District Court Within The Sixth Circuit Holds That Plan Language Overrides Common Fund Doctrine
By Tom Lawrence, www.healthsubrogationblog.com
A recurring issue for health plan subrogators is whether a state law — or federal common law — common fund doctrine requires a health plan to reduce it’s subrogation amount by one-third. In Electric Energy, Inc. v. Lambert, in the United States District Court for the Western District of Tennessee, No. 10-2629-STA-tmp (December 2, 2010), the Court held that the Illinois common fund doctrine was preempted by ERISA and plan language rejecting the common fund doctrine was sufficient to preclude application of a federal common law common fund doctrine.
The plan language provides, in pertinent part:
The Plan shall, to the extent of benefits paid or payable by this Plan, have a reimbursement right against any funds paid or payable by any plan, person, insurance
policy, insurer or other party (collectively an “Other Party”) by reason of a Covered Person’s Injury or Illness, whether or not those funds are sufficient to make whole the Covered Person for the Injury or Illness. The Plan shall not be responsible for any costs or expenses, including attorneys’ fees, incurred by or on behalf of a Covered Person in connection with any efforts to recover funds from any Other Party, unless this Plan agrees in writing to pay a portion of those expenses. The characterization of any funds paid or payable to or on behalf of a Covered Person, whether under a settlement agreement or otherwise, shall not affect this Plan’s reimbursement right and to receive, pursuant to such right, all or a portion of such funds.
This case is important because it provides additional authority confirming that the common fund doctrine created by the Illinois Supreme Court in Bishop v. Burgard is preempted by ERISA and that the Illinois Supreme Court continues to be out of step with every other court that has addressed this issue. But this case illustrates the importance of a health plan ensuring that this issue is decided by a federal court. Had this issue been decided in Illinois state court, the state court would have followed Bishop.
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