Go Utes!

"Hungry Vulture" Served Up a Plate of Class Action

UnumProvident is, by quite a bit, the largest disability insurer in the country.  It has had more than its share of negative press over the last few years arising out of allegations that is has wrongfully denied claims.  Ray Bourhis and Alice Wolfson, two excellent trial lawyers out of San Francisco, have been as aggressive as just about any attorneys in bringing Unum's misdeeds to light.  Unum's sins are many but Ray and Alice have succeeded in obtaining a number of jury verdicts against UNUM for not only improperly denied benefits but for consequential and punitive damages as well. 

Yesterday Ray and Alice filed a class action lawsuit against Unum alleging that consumers were victims of a bait and switch tactic.  Individuals purchased insurance to cover them when they were disabled from their own occupations.  Then, according to the suit, after the claim was submitted, Unum evaluated the claimant's ability to work against duties that were substantially different and  easier to perform than those of the person's own occupation.   

Until recently Unum offered employees it deemed worthy a "hungry vulture" award.  Nothing like knowing that your financial interests are in the hands of folks who are looking after you!

Unfortunately, the circumstances under which you have the ability to recover either consequential or punitive damages against any health, life or disability insurer are very limited due to ERISA's remedial structure.  That statute governs most medical, life and disability claims in the country.  But that is a topic for another day. 

ERISA's "Broken Promise"

Internet Resources

Third Circuit Upholds HIPAA's "Routine Uses" Regulation

HIPAA’s privacy protections have changed the way healthcare providers communicate about medical information relating to specific patients. To facilitate medical and reimbursement practices, the Department of Health and Human Services enacted a regulation to allow providers and payors to disclose protected health information ("PHI") for "routine uses" (characterized as uses and disclosures of PHI for "treatment, payment, and health care operations") without jumping through the hoops of HIPAA’s consent requirements. A federal appeals court rejected challenges to this HHS regulation this week.

The challenge came in the form of Citizens for Health v. Leavitt. The plaintiffs, a coalition of organizations and individuals, argued that the "routine uses" regulation was invalid for a number of reasons but primarily because it violated the privacy rights of the Fifth Amendment and the free speech rights of the First Amendment. The Third Circuit rejected these arguments. The guarantees of the First and Fifth Amendments restrict government rather than private actions. Because the providers and payors disclosing the PHI under the regulation act in a private rather than governmental capacity, the permitted disclosures do not implicate Constitutional guarantees. Obviously, this is good news for healthcare providers concerned about HIPAA compliance.

The court also noted that HIPAA provides minimum privacy protections and that providers and payors may be subject to more stringent state law privacy protections. Consequently, the regulation is not the final word on provider’s privacy obligations.

Assuming Good Faith

Jeffrey Toobin's article on Justice Stephen Breyer in the October 31, 2005, issue of The New Yorker begins with an interesting story.  In the weeks following the Court's Bush v. Gore decision, Justice Breyer felt the need to keep his clerks from being discouraged about ending up on the losing side of one of the most critical decisions in recent history.  Some were bitter or cynical.  Others questioned the integrity of the Court.   Breyer chose other roads.  "I told them, 'This, too, will pass.'"  Then, in what Toobin says is a reflection of the Justice's "fundamentally optimistic nature," Breyer states:

You have to assume good faith, even on the part of people with whom you disagree.  If you don't assume good faith, it makes matters personal, and . . . in my experience, it normally isn't even true.  People do act in good faith.  The best clue to what a person thinks is what he says.

Litigators have to keep this in mind.  For anyone who does trial work or litigation with any frequency, there will be losses, some heartbreaking.  I've had cases into which I've sunk hundreds of hours of time and tens of thousands of dollars in costs only to come up at the end of the process with nothing.  I've gotten rulings where I couldn't believe the Judge came to the conclusion he or she did.   However, attributing hard-to-swallow decisions to anything other than good faith intentions and efforts on the part of a judge or jury is almost always corrosive.  

Practicing law is challenging and at times discouraging.  But it would not be worth doing if it was also a cynical or hopeless experience.    

ERISA Does Not Prempt Maine's Regulation of PBMs

Pharmacy benefit managers ("PBMs") are significant players in the healthcare field. They act as intermediaries between sellers of prescription drugs, the drug manufacturers and pharmacies, and the bulk purchasers of those drugs, health insurers, HMOs, self-funded employer sponsored medical plans and government health benefit programs. The size of PBMs gives them leverage when buying drugs from sellers which, in turn, can lead to significant cost savings for purchasers. However, their negotiations and contract terms with sellers are, generally speaking, private matters and are not subject to disclosure or regulation. This has led some to worry that PBMs may enter into purchasing contracts with sellers that line the pockets of the sellers and the PBMs at the expense of the purchasers.

