By Cory Bilton.
The preemptive effect of an ERISA benefit plan’s contract language continues to be a hot judicial topic. Although ERISA covers the broad rights and duties of employer sponsored benefit plans and employee beneficiaries, personal injury attorneys are largely concerned only with the narrow issue of the plan’s subrogation and reimbursement rights against injured plaintiffs. Many states limit the subrogation or reimbursement rights of health insurance plans. When a state limits a benefit plan’s right to recover, ERISA plan administrators’ argue that the plan language itself preempts any state law limitations. If the plan’s language preempts state law, the plan gets repaid. If state law is not preempted, the injured person repays less, or sometimes avoids repayment at all.
A couple days ago the Second Circuit issued an opinion, Wurtz v. Rawlings, holding that the plaintiff’s state law claims were neither expressly nor completely preempted by ERISA. A New York statute (§ 5-335) states that health insurers are not permitted to subrogate against a liable third-party or seek reimbursement for medical expenses from an injured person (Virginia has a similar “anti-subrogation” law). Despite this law, ERISA plans in New York were still seeking subrogation or reimbursement, by claiming the plan language preempted the New York anti-subrogation law. The ERISA plans at issue here were insured ERISA plans, which may still be regulated by state laws that are intended to regulate insurance (as opposed to self-funded ERISA plans, the language of which preempts even state laws that regulate insurance). But when the trial judge faced the plan administrator’s motion to dismiss, he held that the plaintiff’s claims were both expressly preempted and completely preempted by ERISA and thus dismissed the claim.
In discussing the merits of the preemption claims, Wurtz holds that the anti-subrogation law claim is neither expressly preempted nor completely preempted by ERISA. The court finds that express preemption is not applicable because the anti-subrogation law is intended to regulate insurance and the ERISA plan in question is an insured one. With regard to whether the plaintiff’s claims are completely preempted because they relate to the extent of plan benefits, the court holds that the claim fails the preemption test set out by the Supreme Court in Aetna Health v. Davila, 542 U.S. 200 (2004). First, the plaintiff’s claims are not to recover benefits, enforce rights, or clarify future benefits under the plan; meaning the ERISA plan is irrelevant to the claims. Second, Wurtz finds that the plaintiff’s claims arise under an independent legal duty imposed on the defendant by New York’s anti-subrogation law. Since the plaintiff’s claims are not expressly or completely preempted by ERISA, the trial court erred in granting the motion to dismiss.
Wurtz is particularly interesting to me because the Fourth Circuit considered this same issue in Singh v. Prudential, 335 F.3d 278 (4th Cir. 2003), but arrived at the opposite conclusion. Wurtz acknowledges this circuit split, but attributes the divergence of opinion to Singh being decided prior to the Supreme Court’s elaboration of the complete preemption doctrine set out in Davila. However, after a couple of readings of the cases, I think the Fourth Circuit could have reached a similar conclusion, even after Davila.
Instead, I think the difference lies in the assumptions each Circuit adopted prior to applying its analysis. The Singh court concluded that the plaintiff was seeking the “return of a plan benefit unreduced by subrogation.” Whereas the Wurtz court explicitly says that the plaintiff does not seek to recover benefits already due, enforce rights under the plan, or clarify rights to future benefits. Of the two interpretations, I think Wurtz is much closer to the truth. In reality, the money that is used to reimburse (or not reimburse) a plan comes from a tortfeasor. That money is really unrelated to the injured person’s plan benefits. Think of it this way, if the tortfeasor was uninsured and judgment-proof, there would be no money to fight over, but the injured party would still be entitled to health benefits under the plan. It seems a little ridiculous to argue that the financial status of an unrelated tortfeasor determines the injured person’s health insurance benefits. But yet, this interpretation is necessary to the Fourth Circuit’s analysis in Singh.
This battle over the subrogation and reimbursement rights of health plans will continue. The circuit split resulting from Wurtz may send this issue back to the Supreme Court for further clarification. It’s an important debate because the really heated disputes arise when the tortfeasor does not have enough insurance or money to pay for the damage he caused. Since the money that is paid is too little to cover the loss, someone is going to lose out; either the health plan or the injured person. Personally, I will always root for the injured person to win.
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