New Support For Avoiding ERISA Subrogation
From the U.S. District Court for the Western District of Missouri comes a recent noteworthy case involving the scope of ERISA preemption and the efforts of a health insurer to assert a reimbursement, a/k/a subrogation, claim. You can read the decision in Pruitt v. United Healthcare Services, Inc., here in the website library. The case provides some insights into strategies ERISA plan participants and beneficiaries can use to fend off insurers or other entities who try to interfere with personal injury recoveries.
Sondra Pruitt was injured in an auto accident. Some of her medical expenses were, apparently, paid through the medical benefit plan sponsored by her employer. After Pruitt had negotiated a settlement with American Family, the insurer for the negligent driver in Pruitt’s personal injury case, United Healthcare, swooped in. UHC held the right to pursue the ERISA plan’s subrogation claim. It told American Family that it was entitled to a part or all of the settlement money Pruitt was about to receive from American Family. Having received a competing claim to the money it was about to pay to Pruitt, American Family stopped dead in its tracks and refused to pay out the personal injury settlement to Pruitt.
She sued UHC in Missouri state court alleging that UHC was interfering with her contract and expected recovery from American Family. UHC removed the case to federal court and alleged that ERISA preempted Pruitt’s claim. If UHC succeeded in this argument, the legal terrain on which the battle between UHC and Pruitt would be fought would be much more favorable to UHC. Whether ERISA preemption existed was key. If it did not, there would be no jurisdiction for the federal court to hear the case. Pruitt argued that ERISA did not preempt her state law claim and asked the federal court to dismiss the case and remand it back to state court.
The federal court, Magistrate Judge William A. Knox, agreed with Pruitt. He ruled that whether ERISA preempted Pruitt’s state law claims had to be decided by looking at the terms of the Complaint Pruitt filed in state court. That complaint made no reference to any ERISA plan. Pruitt was not seeking past or future medical benefits from her employer or its insurer, nor was she asking for injunctive or declaratory relief. Pruitt was seeking money damages against UHC for its improper interference with the settlement agreement she reached with American Family. This was something above and beyond anything the ERISA plan was obligated to pay under the plan terms or under ERISA's remedial provisions. As stated by the court, “while the [ERISA] benefit plan may play some part in the lawsuit, it is not the only issue, is not the basis for . . . [Pruitt’s] damage claim, and is not the primary focus. The mere fact that interpretation of the plan may come up in plaintiff’s case to show lack of justification does not convert the claim into one for benefits under the plan.”
My friend Roger Baron, law professor at the University of South Dakota, sheds some light on the situation by telling me that there is a flat prohibition on insurer subrogation claims in the State of Missouri. Given that, Pruitt’s claim for unlawful interference by UHC in her contractual dealings with American Family gains some additional traction.
Moral of the story? Carefully framing state court complaints against the agents or assignees of ERISA plans when they try to assert their claims in an individual’s personal injury case may allow individuals to avoid getting sucked into the ERISA vortex. Avoiding ERISA preemption dramatically increases the likelihood of favorable resolution of subrogation claims. Pruitt v. United Healthcare Services is another stone in David’s pouch as he goes off to attempt to slay the Goliath that is ERISA subrogation.
UPDATE: I should have noted that the LEXIS cite for Pruitt is 2007 U.S. Dist. LEXIS 87829