In response to concerns about the lack of regulation of PBMs, Maine passed the Unfair Prescription Drug Practices Act in 2003. The statute requires PBMs to, among other things, act as fiduciaries to their clients, disclose conflicts of interest, disgorge profits from self-dealing and disclose to purchasers some aspects of their financial dealings with sellers of the drugs. A coalition of PBMs brought suit to have the statute struck down as violating ERISA’s preemption clause.

Last week, in Pharmaceutical Care Management Association v. Rowe, the First Circuit rejected this challenge and held that ERISA does not preempt the Maine statute. The court ruled that PBMs are not fiduciaries under ERISA and, thus, not subject to ERISA preemption. It is an interesting ruling because although PBMs are expressly designated as fiduciaries under the Maine statute, they are fiduciaries for state law purposes only. Their activities do not fall within ERISA’s separate definition of "fiduciary."

Bottom line: at least in the First Circuit, states may regulate PBMs if they take care to craft their statutes to follow the Maine model.

Don't Let This Happen To You!

A few days ago a court dismissed a case brought to obtain payment of a denied medical claim. That is not really very unusual. The deck is stacked against health care providers and patients who want to sue for denied medical benefits, especially when those claims involve ERISA. But as I read the Judge’s opinion today, I was really quite amazed at the poor legal representation on behalf of the plaintiffs.

First, the case was brought by two hospitals operated by a large, reputable healthcare system.  They have the sophistication to recognize that they need to hire experienced, knowledgable legal counsel. Second, the denied claims were no small matter; they totaled several hundred thousand dollars, a powerful incentive to hire competent legal counsel.  Despite these facts, the Judge's opinion made clear that the hospitals' attorney was clearly out of his element.  As a result of several significant blunders in how the case was presented and the failure to lay the proper foundation before litigation even started, the case was dismissed; the hospital received nothing.

But here’s the kicker: I looked up the website of the attorney representing the hospital and found that he claimed to specialize in litigating denied medical claims! A quick search of cases in his jurisdiction, however, revealed no other reported cases involving denied medical claims in which he was involved.

I won’t disclose the hospital’s or attorney’s name. But no healthcare provider or patient should let this happen to them. Evaluating, appealing and litigating denied health insurance, managed care or disability claims is as challenging an area of law as any. It is many steps beyond collections work.  The confluence of medical, insurance and legal issues is something that few people really understand.

When you need the resources to handle an important claim in this area, don’t mess around with someone who can’t demonstrate that they know what they are doing and have done it before. Trusting this type of work to a neophyte or amateur increases the likelihood that you are simply throwing your money away.

Not All Disability Policies Are Created Equal

The common idea behind all disability insurance policies is that you'll get benefits if you can't work.  You pay a premium to the insurer in exchange for the expectation that if you become disabled the insurer will replace your lost income. 

However, the variety among disability policies is great.  Some pay benefits for your entire working career if, for any reason, you can't work in the specific occupation in which you've been trained.  These "own occupation" policies are great things to have if you can get them.  But they will almost always be more expensive than policies that only pay disability benefits if you are disabled from any occupation that exists for someone of your education, training and experience.  For these "any occupation" policies, you have to show that you can't work in any job rather than just the one for which you've been trained.  For example, the concert pianist who loses the pinky and ring fingers of her non-dominant hand isn't going to collect a dime from an "any occupation" policy.   But she should get benefits from her "own occupation" policy without too much trouble.  

There are many other ways in which an insurance policy defines when and how much they pay out.  Generally speaking, insurance companies can structure their policies to be as generous or as stingy as they want.  The premium charged should (but doesn't always) reflect those differences in coverage.  The distinction between own occupation and any occupation coverage is one of the most common ways insurers distinguish between types of coverage and the risks they will insure.  There are a lot of other methods they use.  But keep the title of this post in mind when you're shopping for a policy or need to make a claim.  

Executive Compensation Abuse in the Insurance Industry

UnitedHealth Group, parent of UnitedHealthcare, is the largest health insurer in the country. William W. McGuire, its CEO, is well compensated. Last year he made $124,774,000. Yes, that’s right. You can look it up here.

That’s a pretty big number. To get a better idea of what this really means as a practical matter, this amounts to $341,846.58 per day. It is $14,243.61 per hour. This is a guy who, even assuming Superman’s sleep requirement of 5 hours a night, earned $71,218.05 for last night's snooze.

But last year? That’s really nothing. The five year compensation total for Mr. McGuire was even more inconceivable: $342,284,000.

Now I don’t begrudge people making a lot of money. But I think there ought to be a fair ratio between one’s contribution to the business and what he's paid. You don’t have to be a genius to say that relationship doesn’t exist here.

Compensation like this causes otherwise reasonable people to call for caps on what folks can take home from their business activities. As the old saying goes, pigs get fat and hogs get slaughtered. Mr. McGuire is well into hog territory.

My question is, why aren’t UHC shareholders speaking up about this abuse?

Even the Wall Street Journal Agrees . . .

