Often times, insurance policies contain enforceable provisions that may dramatically differ from one’s expectations, especially if the insured has not reviewed th policy in detail. For instance, many health insurance policies contain “subrogation clauses” which provide the insurer the ability to be reimbursed for medical expenses paid pursuant to the insurance policy if the insured also recovers in a separate legal action against the party responsible for the insured’s injuries. Subrogation clauses can, in some instances, be limited by a common law principal called the “make whole” doctrine. Under the make whole doctrine, the health insurer would not be able to recover medical expenses unless the insured had been “made whole,” in other words, unless the insured had been compensated fully. Across the country, courts are split on the applicability of the make whole doctrine in the ERISA context.
The oft-stated purpose of the subrogation clause is to avoid double recovery to an insured; however, the practical effect is that many people are unable to be fully compensated for their losses. The Wall Street Journal recently published a story about one such individual, Deborah Shank. Ms. Shank was involved in a serious motor vehicle accident which resulted in her being permanently brain-damaged and wheelchair bound. Her health plan, which was funded by her former employer, Wal Mart, paid approximately $470,000 in medical bills. She also pursued a personal injury action against the party who caused the collision. The case settled for $700,000. After legal fees, costs, and various other expenses were paid, Ms. Shank was left with approximately $417,000, which was placed in a trust for her continued care.
Unbeknownst to Ms. Shank, the Wal Mart health plan contained a subrogation clause, providing that Wal Mart would be reimbursed for medical expenses it paid before Ms. Shank could recover any of the proceeds of her personal injury action. Wal Mart subsequently sued Ms. Shank for reimbursement of the health insurance it had paid, and won. You can read Ms. Shank’s story at http://online.wsj.com/article/SB119551952474798582.html?mod=hpp_us_pageone
The Wall Street Journal article does not mention the increased rights and collection ability of employers like Walmart, or their insurers, stem from Employee Retirment Income Security Act (learn more about ERISA disability claims) and U.S. Supreme Court decisions siding against the injured or disabled. At the Law Office of Shawn E. McDermott, we are familiar with insurers’s tactics and the ever changing law of subrogation and employee benefits under ERISA.
Heather L. Petitmerment, Esq.
Law Office of Shawn E. McDermott