SUBROGATION AND LIENS

Transcription

1 SUBROGATION AND LIENS Michael J. Mohlman Smith Coonrod Mohlman, LLC 7001 W. 79th Street Overland Park, KS Telephone: (913) ; Facsimile: (913) A. The Insurer s Subrogation Rights. 1. Subrogation of an Uninsured Motorist Claim. Under Missouri law, a UM carrier that has made a payment to its insured may try to recover the amount it has paid from the uninsured motorist: In the event of payment to any person under the coverage required by this section, and subject to the terms and conditions of such coverage, the insurer making such payment shall, to the extent thereof, be entitled to the proceeds of any settlement or judgment resulting from the exercise of any rights of recovery of such person against any person or organization legally responsible for the bodily injury for which such payment is made, including the proceeds recoverable from the assets of the insolvent insurer; provided, however, with respect to payments made by reason of the coverage described in subsections 2 and 3 above, the insurer making such payment shall not be entitled to any right of recovery against such tortfeasor in excess of the proceeds recovered from the assets of the insolvent insurer of said tort-feasor. RSMo This right has been deemed to be a right of subrogation. Kroeker v. State Farm Mut. Auto. Ins. Co., 466 S.W.2d 105, (Mo. App. W.D. 1971). Although the carrier has the right to recover, it does not have the right to maintain a direct action against the uninsured motorist. State ex rel. Manchester Ins. and Indem. Co. v. Moss, 522 S.W.2d 772, 775 (Mo. banc 1975). In addition, this subrogation right applies only to recovery from the uninsured motorist. The carrier is not entitled to any proceeds its insured may recover from an insured joint tortfeasor. Craig v. Iowa Kemper

2 Mut. Ins. Co., 565 S.W.2d 716, 726 (Mo. App. 1978). Nor is the carrier entitled to proceeds from any claim its insured may have against anyone else. Schaeffer v. American Motorists Ins. Co., 973 S.W.2d 180 (Mo. App. E.D. 1998) In Schaeffer, the plaintiffs made a claim for uninsured motorist coverage. The plaintiffs were also, however, considering a products liability claim. In the release, the UM carrier attempted to require plaintiffs to hold in trust any rights of recovery they may have had against any other party legally liable for the claimed injuries. Id. at 181. In essence, the carrier wanted to get paid back if the products liability claim was successful. The court held that the insurer could not force plaintiffs to execute such a provision. The insurer s subrogation rights are set out in , and it does not need the insured s authorization to exercise those rights. But those subrogation rights extend only to claims by the insured against the uninsured motorist. Id. at 182. An insurer cannot insist on a release which grants it more extensive subrogation rights than the law affords. 2. Subrogation of an Underinsured Motorist Claim. Unlike UM coverage, Missouri law provides no statutory right to subrogation in the UIM context. The law on this issue is, in fact, somewhat unsettled. On one hand, recent Missouri case law questions whether a UIM carrier could ever be subrogated to a personal injury claim. Messner v. American Union Ins. Co., 119 S.W.3d 642, 650 n.8 (Mo. App. S.D. 2003). The rationale for questioning this right of subrogation appears to be Missouri s prohibition on the assignment of personal injury claims. Id. On the other hand, many Missouri cases discuss a UIM carrier s right to subrogation. See e.g., Tegtmeyer v. Snellen, 791 S.W.2d 737, 740 (Mo. App. W.D. 1990) (stating that a consent clause in a UIM contract protects the insurer s right to subrogation ). If Missouri does recognize the right of subrogation in the UIM context, it seems reasonable to assume that the parameters of that right would be guided by the rules applicable to uninsured motorist coverage.

3 3. Subrogation in Kansas. Under Kansas law, both UM and UIM carriers have a statutory right of subrogation: The policy or endorsement affording the coverage specified in K.S.A [uninsured and underinsured motorist coverage] may further provide that payment to any person of sums as damages under such coverage shall operate to subrogate the insurer to any cause of action in tort which such person may have against any other person or organization legally responsible for the bodily injury or death because of which such payment is made, and the insurer shall be subrogated, to the extent of such payment, to the proceeds of any settlement or judgment that may thereafter result from the exercise of any rights of recovery of such person against any person or organization legally responsible for said bodily injury or death for which payment is made by the insurer. Such insurer may enforce such rights in its own name or in the name of the person to whom payment has been made, as their interest may appear, by proper action in any court of competent jurisdiction. K.S.A B. Notice and Consent. In a UIM claim, the insured will have a claim against both the tortfeasor that is underinsured and his own UIM carrier. Most, if not all, UIM policies require the insured to notify his carrier of any settlement with the tortfeasor and may require that the carrier consent to any such settlement. If the insured fails to obtain the required consent, the carrier can refuse payment citing a breach of contract on the insured s part. One issue raised by these consent provisions is how the insured should proceed when the carrier refuses to consent.

