Latest Word on the Assertion of Liens by
The issue of whether an insurer can assert a lien for medical expenses against an insured's personal injury settlement in New York and elsewhere has been an ongoing dispute, impacting both plaintiffs and defendants in tort litigation.
Second Circuit Court of Appeals ruled on July 31, 2014 that the New York
General Obligations Law §5-335, which prohibits insurers from asserting
such liens, was not preempted by ERISA law. Wurtz v. Rawlings Co., LLC, 2014 U.S. App.
LEXIS 14877 (2d Cir. July 31, 2014). Certain insurers have been asserting
their claims for reimbursement of medical treatment payments against
plaintiffs in personal injury cases, despite court rulings and legislation
which abrogated those rights. A look at the recent history is helpful to
appreciate the impact of the Wurtz decision.
In 1996, the New York State Court of Appeals held that, while an insurer could not assert a lien against a plaintiff's settlement funds, an insurer was permitted to establish its contractual right to reimbursement of any medical expenses included in the settlement. In Teichman v. Community Hospital of Western Suffolk, 87 N.Y.2d 514 (1996), the insurance policy at issue included a provision which stated that if the insured was paid for medical expenses, the insurer had the "right to a refund". The Court held that, although the insurer had no lien or right to subrogation, the insurer was entitled to seek a "refund" of the medical payments included in the settlement to "prevent a potential double recovery by plaintiff and assure that tortfeasors, not ratepayers, will ultimately bear the expense".
In 2009, the Court of Appeals again addressed this issue. In Fasso v. Doerr, 12 N.Y.3d 80 (2009), the Court held that the plaintiff's settlement did not extinguish an insurer's subrogation right. In Fasso, the plaintiff and defendant attempted to terminate the insurer's claim by entering into a settlement agreement with the intention to extinguish the insurer's right to subrogation. The Court held that such a settlement provision could not be enforced. However, the Court urged the Legislature to re-evaluate insurer claims of equitable subrogation against personal injury settlements, as insurers were increasingly invoking subrogation to "protect limited plan assets".
The Legislature responded with the enactment of New York General Obligations Law §5-335, which effectively states that a personal injury, medical malpractice, or wrongful death settlement presumptively does not include any compensation for the cost of medical expenses that have been, or are obligated to be, paid or reimbursed by an insurer. Furthermore, it established that insurers have no lien or right of subrogation against any such settling party. Thus, this GOL provision extinguished an insurer's right of reimbursement of medical benefits paid to plaintiffs in personal injury settlements.
ERISA insurers continued to assert such liens,
claiming their right to do so pursuant to the Federal ERISA
law. The insurers contend that ERISA §502a
'completely' preempts State law and ERISA §514
'expressly' preempts State Law.
The plaintiffs in Wurtz commenced a class action suit to enjoin defendant insurers under New York's GOL §5-335 from obtaining reimbursement of medical benefits from plaintiffs' tort settlements. The State Court class action was removed by the defendants to Federal Court and the U.S. District Court granted defendants' Motion to Dismiss the case, holding that the plaintiffs' claims were, in fact, preempted by the Federal ERISA statute.
The Second Circuit Court of Appeals reversed this dismissal and held that GOL §5-335 was not subject to express or complete preemption under ERISA. Express preemption was inapplicable because GOL §5-335 "regulated insurance", as it was "specifically directed toward insurers and substantially affects risk pooling between insurers and insureds". Complete preemption was likewise inapplicable as the plaintiffs were not contending that they had the right to retain their settlements under the terms of their insurance plan, but rather under GOL §5-335. Additionally, GOL §5-335 imposed an independent legal duty on the defendants, which was unrelated to ERISA plans. Finally, the Court emphasized that ERISA did not address subrogation provisions.
In finding that GOL §5-335 neither completely nor expressly preempted federal ERISA law, the Court concluded that GOL §5-335 was saved from preemption under ERISA, and plaintiffs' class action suit was permitted to proceed and was remanded to the District Court for further proceedings. This Wurtz decision is being celebrated by the New York bar as a victory, although the story remains incomplete.
The decision expressly distinguished rulings in the Third, Fourth and Fifth Circuits, which all addressed statutes with language similar to New York's GOL, holding that ERISA does preempt those statutes. It acknowledged its accord with the Ninth Circuit, holding that GOL §5-335 is not preempted by ERISA. The split in the Circuit Courts and the remand to the lower court both provide a signal that the Wurtz decision may be the latest word, but it is not the last word on this issue.
We will continue to follow the Wurtz case and other developments in this contested dispute between insurers and the plaintiff's bar which impact the ability to successfully settle cases.
At MSD, we strive to keep you informed about important issues impacting insurers and the defense of our clients. Please contact us if you wish to discuss this development, or if you would like us to address other concerns. More information on our firm may be found through our website, Molod Spitz & DeSantis, P.C.
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