ERISA does a terrible job of protecting the individuals it was designed to protect.  Today's Wall Street Journal has an article written by Ellen E. Schultz about the efforts of former NFL player Victor Washington to get disability benefits from the league's disability plan.  The story is behind a subscriber wall.  But it states that ERISA has ended up "tilting the playing field in favor of employers and serving as a legal shield for them."  Too true.  It references the Supreme Court's 1987 ruling in Pilot Life v. Dedeaux that no punitive damages may be awarded in ERISA cases and states that, as a consequence, " . . . there's little downside to delaying or resisting approval of a claim, since the worst that can happen is that the employer will later be ordered to pay.  For employees, however, the lack of punitive damages means it is often difficult to afford--or even find--legal representation." 

It's actually worse than the article describes.  Not only is an ERISA claimant prohibited from getting punitive damages (damages to punish the insurer), he has no right to "consequential" damages.  These are damages routinely awarded by courts to compensate a person for loss arising out of another person's wrongful act.  For example, under ERISA if you lose your home or car because an insurer has wrongfully denied your health or disability claim, you get no compensation for that loss if a court later decides the insurer was wrong.  

Back in 1989, two years after Pilot Life, Justice O'Connor wrote in Firestone Tire and Rubber v. Bruch, another ERISA case, that courts should not interpret the statute in a way that would "afford less protection to employees and their benefitciaries than they enjoyed before ERISA was enacted."  But that is exactly where we are.  And, ironically, it is in large part because of Pilot Life, a decision written by . . . Justice O'Connor.   

Getting Attorney Fees Under ERISA

ERISA allows for recovery of attorney fees and costs to any litigant based on the court's discretion.  So how does a court exercise that discretion?  

The federal Circuit courts of appeals, the level just below the U.S. Supreme Court, have almost uniformly adopted a five factor test for evaluating whether attorney fees should be awarded in ERISA cases.  You can see the factors listed on pp. 12-13 in the Toman decision in the library section of this website.  However, the factors do not necessarily favor an award of fees to prevailing plaintiffs.  In fact, in Toman, the court declined to award fees to the prevailing plaintiff even though it concluded that the insurer was not only wrong in denying a claim but was downright unreasonable: arbitrary and capricious in ERISA language. 

But the Ninth Circuit has in place, in addition to the five factors, a presumption that prevailing plaintiffs in ERISA cases are entitled to an award of attorney fees.  See, e.g., Canseco v. Construction Laborers Pension Trust for Southern California, 93 F.3d 600, 609-10 (9th Cir. 1996).  The Ninth Circuit is not alone on this issue, but it is in the minority.  Most Circuits simply apply the five factors without any presumption.  But if you're representing plaintiffs, it's a very helpful thing to be able to know that if you win you'll probably be getting an award of attorney fees and costs too.  

ERISA and Denied Medical Claims

She Sure Doesn't Look Disabled . . .

My lovely spouse told me that she saw at the store today a woman who lived up the street from us in our old neighborhood. It brought back a memory. This woman was a school teacher but during the summers she worked for insurance companies doing surveillance on workers comp and disability claimants. She would wait outside their homes in a van or car and videotape them as they went about their activities I remember her telling me, "I’ve never yet seen a legitimate claim."

Now I don’t have any question that there are people who file fraudulent disability claims. And I don’t have any beef with insurers doing reasonable surveillance to try to ferret out those folks. But I do have a huge problem with people who are so jaded, suspicious or just plain dumb that they don’t believe that anyone is disabled.

Strictly speaking, no one is ever completely disabled. Even a comatose person can "work" testing ventilators with a little help from people around him. Yet no sane person would ever consider that someone in a coma is not disabled.

The fact is that disability insurers sell their product by making sure we understand there is a real risk that something could happen to prevent us from carrying on at least our own occupation, and perhaps any meaningful occupation. If an insurer sells to a surgeon a disability policy to pay her a monthly benefit if she can’t perform her specialty, she certainly shouldn’t feel guilty about making a claim on the policy if, after purchasing it, she develops a hand tremor. It may not keep her from doing 99% of the activities of daily living. But it prevents her from being a surgeon. I know I don’t want her as my surgeon. These types of "own occupation" disability policies, especially for highly compensated or highly skilled individuals, are quite common. It is not unusual for a person to be entitled to these types of disability benefits without appearing to be disabled to any degree at all. So next time you see someone walking around looking perfectly fine from your perspective, yet you know they are "on disability," don’t assume they are a malingerer or disability fraudster.

Equitable Subrogation & ERISA's Remedial Framework

Under ERISA, fiduciaries have no ability to sue participants for breach of the terms of a plan. To illustrate this point, here’s a health insurance scenario that crops up regularly. Mabel Cautious is insured under the Conglomerate Inc. Medical Benefits Plan ("the Plan"). Mabel is driving through an intersection one day and Johnny Hotrod blows a red light, hits Mabel and injures her. She has medical bills of $10,000 which the Plan pays. Later, Mabel sues Johnny for her injuries and his auto insurer pays her $25,000, Johnny’s policy limits, a portion of which is to pay for Mabel’s medical expenses. The document governing the Plan has a provision in it that calls on Mabel to reimburse the Plan for any medical expenses it has paid Mabel if Mabel later recovers those expenses from a negligent third party, such as Johnny. These contract terms, usually referred to as subrogation provisions, are common in insurance policies.