4 In general, a UIM carrier cannot unreasonably withhold consent. A case on point is Tegtmeyer v. Snellen, 791 S.W.2d 737 (Mo. App. W.D. 1990). In Tegtmeyer, the UIM policy purported to exclude coverage if the insured made a settlement without our written consent. Id. at 739. In that case, the insured reached a proposed policy limits settlement with the tortfeasor and sought the carrier s consent. The carrier refused. The insured went ahead with the settlement and gave the tortfeasor a covenant not to sue. Id. The carrier then denied coverage when the insured tried to collect on his UIM policy. The Court stated that the purpose of a consent clause is to protect the carrier s right to subrogation. The Court also noted, however, that consent cannot be withheld unreasonably. Id. at 740. In reviewing the settlement, the Court put much weight into the fact that the insured had reached a policy limits settlement. The Court found it hard to imagine how [the Carrier] would be damaged or prejudiced when the insured obtained the absolute policy limits. Id. The insured could not have gotten any more money. And the larger the amount he received, the less the UIM carrier would have to pay. Because there was no prejudice, the lack of consent did not void coverage. Id. The Eastern District Court of Appeals came to a similar conclusion in Mazzocchio v. Pohlman, 861 S.W.2d 208 (Mo. App. E.D. 1993). The Mazzocchio Court noted that consent clauses will generally be upheld unless consent is unreasonably withheld. With very little analysis, the Court pointed out that the insured recovered the tortfeasor s entire policy limits and, therefore, the insurer was not prejudiced. Id. at 211. The insured can be put in a bind if the UIM carrier refuses to consent to a settlement with the tortfeasor. To protect his rights, the insured should make sure the proposed settlement is for the full policy limits. The insured should also enter into a covenant not to sue with the tortfeasor, rather than provide a full release that destroys any rights the carrier may still have. Finally, when seeking consent, the insured should send a demand letter to the carrier stating that the settlement is for the limits, that liability is clear, and that the damages far exceed the tortfeasor s coverage. In that situation, it is likely that the UIM carrier would not be able to show prejudice and any refusal to consent would be deemed unreasonable.

5 In Kansas, the procedure for obtaining the carrier s consent to settle a UIM claim is set out by statute K.S.A (f). This statute puts the burden and the risk of granting or denying consent on the insurer: An underinsured motorist coverage insurer shall have subrogation rights under the provisions of K.S.A and amendments thereto. If a tentative agreement to settle for liability limits has been reached with an underinsured tortfeasor, written notice must be given by certified mail to the underinsured motorist coverage insurer by its insured. Such written notice shall include written documentation of pecuniary losses incurred, including copies of all medical bills and written authorization or a court order to obtain reports from all employers and medical providers. Within 60 days of receipt of this written notice, the underinsured motorist coverage insurer may substitute its payment to the insured for the tentative settlement amount. The underinsured motorist coverage insurer is then subrogated to the insured's right of recovery to the extent of such payment and any settlement under the underinsured motorist coverage. If the underinsured motorist coverage insurer fails to pay the insured the amount of the tentative tort settlement within 60 days, the underinsured motorist coverage insurer has no right of subrogation for any amount paid under the underinsured motorist coverage. K.S.A (f). C. Subrogation of Medpay and Personal Injury Protection Coverage. 1. Medpay Some Missouri Automobile policies contain Medical Payments Coverage (Medpay). Medpay coverage pays for reasonable medical expenses incurred as a result of a wreck regardless of who is at fault. The general rule regarding subrogation is clear: an insurer may not acquire part of the insured's rights against a tort feasor (other than an uninsured motorist) by reason of

