Subrogation Inquiry Not Same as Lien On Settlement Proceeds, Court Rules
Coordination of Benefits April 2011 | Vol. 19, No. 2
It would be very difficult to prevail in a lawsuit against an ERISA health plan or its claim administrator that would undermine a plan’s efforts to enforce its subrogation rights. Most self-insured ERISA plans have well-drafted provisions that make it almost impossible for such a lawsuit to prevail. But if the plan participant’s attorney could put together a class action against the plan, it could provide an opportunity for a favorable settlement. That’s because the prospect of defending a class action could put considerable pressure on a plan or its claim administrator to settle the plan participant’s claim. Such litigation would be very costly for the plan to defend. And if there is any possibility that the plan language has a weak spot, there could be rather significant liability to a large number of claimants.From the vantage point of the plan participant’s attorney, success in a class action lawsuit could result in very substantial fees — far more than the attorney could earn from a successful lawsuit for an individual. That’s because class action lawsuits are much more complex, and with the stakes being so much higher, there is even greater pressure on the plan or its claim administrator to make a substantial settlement.
However, there’s good news for ERISA health plans and their claim administrators. It’s not easy to establish a class action lawsuit, as we can see from the case of Cramer v. John Alden Life Insurance Co., 2011 WL 382227 (D.C. Mont., Feb. 4, 2011).
The Facts
On Dec. 4, 2009, Stefanie Cramer was seriously injured in an auto accident. She was covered by Blue Cross Blue Shield of Michigan as a dependent of her parents and also by her own employer’s self-funded ERISA plan administered by John Alden Life Insurance Co. (doing business as Assurant in this case). The plan’s subrogation agent was Ingenix.
Cramer successfully recovered $205,000 for her medical and other expenses, comprising $100,000 (the maximum coverage of the other driver’s auto liability policy), plus an additional $100,000 from the underinsured motorist (UIM) coverage, plus an additional $5,000 from the medical pay coverage from her own auto insurance policy, Farmers Insurance Exchange (hereafter “Farmers”).
Her employer’s plan included a subrogation provision stating that the plan’s right of subrogation would not be enforced until she had been fully compensated for her injuries. On March 23, 2010, when the plan had paid only $1,900 in health benefits, it informed Farmers of its potential subrogation rights. Ingenix asked Farmers to withhold $1,900 of any settlement proceeds and to contact Ingenix before settlement to confirm the final amount of its lien.
On being informed of this development, Cramer’s attorney asked for and received copies of the plan’s subrogation provision, which Ingenix provided. On May 11, Farmers advised Cramer’s attorney that it would pay $100,000 (its policy limit). Cramer’s attorney told Farmers that although there was no lien from Ingenix there was a notice of a subrogation claim. She asked Farmers to issue a check payable to her firm’s trust account for the $100,000 and that the firm would hold the total amount of the medical expenses until the subrogation claim was resolved.
Cramer’s attorney then advised Ingenix that that Cramer had not been made whole and requested: (1) a written confirmation that it would not seek subrogation in this case; and (2) a notice from Ingenix withdrawing its asserted “lien” against the $1,900 the plan had paid. Farmers sent Cramer’s attorney the $100,000 in exchange for her assurance that it would hold the $1,900 until the issue of its right to reimbursement is resolved. Cramer’s attorney then advised Ingenix that she received the $100,000 and threatened to file a declaratory judgment action if she did not hear from them immediately regarding her demand for withdrawing its asserted lien.
On June 2, after entering into an hourly fee agreement with Cramer to resolve any and all liens and subrogation claims arising out of the accident, Cramer’s attorney filed a complaint and request for declaratory judgment against plan administrator Assurant and subrogation agent Ingenix in a state court. On June 24, Ingenix contacted the attorney and said it would not be pursuing any subrogation or right of reimbursement for the accident.
Cramer’s attorney refused to dismiss the complaint, so the defendants removed the action to the federal district court based on federal jurisdiction under ERISA and then moved to dismiss the complaint. The federal court allowed Cramer to amend the complaint to state a claim for relief under ERISA, which Cramer’s attorney promptly did. The amended complaint alleged that Assurant and Ingenix breached their fiduciary duty to plan beneficiaries by asserting a subrogation claim despite the fact that Cramer had not yet been made whole. The amended complaint alleged that Cramer was forced into litigation to “release” the wrongful subrogation claim. She moved to have the court certify a class action, and Assurant and Ingenix moved to dismiss the class action complaint.
