Does the Plaintiff Have to Turn Over His Entire Damage Recovery to His Health Insurance Company?
When an injured party has a health insurance policy which pays his medical bills, does he have to automatically repay his provider for those benefits? If so, can his attorney’s fees and expenses to collect damages be deducted before the insurance company is repaid? Depending on the size of the verdict or settlement, the difference can be substantial.
The Supreme Court has agreed to wade into these murky waters by hearing a rare subrogation case in its October 2015 session. The court will interpret the reimbursement clause of the Employee Retirement Income Security Act (ERISA) which often gives the health insurance company the right of first reimbursement of amounts paid for a participant’s medical bills should the participant recover damages. The decision will have huge consequences for insurance companies, their policyholders, and attorneys on both sides of the docket.
The insurance companies argue that the statute did not intend that the reimbursement be reduced by attorneys’ fees or consider whether the beneficiary was made whole. Further, tese companies estimate they recover about $1 billion every year in reimbursements and need these funds to keep premium rates in check.
However the practice has led to substantial hardship for injury victims who are forced to pay an inequitable amount of money awarded to them through trial or out of court settlement. Detractors argue that insurance companies basically get free services if the plaintiff”s attorneys’ fees are not taken into account and that the burden of paying a lawyer to recover damages should not fall solely on the shoulders of the injury victim. And the victim is justifiably angry because he and/or his employer paid expensive premiums to Blue Cross or CIGNA for them to absorb the risk.
The Case
Robert Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan involves a dispute between policyholder Robert Montanile and his auto insurance company. Mr. Montanile was severely injured when a drunk driver ran a stop sign and plowed into his vehicle. He suffered severe back injuries that required a spinal fusion procedure. His insurer paid $121,000 of his medical bills for the surgery and treatments.
The drunk driving victim negotiated a $500,000 settlement with the DWI driver. Mr. Montanile paid more than half of the settlement award to his attorney for fees and expenses. National Elevator sought the full $121,000 from Mr. Montanile based upon its interpretation of the reimbursement clause in the ERISA policy. Mr. Montanile hired another lawyer to negotiate a settlement with the insurance company. After eight months of unsuccessful negotiations and upon receiving no response from the insurer, the attorney released Mr. Montanile’s settlement funds, from which the injury victim paid his legal fees and expenses and spent the rest on his family’s living expenses and on his own care.
Circuit Courts Have Split on the Issue
The Eleventh Circuit ruled that National Elevator was entitled to the settlement funds, even if the money had already been disbursed. The Eleventh Circuit decision followed five other circuits in favor of the insurance companies’ position. The Eighth and Ninth Circuits have reached the opposite conclusion: the insurers are not entitled to funds from participants who had used the money to pay for medical bills and living expenses.
Hopefully the U.S. Supreme Court will protect the rights of injury victims to receive full compensation for their losses.