So what if Mabel refuses to reimburse the Plan for the medical expenses she recovers from Johnny? ERISA is very clear: neither the Plan, its corporate sponsor nor the administrators of the Plan can sue Mabel for breach of contract. 29 U.S.C. §1132(a)(1)(B). ERISA does have a provision, 29 U.S.C. §1132(a)(3), that allows a fiduciary to obtain "appropriate equitable relief" for violations of the terms of the Plan. However, in Great-West v. Knudson, 534 U.S. 204 (2002), the Supreme Court decided that "appropriate equitable relief" does not include recovering money for breach of contract.

But the folks administering ERISA plans, called "fiduciaries" under the statute, were not deterred from pursuing subrogation claims. There are equitable theories that allow for recovery of money under certain circumstances. One of these theories is equitable restitution. Some federal Circuit Courts of Appeals interpret Great-West as allowing ERISA fiduciaries to recover funds from Mabel under this theory. Other Circuits have interpreted Great-West as prohibiting fiduciaries from pursuing subrogation claims at all.  So the federal Circuits are split on this issue.

Last month the Supreme Court agreed to review a case, Mid Atlantic Medical Services, LLC v. Sereboff, 407 F.3d 212 (4^th Cir. 2005), to resolve the question. In Sereboff the Fourth Circuit allowed an ERISA plan to recover a portion of its medical expenses based on equitable restitution. Usually, whether an insurer is entitled to be reimbursed when a person receives money from a personal injury claim calls on a court to analyze whether that person has been "made whole" by the personal injury money she receives. Only if she has been fully compensated for her injuries is the insurer in a position to insist on getting its money back. This analysis, known as "equitable subrogation," looks beyond the terms of the insurance policy.  However, in Sereboff, the Fourth Circuit was having none of that. It simply looked at the terms of the Plan, identified language in the Plan that called on the Sereboffs to repay the Plan regardless of whether they had been made whole, and awarded the Plan the money, less the Plan’s proportionate share of the Sereboffs' attorney fees.

In other words, the court allowed the ERISA fiduciary to enforce the terms of the Plan to recover money for breach of contract through §1132(a)(3), effectively enabling an end-run around the limits of §1132(a)(1)(B). We’ll now see if the Supreme Court lets the fiduciary get away with that.

A Small Pivot

Take a look at Krodel v. Bayer Corp., 2005 U.S. Dist. LEXIS 26833 (D. Mass. 2005). It involved a claim by a physician for payment of a replacement of his prosthetic leg. Boiled down to its essence, the doctor wanted a technologically advanced, relatively expensive prosthesis that provided him the maximum utility. Bayer, the sponsor of the ERISA plan, wanted to provide him with a more basic, less functional and relatively inexpensive replacement prosthetic leg.

The court ruled in favor of the doctor. The crux of the opinion is on pp. 12-17. Bayer’s plan document stated that a medical supply was covered if it is "of proven value and not redundant with other procedures." However, Bayer interpreted this language to also require that the doctor prove "there are no other reasonable alternatives which would achieve a comparable therapeutic benefit for the patient, in terms of enabling the patient to perform activities of daily living." The court rejected Bayer’s attempt to impose what the court felt was an added restriction to the coverage language of the plan document.

Bayer complained that the court’s ruling would require it to supply Cadillacs rather than Fords to plan beneficiaries. The court responded by saying that, in this situation, the plan document language required Bayer to provide a Cadillac. If Bayer wanted, it could change the language of the plan document. But until then, the plan beneficiaries were entitled to the benefits promised to them.

Krodel illustrates that quite often a person’s entitlement to benefits turns on a very small pivot. Specific plan language, specific facts; these make the difference between winning and losing in many ERISA cases.

Should You Buy Long Term Disability Insurance?

I've put some thoughts about this here in the News section of the website. 

The DeCastros & ERISA's Limited Remedies

I’ve posted here and here about ERISA’s limited remedies. But the situation Don and Cindy DeCastro, former clients of mine, faced several years ago really brings home the problems ERISA’s lousy remedies create for people.

Don and Cindy were a young couple with children. Don worked for a large company that had a self-funded medical benefits plan. Cindy, his wife, was diagnosed with ovarian cancer. Her doctors said her best chance to survive was to get a bone marrow transplant. The problem was that Don’s employer terminated Cindy’s coverage for no good reason shortly after she was diagnosed. Because she had no coverage, and the DeCastros couldn’t pay for the transplant out of their own resources, Cindy had to go without it.