6 payment of medical expense, either by assignment or by subrogation. Jones v. Aetna Casualty & Sur. Co., 497 S.W.2d 809, 812 (Mo. App. W.D. 1973); Waye v. Bankers Multiple Line Ins. Co., 796 S.W.2d 660, 661 (Mo. App. W.D. 1990). This general rule precludes a Medpay carrier from obtaining reimbursement from an insured when the insured receives payment from the tortfeasor under the tortfeasor s liability policy. Travelers Indem. Co. v. Chumbley, 394 S.W.2d 418, (Mo. App. S.D. 1965). A Medpay carrier may attempt to subrogate against any recovery an injured individual makes under a UM or UIM policy. Alternatively, when the Medpay carrier also provides the uninsured motorist coverage, it may attempt to obtain an offset for the amounts of its Medpay coverage. At least up to the point of the minimum limits, such an offset is invalid. No Missouri cases could be found specifically addressing the issue of whether a Medpay carrier can subrogate against an insured s recovery under UM or UIM coverage. The general rule regarding the subrogation of a tort claim, however, may not apply in the UM/UIM context because the right to recover on an uninsured motorist claim is an action in contract, not in tort. Cobb v. State Sec. Ins. Co., 576 S.W.2d 726, 736 (Mo. banc 1979); McKinney v. State Farm Mut. Ins., 123 S.W.3d 242, 246 (Mo. App. W.D. 2003). Therefore, the Medpay carrier could argue that its subrogation claim does not involve Missouri s public policy prohibiting the assignment of personal injury claims. It is likely, however, that any such attempt to subrogate would be invalid up to the minimum required UM limits because of Missouri s strong policy precluding impairment of those limits. Similarly, when the same carrier provides both UM and Medpay coverage, any attempt by that carrier to offset its Medpay coverage by amounts it has paid on a UM claim is void up to the minimum UM limits. The Missouri Supreme Court held void a policy provision purporting to reduce the amount due under the uninsured motorist coverage by the amount received under the medical pay coverage of the same policy in Kuda v. American Family Mut. Ins. Co., 790 S.W.2d 464, 467 (Mo. banc 1990). The Court noted that the purpose of mandatory UM coverage is to establish a level of

7 protection equivalent to the liability coverage the insured would have received had the insured been involved in an accident with an insured tortfeasor. The court held that the Medpay offset defeated that purpose. Id; see also Webb v. State Farm Mutual Automobile Ins. Co., 479 S.W.2d 148 (Mo. App. W.D. 1972) (voiding a Medpay offset up to the minimum UM limits). 2. Personal Injury Protection Coverage. Personal Injury Protection coverage (PIP) is similar to Medpay coverage in that it applies regardless of fault. Kansas has an extensive statutory scheme regulating PIP coverage K.S.A , et seq. Those statutes do not allow a PIP carrier a set-off or a right of subrogation for UM or UIM coverage. The Kansas No-Fault law, however, provides that an insurer may exclude or limit UM and UIM coverage to the extent that PIP benefits apply: (e) Any insurer may provide for the exclusion or limitation of coverage:.... (6) to the extent that personal injury protection benefits apply. K.S.A (e)(6). This set-off is limited to duplicative PIP benefits. Rich v. Farm Bureau Mut. Ins. Co., 250 Kan. 209, 824 P.2d 955 (1992). In Rich, plaintiff made a claim for $25, in UIM benefits. The plaintiff had previously been paid over $40, in PIP benefits. The UIM carrier attempted to offset its $25, in UIM liability by the amounts it paid under PIP. The parties agreed that the maximum amount plaintiff could receive under Kansas law was $177, They also agreed that plaintiff s damages exceeded $177, In interpreting K.S.A (e)(6), the Kansas Supreme Court held that the an injured party could recover UIM benefits that were not duplicative of PIP benefits. Because of the stipulated value of the claim, there was no duplication of benefits and no offset applied. Id. at , 824 P.2d at 959.

8 D. ERISA Under the Employees Retirement Security Act of 1974 (ERISA), 29 U.S.C. 1001, et seq., an employer with a self-insurance plan that falls within the Act may obtain subrogation rights in a personal injury claim by an insured against a third party when the plan documents explicitly grant such a right. McIntosh v. Pac. Holding Co., 992 F.2d 882, 883 (8th Cir. 1993). This exception is based upon specific language within the ERISA code that expressly preempts state law in this area. FMC Corp. v. Holliday, 498 U.S. 52, 56-58, 112 L. Ed. 2d 356, 111 S. Ct. 403 (1990). An ERISA Plan s right to subrogation can be especially difficult to deal with because, unlike Medicare and Medicaid, the Plan may not have to take into account the attorneys fees or expenses incurred when attempting to recover against the tortfeasor. The Eighth Circuit has recently made an ERISA Plan s rights painfully clear in Wal-Mart Stores, Inc. v Shank, 500 F.3d 834 (8 th Cir. 2007). In Shank, Deborah Shank recovered $700, in settlement for injuries she received in a car wreck. After fees and expenses, Shank recovered $417,477.00, which was placed in a special needs trust for her future care. The Wal-Mart Plan, however, had paid $496, for Shank s medical bills. Because of a provision in its policy allowing full recovery of amounts paid, the Plan attempted to recover the full amount under 502(a)(3) of ERISA, 29 U.S.C. 1132(a)(3). Relying on Sereboff v. Mid Atlantic Medical Servs., Inc., 126 S. Ct. 1869, 164 L.Ed. 2d 612 (2006), the Eighth Circuit agreed with the Plan. In Sereboff, the Supreme Court held that 502(a)(3) allowed a Plan equitable relief. Such equitable relief included a claim for restitution in the form of a constructive trust or equitable lien. To meet the requirements of equitable restitution, the Eighth Circuit held that the Plan must seek (1) specific funds it is owed under the terms of the plan; (2) from a specifically identifiable fund that is distinct from the Shank s general assets; and (3) that is controlled by Shank. Shank, 500 F.3d at 836.

