding the subrogation provision; participant had an accident at time t + 2 weeks; participant was notified of the subrogation modification at time t + 4 weeks. Court held that since participant was not timely notified the subrogation was of no avail to the plan.

Employers Reinsurance Corporation v. Santee Public School District No C-5, 438 N.W.2d 124 (Neb. Sup. Ct. 1989)

Plan sponsor erred in failing to properly provide coverage to a participant; as a result, the errors and admissions carrier of the TPA ended up paying the claim. The error was the fault of the employer. The E&O carrier of the TPA attempted recovery, by subrogation, their claim against the sponsor. The court held that the E&O carrier had no implied rights of subrogation.

Wiljeck v. St. Anthony's Medical Center, ---N.W.2d--- (Mo. Ct. App. 1989)

Wiljeck, after an automobile accident, was treated at St. Anthony's Medical Center and assigned his group medical expenses. The employer's medical insurer paid the bill. Wiljeck, having been hurt due to the fault of the other driver, settled with the third party's liability plan which plan also paid the hospital.

Wiljeck had given the automobile liability carrier the amount of the hospital bill. When the hospital refunded the overpayment to the group medical carrier, Wiljeck objected. The court dismissed the suit noting that Wiljeck, if he had a quarrel, had one with the group medical carrier, and not with St. Anthony's.

Dailey v. Secura Insurance Company 476 N.W.2d 299 (Wisc. Ct. App. 1991)

Dailey was hurt in an accident due the fault of Judae, an uninsured motorist. Daily was covered by Secura which policy had an uninsured motorist provision. The health care plan of Dailey, after paying $16,000 in medical bills, got a subrogation release and proceeded against Secura. In the meantime, Dailey had settled with Dailey and cashed the check. The court held that Dailey must pay the plan the $16,000.

Provident Life and Accident Insurance Company v. Prichard, ---So.2d--- (Fla. Ct. App. 1993)

The plan paid out over $800,000 in medical claims. The court heard the facts and rendered a judgment which provided nothing for the plan. The plan got involved and protested but after the judgment of the court was made. Because the plan got involved after the judgment, the court held that the plan was not deserving of any reimbursement.

Marion County Hospital District v. Tuman, 305 So.2d 8 (Fla. Ct. App. 1973)

Tuman was hurt in an automobile accident.

· Hospital expenses $5,758

· Group plan paid 3,285

· Unpaid portion 2,473

The unpaid portion was paid by Tuman's assignment to the hospital of his right to recovery under his automobile policy benefits. Tuman and his auto company settled with Tuman being paid $40,000; the check was made payable jointly to Tuman and his assignee Marion County Hospital. Issue was: how to distribute the $40,000? Answer: $2,473 to the hospital, balance to Tuman.

Hays v. Missouri Highways and Transportation Commission, ---S.W.2d--- (Mo. Ct. App. 2001).

The plan followed the document and held up claims pending a signed reimbursement agreement. This holdup was challenged in court which held that such holding was contrary to public policy.

Subrogations and ERISA Preemption

Two basic rules should be understood:

1. Many state laws are saved from preemption because they relate to insurance as an industry and not a particular ERISA plan.

2. State law claims are preempted even when made against an insurer (including an HMO) so long as the plan is ERISA-regulated.

Two recent court decisions involved a state’s anti-subrogation law and its applicability to an ERISA plan which was not self-funded.

1. The plaintiffs wished the state’s law to not be preempted so they would not have to give back some of their settlement.

2. The defendants wished the opposite.

The court held for the defendents in effect overturning many years of preemption law. The implication is that the past advantage of self-funding over fully insured has been eliminated. That is, insurers had to honor a state’s anti-subrogation law in the past but do not have to honor such now; or at least in the Fourth and Fifth circuits.

Singh v. Prudential Health Care Plan, Inc., ---F.3d--- (4th Cir. 2003). Avana v. Ochsner Health Plan, ---F.3d--- (5th Cir. 2003).

Uninsured and Underinsured Automobile Policies

Baxter v. Lynn, 886 f.2d 182 (8th Cir. 1989)

Baxter, a covered person, was hurt in an auto accident due to the fault of Lynn, an uninsured motorist. The plan covering Baxter was possibly an ERISA plan. The car in which Baxter was riding had a $25,000 uninsured motorist liability provision and a $5,000 medical benefit. The auto insurer deposited the $30,000 in escrow.

Several questions arose:

· Is the plan an ERISA plan?

· Was the recovery one of subrogation?

· What manner of review is appropriate?

A court case resulted to clarify issues. The Baxter's wanted the $30,000 and so did the plan.

The court held the plan to be an ERISA one, which would preempt state's subrogation statute. Since the insurer, not the trustee, had the right to construe and interpret, the district court was in error to not have applied the de novo standard of review.

