In International Coal Group, Inc. v. Pennington, 2009 WL 321038 (E.D. Ky., Feb 9, 2009), another U.S. district court in Kentucky did not consider the state law in question and ruled in the plan’s favor.

Dorothy Pennington was injured in an automobile accident and was covered under her husband’s self-funded group health plan provided through his employer, International Coal Group (ICG). The plan paid $41,800 for her medical care and she settled her claims for $225,000.

Pennington refused to turn over any of the settlement proceeds to the Plan so ICG began the lawsuit in Kentucky federal district court and eventually moved for summary judgment. Pennington opposed that motion for several reasons, including 1) that the action was not one for equitable relief but rather to compel payment of money, which is for legal relief; 2) ICG did not identify a specific fund in her sole possession since the settlement was paid jointly to her and her husband who had a loss-of-consortium claim; 3) the make-whole doctrine applied because in addition to her claim for medical expenses, she had a loss-of-earnings claim for almost $350,000 plus a claim for her pain and suffering; 4) she had no prior knowledge of the plan’s subrogation and reimbursement provisions and thus never signed a document consenting to them, so ICG waived reliance on its plan language by failing to obtain her written agreement to them; and 5) the plan only had a right of subrogation, and it waived that right by not intervening in the lawsuit in the state court.

The court rejected the first four of her arguments but in regards to the fifth, the court noted that Pennington had indeed provided the notice required by the Kentucky statute (KSA 411.188(2). However, the court quoted a statement in the decision of the 6th U.S. Circuit Court of Appeals in Marshall v. Employers Health Ins. Co. (see App. IV, Case no. 124) that said:

However, there is a significant difference between subrogation and reimbursement. “While subrogation and reimbursement may have similar effects, they are distinct doctrines.” Unisys Health Plan v. Timms, 98 F.3d 971 (7th Cir. 1996). “Unlike subrogation, which arises under state law and allows the insurer to stand in the shoes of its insured, reimbursement is a contractual right governed by ERISA and comes into play only after a plan member has received personal injury compensation.” Id.

The Court stated that it was arguable that ICG waived its right to subrogation under Kentucky law, but Pennington has failed to show any waiver of its right to reimbursement under federal common law. Accordingly, the court granted summary judgment to ICG and denied summary judgment for Pennington.

The district court’s initial decision in the Powell case relied on the application of a state law that clearly governs procedures in lawsuits in state courts. The Marshall and Timms decisions cited in Pennington decision clearly point out the important difference between subrogation and reimbursement. They enable the Pennington court to reach the conclusion that even if there were a waiver of subrogation by the plan’s failure to intervene in the state court action, a court should not be able to rule that the waiver carried over to a federal court action to assert the equitable remedy of reimbursement.

Tags:

This entry was posted by Adam V. Russo on Wednesday, May 13th, 2009 at 3:17 pm and is filed under 6th. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.