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Newsletter -
Summer 2008
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There is a growing trend for healthcare payers to pursue claims against their beneficiaries for the proceeds of settlement relying upon subrogation provisions in their health plan documents. Accordingly, it is important to account for potential subrogation claims when negotiating the settlement of personal injury actions and accounting for all potential claimants.
Recently, the U.S. District Court for the District of New Jersey allowed a suit to go forward in which an insurer made a claim in equity against the insured's estate, claiming it had subrogation rights to funds received by the estate in settlement of a wrongful death action involving the insured. Rhodia, Inc. v. William Bollinger, WL 800502 D.N.J. Mar. 20, 2008. The underlying case arose after the death of Kyle Koskey, who was insured by Rhodia Inc. Flexoptions Medical Plan.
Rhodia filed suit seeking an equitable lien and constructive trust against Koskey's estate for funds recovered in settlement of a wrongful death action that caused Koskey's death. Rhodia claimed the plan provided it with subrogation rights to a portion of the funds the decedent’s estate recovered for the equal amount that Rhodia spent on the decedent’s medical benefits and expenses. Defendant William Bollinger, Administrator of Koskey's estate, moved to dismiss plaintiff’s complaint, arguing the Court lacked subject matter jurisdiction and the plaintiff’s complaint failed to state a claim on which relief could be granted as a matter of law.
The Court found that the Plan's subrogation rights entitled Rhodia to make an equitable claim for money that the estate received that represented the cost of the medical care Rhodia paid for under the Plan. Because Rhodia’s cause of action was premised on § 502(a)(3) of ERISA, for equitable damages rather than compensatory damages, the federal court had proper jurisdiction. The Court also denied the defendant’s motion to dismiss finding that the property the decedent’s estate received in settlement of the wrongful death action may have included some money to which Rhodia had a subrogation right. Rhodia alleged the money in defendant's possession represented what Rhodia expended for medical benefits.
The defendant estate argued that Rhodia did not have a right to recovery to any of the proceeds of the settlement because the plaintiff could not recover any medical expenses. Because the examination of the settlement proceeds was beyond the scope of the motion to dismiss, the Court did not examine whether in fact the settlement contained any proceeds that Rhodia would be able to recover.
This case is important as many Plaintiffs’ attorneys will likely garner stipulation of settlement and releases to reflect payment for pain and suffering in order to prevent health care payers from recouping medical benefits and expenses from settlement proceeds.
Ayesha T. Rashid, Esq.
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