9 The Court held that the special needs trust was a specific, identifiable fund under Shank s control (it was administered by her husband). Therefore, the Plan was entitled to full recovery despite the fact that such recovery left Shank with nothing. Id. at 837. Certain steps can be taken to avoid the harsh result of Shank. The simplest step is to simply pay a plaintiff their money and let them commingle those funds with their general assets. Such action may keep a court from finding that a specifically identifiable fund has been created. Whether this will work, however, is unknown. Moreover, it may expose the plaintiff to future liability to the Plan or to a reduction in future benefits from the Plan. Another step is whittle away any amount owed to the Plan. Under 29 U.S.C (b)(4), a Plan administrator is required to provide plan members certain plan documents upon written request of any participant or beneficiary. If the administrator fails to provide the requested information with 30 days, 29 U.S.C (c)(1)(b) imposes a fine of $ per day. Therefore, a timely request by the plaintiff, coupled with the administrator s failure to respond, may allow the plaintiff to negotiate a lower repayment to offset out any statutory penalties the plan has incurred. A sample letter requesting this information is provided below. The identity of the plan administrator may be found at This site lists many, if not all, ERISA plans and gives information on the administrator.

10 October 17, 2007 Certified Mail/Return Receipt Requested Greg Mark ERISA Plan Administrator Commerce Bancshares, Inc Forsyth, Suite 910 St Louis, Missouri Dear Mr. Mark: As a member of the Commerce Bancshares, Inc. Employee Health Benefit Plan, ( Plan ), I am requesting copies of the following documents be sent to me within thirty days, pursuant to 29 U.S.C. 1024(b)(4): A complete copy of the Plan in effect for the years 2004 and 2005; All summary plan descriptions for the years 2004 and 2005; All Plan documents, including insurance contracts, for the years 2004 and 2005; A complete copy of the annual report of the Plan for the years 2004 and 2005; Federal forms 5500, including Schedules A and C, for the Plan for years 2004 and 2005; A detailed itemization of all monies paid on my behalf, together with the dates of service and identification of the health care provider to whom paid for the years 2004 and 2005; Copies of any agreements between The Plan and any health care provider to whom payments were made on my behalf, reflecting the terms and conditions under which said payments will be made; Information as to the source of the funds used by the Plan to make the payments for medical expenses. Thank you in advance for your prompt attention to this matter. Very truly yours, E. Medicaid Plaintiff Member No: SSN: XXX-XX-XXXX Address

11 If it has paid benefits, Medicaid will have a viable lien on any recovery. R.S.Mo Any Medicaid recipient, or person acting on their behalf, who pursues an injury claim is required to notify the Department of Social Services that he or she is pursuing legal action. R.S.Mo If a recovery is obtained, the recipient, or the recipient's agent, is required to notify the Department of Social Services of the recovery and to reimburse the department from the proceeds of the settlement, judgment or other recovery. R.S.Mo Medicaid will, however, reduce its lien by its pro rata portion of attorneys fees and expenses. R.S.Mo Because the Department of Social Services is often slow to respond to requests regarding lien amounts, it is advisable to contact them as early as possible once a claim in contemplated. A letter asking whether benefits have been paid should be sent to: Third Party Liability Unit Missouri Department of Social Services Division of Medical Services P.O. Box 6500 Jefferson City, MO The letter should include as much information regarding the claimant as possible, including that person s Medicaid number, date of birth and social security number. Once the lien is asserted, the claimant may petition the court for a reduction of that lien under R.S.Mo Such a petition will be defended by the Attorney General s office. Currently, the Kansas City office of the Attorney General asks that any such petition be filed in the pending court case and not as a separate legal action. R.S.Mo lists six factors the court should consider with regard to whether the lien should be reduced: (1) The amount of the charge sought to be enforced against the recovery when expressed as a percentage of the gross amount of the recovery; the amount of the charge sought to be enforced against the recovery when expressed as a percentage of the amount obtained by subtracting from the gross amount of the recovery the total attorney's fees and other costs incurred by the recipient incident to the recovery; and whether the department should, as a matter of fairness and equity, bear its proportionate share of the fees and costs incurred to generate the recovery from which the charge is sought to be satisfied;