Springer v. Wal-Mart Associates Group Health Plan

908 F.2d 897 (11th Cir. 1990)

Springers were hurt by Jerry Thigpen, an uninsured drunk driver. Springers were covered by the Wal-Mart self-funded plan; Springers’ auto coverage was with State Farm and included both (a) uninsured motorist and (b) medical payments. Springers’ expenses were $36,000. Plan held up claim pending subrogation form.

They sued the following:

· Thigpen.

· State Farm.

· Wal-Mart’s plan.

Wal-Mart's plan wanted a subrogation release statement which Springer refused to sign. Springer failed to abide by plan administrative rules prior to filing a lawsuit, contrary to plan's terms. Nonetheless, lower court held for Springer in that the plan was ordered to pay. Plan appealed. Rules of ERISA, followed by 11th Circuit, is that administrative remedies must be exhausted prior to bringing a suit into federal court. Exceptions are allowed where the remedy is futile or where the remedy would be inadequate. Facts in this case were that no claim denial requiring an appeal was ever made; the claim, at the wish of Springer, was simply never perfected or completed. Court, therefore, held no benefit payable until subrogation release was offered.

Employers Health Insurance v. General Casualty Company of Wisconsin, 454 N.W.2d 10 (Wisc. Ct. App. 1990).

Participant was hurt due to the fault of Klein, an uninsured motorist. Participant's group plan paid the expenses then attempted to subrogate against the participant's automobile plan, which had an uninsured motorist provision. The automobile carrier settled for a $2,700 per month annuity with no provisions for any repayment to the health care plan. The court held that General Casualty was wrong to have made a settlement without providing for a repayment to the health care plan.

Peterson v. Benefit Trust Life Insurance Company, ---F.Supp.--- (N.D. Ill. 1992)

Peterson was a automobile passenger with Weseman; Weseman had an accident with X, where X was at fault but X had no liability or medical coverage. Since Peterson was hurt, Weseman's uncovered motorist policy came into play. Peterson's plans paid some $126,000 for his medical bills; Peterson then double collected from Weseman's uninsured motorist policy. Peterson's group medical plan, with its subrogation against the third party. Peterson's attorney argued that Weseman's insurer was not such a third party. The court agreed with Peterson's attorney thereby permitting him to double collect and the health care plan of Peterson to go unreimbursed.

Harmond y. Teamsters Joint Council No. 83., ---N.E.2d--- (Mass. 1993)

A plan with a broadly written subrogation provision has a right against a participant's uninsured motorist recovery even though the participant had done nothing more than agree to execute a future subrogation assignment.

Meyers v. Bay State Health Care, Inc., ---N.E.2d--- (Mass. 1993)

In an accident involving a negligent third party, the participant made claims against her own auto insurance company for uninsured/underinsured benefits and received about $380,000. The plan believed that it had claim to the $380,000 under its subrogation clause. The court said no, believing that it could not conclude that the underinsurance payment were damages because the payments were made by a tortfeasor. Meyers contracted with the insurance companies to pay her benefits in the event she was injured by an underinsured motorist. The benefits were paid as a result of that contractual obligation.

Kennedy v. Georgia Pacific Corporation ---F.2d--- (8th Cir. 1994)

Kennedy, a self-funded plan participant was injured in an automobile accident due to the fault of a tortfeasor. Kennedy’s bills were large but his recoveries were also substantial:

Source of Recoveries Amount

Tortfeasor’s Automobile Liability Policy $20,000

Kennedy’s No-Fault Medical Benefit 10,000

Kennedy’s Uninsured Motorists’ Benefit 380,000

Medical Expenses

Total Expenses $172,000

The health care plan held up claims wanting recovery of the $ 172,000 benefit. The big issue was this: did the $172,000 include anything for medical benefits? Plan’s recovery was not allowed by the court, which held that the employer had abused its discretion in interpreting terms of medical benefit plan to permit reimbursement of plan participant's underinsured motorist proceeds that were not due to medical payments. The court noted that the participant’s signed agreements promising to reimburse plan if they received any payment for their automobile injuries from the responsible person. Since plan's language clearly permits reimbursement of only portion of insurance company settlements paid for medical expenses, and since, as reimbursement agreements were not part of plan or required by plan, plan could not rely on them.

Wendy’s International, Inc. v. Karsko, ---F.3d--- (6th Cir. 1996).

Plan's not-so-clear terms said it would assume the participant's right to recovery under the right of subrogation. When a large payment was made to participant by such participant's uninsured motorist coverage, the plan expected recovery. The court said no. Reason plan and document language was not explicit on this right. Merely looking to recovery from "a thirty party or personal representative thereof" does not include the uninsured motorist coverage.

Workers’ Compensation

Aetna Life Insurance Co. v. Roose, 413 Mich. 85 (Mich. Sup. Ct. 1985)

Plan had subrogation provision. Plan paid benefits to Roose for an accident in the amount of $1,000. Roose later filed the claim with workers' compensation and recovered therefrom. Plan had, prior to payment, obtained a subrogation agreement with Roose. Subrogation was effective and Roose was made to give back $1,000 to the plan.