Don came to me asking for help in getting Cindy’s coverage reinstated. We were successful in doing that but it took a few months. When I finally called Don to tell him the good news about Cindy being reinstated he said, "well that’s great but Cindy’s health has now deteriorated to the point that the doctors tell us that she is no longer a candidate for the transplant."

A few months later Cindy died. Don called and said, "I understand that even if Cindy had received the transplant, she might not have made it. But that was her best shot at living. My employer terminated Cindy’s coverage in error. I want to sue the company to recover something for the fact that they are responsible for Cindy losing her best chance to live." He had a reason to feel the way he did. He should have had the chance to hold his ERISA plan administrators accountable for the loss associated with their wrongful act. But Don had no remedy for that loss of opportunity to save Cindy’s life.

ERISA only allows you to recover lost benefits you are entitled to under an ERISA plan. You can’t recover damages you suffer as a direct consequence of an error an ERISA insurer makes in denying a claim. You can lose your car, your house, your wife, your life. But you have no ability to recover anything for those losses no matter how directly they flow from the wrongful denial of the claim and no matter how indifferent, callous or even malicious the insurer’s denial was.

It would be bad enough if the Don DeCastros of the world simply were left without compensation for their losses. But there is reason to believe that the restrictions on the ability to hold insurers accountable under ERISA makes them more likely to cut corners. Read the next blog entry, "ERISA Encourages Bad Insurer Behavior."

ERISA Encourages Bad Insurer Behavior

Most attorneys who regularly represent individuals with denied ERISA benefits believe that insurers are much more likely to abuse their ERISA claimants than when those same insurers handle non-ERISA claims and are subject to the possibility of consequential or punitive damages as a result of bad faith denials of claims. But supposition aside, is there any concrete evidence that insurers treat ERISA claimants differently than they treat non-ERISA claimants?

One of the best pieces of information is an internal memorandum generated within Provident Insurance back in 1995. At the time Provident was one of the largest disability insurers in the country. Since then Provident merged with UNUM. But the memorandum, which has circulated for quite awhile among disability lawyers, makes it pretty clear that the presence of ERISA makes a big difference in how insurers deal with their insureds.

For example, the internal memorandum references the need for Provident to "initiate active measures to get new and existing policies covered by ERISA."  It then goes on to list the "enormous" advantages to Provident of having litigation governed by ERISA: no jury trials, no compensatory or punitive damages, remedies being limited to the benefits in question, and courts deferring to the insurance company's decision.   The author calculates that for 12 cases Provident was dealing with at the time,  the savings in handling the cases if ERISA had applied would have been over $7,000,000.

It's pretty simple.  In a competitive marketplace, if you take away the negative consequences for bad behavior, you're going to get more bad behavior.      

Insurers Try to Pull a Fast One

A few days ago I blogged about the Supreme Court granting certiorari in Mid Atlantic Medical Services, LLC v. Sereboff, 407 F.3d 212 (4^th Cir. 2005). The resolution of that case will clarify the rights of ERISA fiduciaries, the insurers and employers who administer most of the health coverage provided in this country, to pursue reimbursement of an ERISA plan’s money where participants in those plans later obtain recovery of all or a portion of their medical expenses in personal injury cases.

Congress is one step ahead of the Supreme Court. The Pension Protection Act of 2005 [warning: large PDF document] is a bill to amend ERISA that purports to address some of the funding problems for pension plans we’ve seen across the country in recent months. However, that's not all Congress has chosen to put in the bill.  Slipped into the middle of it is a provision that passed the House specifically stating that a fiduciary is entitled to bring an action for reimbursement or subrogation as part of the equitable relief authorized under 29 U.S.C. §1132(a)(3). You’ll find it at section 307 of the bill, p. 331 of the 449 page PDF document. This provision is the essence of special interest legislation.   Its practical effect will be that the 130 million citizens who are covered by ERISA governed health plans will have to pay back their health insurer any money they receive from personal injury settlements from the first dollar until that health insurer has been completely reimbursed.  

A quick hypothetical illustrates the effect.  Say you are injured in a car crash due to another driver's fault and you have medical bills of $20,000 which health insurance through your work pays.  The negligent driver has $25,000 in insurance.  A number of months later your case settles and you recover the $25,000.  What are your obligations to repay your insurer?  Things differ somewhat depending on the insurance law in your state.  But generally speaking, you would pay your personal injury attorney his or her fee out of the recovery, usually around a third of the $25,000, and the insurer would not be entitled to any reimbursement until you were "made whole," that is, until you received adequate compensation to pay not only your medical bills but your attorney fees, your lost wages, and, at the very least, any other out of pocket expenses you may have.  The idea that the health insurer is not entitled to reimbursement until you are made whole is referred to as the doctrine of equitable subrogation.   