The Decision
Cramer’s attorney argued that she was “forced to haggle for four months through her attorney” at the rate of $250 per hour before she filed suit before Ingenix conceded her client’s right to benefits it paid. The court rejected that argument, concluding that she did not enter into the fee agreement until June 2, 2010, when all that was at issue was the $1,900 of undisbursed UIM proceeds. The court further concluded that, “to the extent Cramer claims to have standing based on legal expenses and attorney fees she incurred in the months preceding this litigation, she is mistaken.”
Likewise, the court concluded that Cramer’s attempt to characterize Ingenix’ actions as a denial of benefits was not convincing. Cramer had received all the benefits due her from the plan, and while she might have been worried about the possibility of having to reimburse Ingenix for $1,900, she was never required (or requested) to do so.
The court said that Cramer’s attorney would have to demonstrate a reasonable likelihood of future injury to support her request for prospective injunctive or declaratory relief. In light of the fact that Ingenix stated it would not be pursuing any subrogation or right of reimbursement from Cramer, the court found that the allegations in the complaint were not sufficient to demonstrate a reasonable likelihood that Ingenix would violate its duties under ERISA or impermissibly seek to enforce a yet-to-ripen claim for subrogation.
Furthermore, the court concluded that at no time did Ingenix “enforce” or seek to enforce its right of subrogation. In explanation of this finding, the court said:
If the Court were to …construe the [Ingenix] letters and requests for information as an “enforcement” of their right of subrogation undertaken in violation of the Plan language, [Ingenix] would essentially be prohibited from notifying plan participants, counsel, or third-party insurance companies of the Plan’s potential recovery rights and from conducting the very made whole analysis that Cramer claims is so critical. In other words, if the Court were to accept Cramer’s expansive reading of the word “enforcement,” then [Ingenix] could not request information from a Plan participant or her counsel in an effort to determine whether the participant has been made whole, because doing so would constitute “enforcement” of their subrogation right, which is impermissible unless [Ingenix] first conduct a made whole analysis. Because Cramer’s reading of the word “enforced” is thus unreasonable, there is no ambiguity.
The court then concluded that although Ingenix may have “asserted” a right of subrogation in its correspondence with Cramer’s attorney and Farmers, it did not “enforce” a right of subrogation without first determining whether Cramer had been made whole in violation of plan terms. Accordingly, it granted Assurant and Ingenix’ motion to deny the class certification on the grounds that it was moot.
Implications
Although the court’s opinion provides no details regarding the extent of Cramer’s injuries, it is evident from the speed in which the financial aspects of the potential tort case were resolved that those injuries were severe. This is confirmed by the fact that the auto liability insurers paid their maximum policy liabilities very promptly, and that Ingenix was quick to conclude that Cramer was not made whole from the benefits it paid together with Cramer’s $205,000 recovery from the auto policies.
The subrogation provision of the plan was unusual. ERISA plans usually provide that they are entitled to reimbursement even if the plan participant is not made whole. However, had the plan been insured and issued in Montana, it’s clear that such a provision would be contrary to Montana law. Since this plan was self-funded and subject to ERISA, it’s also clear that if the plan provided for reimbursement even if the plan participant was not made whole, the Montana law would have been preempted by ERISA.
The court’s ruling said that the class action lawsuit mischaracterized the plan’s failure to immediately repudiate its potential claim for reimbursement. Ingenix simply indicated that it could have a right of reimbursement without specifically referring to the limitation based on whether Cramer was made whole by her tort settlements. Cramer’s attorney’s prosecution of a class action against Ingenix seems to be somewhat outrageous, sort of like the legendary person who murdered his parents and then pleaded for mercy because he was now an orphan. Such an outrageous approach is rarely likely to be successful.
Although it was not an issue in this case, it is interesting to note that Cramer had duplicate medical coverage as an employee under her employer’s health plan (which was the successful party in this case) and as a dependent under her parents’ health plan. Clearly, the plan was primary because she was covered directly. Her parents’ plan would have been secondary because she was covered as a dependent.
Under the Affordable Care Act, it is now possible for a person such as Cramer to be covered both directly as an employee and as a dependent under her parents’ health plan. Interestingly, the accident causing Cramer’s injuries happened in December 2009 (before that law was enacted), and before the law took effect in September 2010. We don’t know why Cramer was entitled to that duplicate coverage, nor do we know the extent, if any, of health benefits provided by her parents’ plan. It’s unlikely that we’ll learn anything about this interesting aspect of this case.
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