Court Says Georgia’s Make-whole Rule Applies to Self-funded ERISA Plan
Coordination of Benefits April 2011 | Vol. 19, No. 2
As we know, self-funded health plans subject to ERISA usually provide that their right to reimbursement is not subject to the make-whole rule. Federal courts have ruled that in the absence of a plan provision to the contrary, federal common law will impose the makewhole rule when the plan seeks reimbursement. For that reason, virtually all ERISA health plans today specifically provide that they are entitled to reimbursement of benefits paid even if the plan participant is not made whole. On rare occasions, we encounter an ERISA health plan that omits such a statement. When it does, one can expect the federal court to rule that the make-whole rule will apply. This result occurred recently in Georgia. The case is Cody v. Management International Longshoremen’s Association (MILA) National Health Plan, 2011 WL 474812 (S.D. Ga., Feb. 2, 2011).
The Facts
Glenn Cody was covered by the MILA plan (a self funded health plan subject to ERISA) on Oct. 4, 2004, when he was injured in an auto accident. As a result of the accident, he incurred about $29,500 in medical expenses and about $30,000 in lost wages. After the MILA health plan paid about $17,600 for his medical expenses, Cody settled his claim against the driver of the other car for $25,000, which apparently was the maximum of the other driver’s liability coverage.
The MILA plan included a subrogation and reimbursement agreement that did not include a provision negating, application of the make-whole rule. Nevertheless, the plan indicated it would seek to enforce its reimbursement, provision against the tort settlement proceeds. Cody brought this action in the U.S. District Court in Savannah to prevent it from doing so. He moved for summary judgment against the MILA plan.
The Decision
The lead case involving a self-funded ERISA health plan in Georgia is Cagel v. Bruner (see App. IV, Case No. 90). In that case, the 11th U.S. Circuit Court of Appeals held that federal common law imposes the make-whole rule on a self-funded ERISA plan when the plan does not include a provision in its subrogation or reimbursement provision specifically stating that the make-whole rule does not apply. The court reached a similar ruling in Guy v. Southeastern Iron Workers’ Welfare Fund, 877 F.2d 37 (11th Cir., 1989). Since then, U.S. District Courts in Georgia followed those rulings in Great-West Life & Annuity Co. v. Brown (see App. IV, Case No. 318) and Smith v. Life Ins. Co. of N. Am., 466 F.Supp.2d 1275 (N.D. Ga., 2006).
The MILA plan pointed out a decision in Florida, Adelstein v. Unicare Life & Health Ins. Co. (see App. IV, Case No. 257), where a U.S. District Court in Florida upheld the right of an ERISA health plan to recover the benefits it paid when the plan participant was not made whole. That decision was upheld on appeal by the 11th Circuit (which includes Florida and Georgia) in an unpublished opinion.
The U.S. District Court in Georgia rejected the MILA plan’s argument by distinguishing the facts in the Adelstein case. It said that in the Adelstein decision, the Florida district court found that the plan participant “breached notice, cooperation, and prejudice requirements which expressly provide that the insured will be personally responsible for the reimbursement amount.” That did not happen in this case. Since the Georgia district court found that the Adelstein opinion was based on easily distinguishable circumstances, it concluded that the make-whole doctrine remained applicable in this case. Therefore, it granted summary judgment in favor of Cody.
Implications
It is rare today to find a case involving a subrogation and reimbursement agreement in a self-funded ERISA health plan that does not specifically entitle the plan to recovery even if the plan participant is not made whole by any tort settlement or judgment. The lesson of this case is obvious. Self-funded ERISA plans should make sure that their subrogation provisions are reviewed from time to time by attorneys who are familiar with the developing case law in each jurisdiction in which they operate.
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