If the bill passes with this provision, it will gut the doctrine of equitable subrogation in the context of ERISA plans.  Every health insurance policy and self funded plan I have reviewed in the last several years claims the right to be reimbursed for any funds they have paid to an insured from the first dollar out of a personal injury settlement.  Often the insurer also disclaims any responsibility to contribute anything toward the attorney fees incurred by the injured person in obtaining the recovery.  Consequently, this bill will have a significant impact on the willingness of plaintiffs to pursue claims that, for a variety of reasons, are not likely to end up recovering significantly more than the medical expenses incurred by the plaintiffs. Why would a plaintiff go after a tortfeasor if at the end of the process most or all of the money will end up being paid back to his health insurer? The injured party should be compensated and the wrongdoer should be held accountable.  Neither of these things will happen in this situation.

This provision is a big deal. It will turn ERISA's equitable remedies provision into a sword to be used primarily by business and insurance interests and provides little meaningful relief for people covered by ERISA plans.

Even more obnoxious is the fact that the bill makes no attempt to explicitly state that equitable relief under 29 U.S.C. §1132(a)(3) provides any right to plan participants to recover monetary damages for a fiduciary’s breach of his duties under the terms of an ERISA plan or the statute itself. Congress wants to turn the "equitable relief" provision of ERISA into a one way street. Fiduciaries can come after plan participants to be reimbursed for medical expenses that the ERISA plan has paid. But participants are limited by prior Supreme Court rulings to non-monetary relief.   Make no mistake: section 307 in the bill is a huge bone tossed to insurance and business interests.  

Contact your Senators and House members now.

More on Proposed ERISA Amendments

Here’s a follow up to my post from earlier this week regarding the attempt to amend ERISA to eviscerate the doctrine of equitable subrogation. The provision in the House bill that passed in mid-December that gives so much heartburn was added in the very last amendment to the bill before the floor debate. There was no reference to it in the House bill as introduced or in the version of the bill that reported out of the two committees in which the bill was heard before the final vote.  It was, quite literally, a last minute surprise. The Senate version of the bill does not contain any provision attempting to alter the "equitable relief" provision of ERISA found at 29 U.S.C. Sec. 1132(a)(3).

When Congress reconvenes in a few weeks, a conference committee of selected members of both the Senate and House will be appointed to hammer out the differences between the two versions of the legislation. That will be the last opportunity to get this bit of terrible special interest legislation removed or modified.

I’ve spoken to a number of attorneys who practice in the ERISA and personal injury arenas about this proposed legislation in the last few days. Almost all agree that if the House version of the bill passes it will have the effect of eliminating or significantly reducing the financial incentive of many people to bring meritorious personal injury cases.   This amendment to ERISA will have the effect of undermining the concept that responsibility to compensate for a loss should rest with the person who acted wrongfully in causing that loss. 

Why Amending ERISA to Eliminate Equitable Subrogation is Not Good (Part I)

I posted comments here and here earlier this week about the proposed amendment to ERISA to give insurers and self-funded plans full rein to pursue their subrogation interests. Let me give a little more explanation for why this is a very important change to ERISA. The amendment involves the intersection of tort law and legal principles involving when a person is obligated to reimburse insurers for losses the insurer has covered.

In legalese, tort law deals with the right to compensation a person has when they are injured as a result of someone else's wrongful act. If you are injured because someone else has violated a legal duty (usually, but not necessarily, a negligent act), you are generally entitled to bring a claim against the wrongdoer and recover for your losses.

For what losses can you recover? Both "special" and "general" damages. Special damages are past or future financial losses. General damages are more intangible, difficult to measure, but nevertheless real, losses. Examples of special damages in a car accident scenario include such things as medical expenses, costs to repair your car, rental car expense, taxi fare, lost wages, expenses in hiring someone to do things you used to do at your home but now can't such as mowing the lawn, vacuuming, etc. Anything that represents an out of pocket loss to you, either in money you pay out or in money that would come in to you but doesn't, as a consequence of someone's wrongful act is a special damage.

General damages include such things as pain and suffering, loss of enjoyment of life, emotional distress, anxiety, etc. General damages are easiest to identify and understand in the context of severe injuries. An accident that leaves someone a quadriplegic is going to result in general damages that could dwarf the special damages. And those general damages are very real.

Putting a dollar amount on general damages is, by its very nature, imprecise and difficult. Based on experience in dealing with judges and juries, personal injury lawyers agree that general damages are usually a multiple of the amount of special damages. The amount of past and future out of pocket loss is the foundation on which judges and juries add an award of general damages. The amount of those generals depends on the nature of the injuries, the jurisdiction, and many, many other factors as you can imagine.

In my car accident hypothetical, a person who has $20,000 in medical expenses (not to mention other components of special damages and the whole realm of general damages) and who recovers $25,000 in insurance money will almost certainly not be in a position to have recovered his entire loss associated with the accident. He will not be "made whole" by the $25,000. And due to the fact that most states have relatively low minimum legal requirements for auto liability insurance, an injured person’s ability to recover only $25,000, or a similarly modest number, is not uncommon regardless of how badly they have been injured.

So in this scenario, does the health insurer who paid $20,000 of the injured person’s medical expenses have any right to be reimbursed out of the $25,000 the injured person received? The insurer argues that if it has paid the injured person's medical expenses and the injured person recovers all or a portion of those medical expenses from a negligent third party, the insurer is entitled to be reimbursed. Insurers claim that not requiring the injured party to reimburse the insurer for all or a portion of the money paid to the injured person to compensate him for his loss is to give the injured person a windfall. I don't believe that is necessarily true. The injured person paid money to the insurer in the form of premium to cover the risk that the injured person could get in an accident and need insurance to cover medical expenses. So you could reasonably say that the injured person, in having the foresight and paying the money to obtain insurance that they may or may not need, is entitled to any extra compensation he receives for losses that may also be covered by insurance. But insurers have persuaded people that an injured person may, at least in some situations, be getting a windfall and we can’t have that.

So we arrive at the intersection of tort law and reimbursement claims that I referred to in the first paragraph: at what point can an insurer enforce the right it claims to be reimbursed out of money paid by a negligent third party to our hurt car driver? The doctrine of equitable subrogation (a/k/a, the "made whole" rule) is in place to help resolve that tension between the competing claims of a health insurer and our injured party. I’ll cover that in the next post.

Why Amending ERISA to Eliminate Equitable Subrogation is Not Good (Part II)

The doctrine of equitable subrogation basically says that our injured party is entitled to receive complete compensation, to be "made whole," before the insurer can get its money back. It reflects the idea that, as between the injured driver and the insurer, the injured driver has the primary loss and holds the claim with the greatest entitlement or priority to be paid. So the insurer has to wait until the injured driver is fully compensated before the insurer can start getting any reimbursement money from the negligent third party. Inherent in the doctrine of equitable subrogation is the idea that every situation has to be judged on its own merits. There aren't really any bright lines as to when you know for sure that an injured person has been made whole. It all depends on the nature and seriousness of the injuries. What if the injured person is a concert pianist and loses the pinky and ring finger of his non-dominant hand? His special and general damages will be much much greater than if I lose the pinky and ring finger on my non-dominant hand in the same accident. Arguably I could be made whole by payment of $50,000 from the negligent third party. But will the concert pianist? Not by a long shot.

There will be situations where even if the made whole rule is in place, an insurer will become entitled to be reimbursed after a certain amount of money is paid to the injured person. But, of course, personal injury attorneys being clever and working hard to protect their client's interests, they can usually come up with lots of plausible arguments and information to show that their client is not "made whole." Especially if there is a relatively low recovery from the negligent third party. And getting a "policy limits" recovery from a negligent third party–the maximum amount of money under the liability insurance policy of the careless driver who ran into you–that is far less than the amount of the loss the other car driver suffers, is very common in personal injury cases. 

You can see why insurers dislike the doctrine of equitable subrogation. Health insurers routinely draft their policies to include specific language that says something like "we are entitled to be reimbursed for benefits we have paid from the first dollar of any money you receive from a third party for injuries caused by that third party. Furthermore, we have no obligation to pay attorney fees or share in the cost of any attorney fees you may incur in recovering that money from a third party." But many states have insurance laws and cases that resist enforcing this type of language. These states recognize that allowing insurers to strictly enforce this type of boilerplate language will cause a lot of injured folks to not pursue compensation from the negligent party in the first place if the numbers work out the way they do in my hypothetical.

In many jurisdictions the law is a bit unsettled. In my state the Supreme Court has ruled that equitable subrogation is the default rule but it has suggested that insurers may, if they are precise enough with the language they put in their insurance policy, be able to pursue reimbursement for money without the injured party being made whole. However, an informal opinion from the commissioner of the state insurance department some years ago disagrees and tells insurers that they cannot use one sided insurance policy language to skirt the doctrine of equitable subrogation. The effect of uncertainty in the law is to provide incentive to everyone involved in the situation to settle claims short of full blown litigation. The uncertainty ensures that neither side has a decisive upper hand. Generally the folks on all sides of the situation find it in their interests to negotiate some resolution that splits the difference.

So the likely scenario today for my hypothetical? The health insurer sends a letter to the injured person's attorney saying, "we want our $20K back." The attorney says, "well, not so fast" and lays out the facts as to why the injured person is not made whole. The insurer says "but we have language in our policy that says we get our money back from the first dollar." Attorney responds: "yea, but the Jones case in our jurisdiction says you don't get your money back until my guy is made whole and he's not close to being made whole. Go away." Insurer goes away. Alternatively, if the law is muddled, perhaps the attorney, the insurer and the injured party split the $25K recovery three ways. Neither insurer nor injured party is thrilled; everyone gets something; the injured party retains an incentive to go after the negligent third party in the first place. That last effect is critical.   More in the next, final post on equitable subrogation.

Why Amending ERISA to Eliminate Equitable Subrogation is Not Good (Part III)

In amending ERISA to eliminate equitable subrogation, insurers want to dramatically shift the balance of power in the relationship between the health insurer and the injured party. If the amendment goes through, its effect will be to significantly decrease the leverage the injured party holds in negotiating the insurer's reimbursement claim. The language insurers have or will put into their policies giving themselves the right to be reimbursed from the first dollar the injured party receives from the negligent third party will be enforced to the letter. ERISA has a very powerful preemption clause: generally speaking, it wipes out all state laws that conflict with the language of an ERISA plan or the insurance policies under which an ERISA plan is funded.  Courts interpreting ERISA are also very clear in saying that the unambiguous language of ERISA plans and their insurance policies will be rigorously enforced. So there is limited room to argue that the "we get reimbursement from the first dollar" language of insurance policies shouldn't be honored. Consequently, the law of equitable subrogation will likely go by the boards, at least for ERISA plans. And don’t forget, ERISA plans provide medical coverage to over 130 million Americans.

The most draconian result would be that our injured party would be left actually owing money above and beyond what he recovers from the insurer for the negligent person causing the accident.  He will be responsible for reimbursing the insurer $20,000 and for paying his attorney a third of $25,000! Less drastic, but more likely is that our injured party simply walks away from the claim for the $25,000.  Why should he pursue that money when he won't see anything from the recovery?  Another possibility is that under the changed language the insurer would exert more leverage to get money back for themselves than they do now but not so much as to completely discourage the injured party and his attorney from chasing the negligent third party. The ideal insurer situation: they obtain greater leverage at the expense of folks they insure.  They are in a better position to drive a harder bargain against you and me.  We will all be assured by insurance and business interests that they can be trusted to do the right thing. 

Interestingly enough, Medicare and Medicaid also assert their rights to be reimbursed when there is a third party recovery. However, in my experience, unlike the situation that often occurs with insurers and companies sponsoring their own health plans, Medicare and Medicaid recognize that they have an obligation to pay their share of the injured party’s attorney fees and costs (there would often be no reimbursement at all if not for the efforts of the attorney) and they are generally pretty reasonable about negotiating a resolution of difficult claims to ensure there will be enough money to go around and that the injured individual is not left high and dry. And their relatively "hands off" approach to pursuing their interests does not discourage injured parties or their attorneys from deciding to pursue personal injury claims in the first place.

However, when more bottom line oriented parties, such as insurers and businesses sponsoring self funded medical plans, are involved, sharper economic incentives are in play. The more aggressive approach of these entities, and the additional leverage this proposed amendment to ERISA provides them, will almost surely upset the carefully balanced dynamic that is equitable subrogation.

Are You Able to Perform All Material Aspects of Your Job?

The Eighth Circuit Court of Appeals issued a ruling this week, Seitz v. Metropolitan Life, that decisively shoots down a disability insurer’s argument that I’ve seen surface occasionally. It’s one of those arguments that may have some appeal the first time you hear it. But when you digest it and really think it through, you realize its not just wrong but nasty. It’s the type of argument that gives insurers a bad name.

The language of the disability policy in Seitz stated that in order to get benefits you must be "unable to perform all material aspects of your occupation." What does this mean? MetLife argued that Seitz was not disabled under this definition because he could do some of the material aspects of his job. Alternatively, it argued that Seitz was not disabled because he could do all of the material aspects of his job, albeit it to a limited degree. For example, his job required that he sit for five to six hours in a workday. Seitz’s doctors stated that during an eight hour period he could sit for no more than two hours.

The Eighth Circuit rejected both these arguments with little hesitation. The three judges who decided the case recognized that to adopt MetLife’s argument would make disability benefits pretty much impossible to get. Here’s why.

Let’s say you have a job as an office manager. The list of the material aspects of your job is long, 20 different components, including such things as supervising and training the office clerical staff, meeting with peers and superiors on a regular basis to discuss and solve problems as they occur in the office, and acting as the decision-maker on personnel issues such as hiring and firing. Also among the 20 material aspects of your office manager job are these three:

--Be able to lift and carry for short distances files and office equipment of up to 25 lbs. on an occasional basis

--Be able to sit for five to six hours a day

--Show up by 8:00 a.m. and don’t leave before 5:00 p.m. Monday through Friday

Walking to work one day a tree branch falls on your head and leaves you with a serious, permanent brain injury. You lose a good deal of mental capacity and end up with a functional IQ of 75. Physically you are in pretty good shape. But can you do your job? Under MetLife’s definition, you bet. You can perform some of the material aspects of your occupation. The most fundamental ones in many ways. You can show up. You can stay at the job 40 hours a week. You can carry out the physical demands of the job. But would you or your family really think you are not disabled from your occupation as an office manager?

Fortunately, the judges who decided Seitz saw through MetLife’s charade.