12 (2) The amount, if any, of the attorney's fees and other costs incurred by the recipient incident to the recovery and paid by the recipient up to the time of recovery, and the amount of such fees and costs remaining unpaid at the time of recovery; (3) The total hospital, doctor and other medical expenses incurred for care and treatment of the injury to the date of recovery therefor, the portion of such expenses theretofore paid by the recipient, by insurance provided by the recipient, and by the department, and the amount of such previously incurred expenses which remain unpaid at the time of recovery and by whom such incurred, unpaid expenses are to be paid; (4) Whether the recovery represents less than substantially full recompense for the injury and the hospital, doctor and other medical expenses incurred to the date of recovery for the care and treatment of the injury, so that reduction of the charge sought to be enforced against the recovery would not likely result in a double recovery or unjust enrichment to the recipient; (5) The age of the recipient and of persons dependent for support upon the recipient, the nature and permanency of the recipient's injuries as they affect not only the future employability and education of the recipient but also the reasonably necessary and foreseeable future material, maintenance, medical rehabilitative and training needs of the recipient, the cost of such reasonably necessary and foreseeable future needs, and the resources available to meet such needs and pay such costs; (6) The realistic ability of the recipient to repay in whole or in part the charge sought to be enforced against the recovery when judged in light of the factors enumerated above. The burden of producing evidence to convince the court to reduce the lien lies with the party seeking the reduction. R.S.Mo The Medicaid recipient is not required to prove each statutory factor, nor does the trial court have to enter findings on each statutory factor. Gravier v. Missouri Dept. of Social Services, 968 S.W.2d 149, 154 (Mo. App. E.D. 1998). The party seeking the reduction, however, must provide sufficient evidence to support the exercise of the trial court s discretion. Id. F. Medicare

13 In October of 2006, Medicare switched its Medicare Secondary Payer (MSP) recovery contract to a single entity and away from the dozen or so contractors that were previously handling the MSP recovery effort. That switch was designed to speed up the process and simplify matters. As of yet, it hasn t yet worked. Therefore, like Medicaid, if a claimant has received Medicare benefits, it is wise to inquire about any lien as early as possible. A Medicare lien is effective even if the claimant and their attorney has no notice of the lien. Therefore, the attorney handling a claim where Medicare benefits has the responsibility of contacting Medicare. This contact should be made by a letter sent to: Medicare (COB) P.O. Box 660 New York, NY (800) That letter should include as much information as possible regarding the claimant. If possible, you should provide the client's name, address, DOB, Social Security number, Medicare number, date of incident, and a description of the injury. Theoretically, the Medicare Coordination of Benefits Contractor will assign the case to the MSP Recovery Contractor (MSPRC) and forward the attorney and beneficiary notification providing all contact information for the MSPRC. Once that is done, all future communication, including request for a conditional payment listing. should be with the MSPRC: MSPRC Liability PO Box Detroit, MI Tel: Fax: Medicare will not provide a final lien amount until after a settlement is reached. Therefore, once a settlement has been reached, the attorney should again contact the MSPRC to determine the final amount owed. The information that needs to be sent upon reaching a final settlement should include the date of the settlement, the settlement amount, the attorney s fee, an itemized list of expenses and a signed settlement release.

14 This information is needed to calculate Medicare's recovery amount because Medicare will share the costs associated with recovery and reduce its amount proportionately. G. Workers Compensation An employer will have a subrogation right on any payment made on to the employee on behalf of a third party. RSMo The employer, however, does not have the right to a dollar for dollar repayment. Instead, the employer s recovery will be apportioned based on the amount of the recovery, the amount paid by the employer, and the employees attorney s fees and expenses. This method of apportionment is called the the Ruediger formula, in reference to the case in which it was first propounded Ruediger v. Kallmeyer Brothers Service, 501 S.W.2d 56 (Mo.1973). The Ruediger formula may be expressed in a three-step process as follows: (1) The expenses and attorney fees attributable to the recovery from the tortfeasor are subtracted from the total amount of the recovery; (2) A ratio of the employer's subrogation interest in the recovery is determined by the generation of a fraction: (a) The numerator of the fraction is the total amount of compensation paid pursuant to The Workers' Compensation Law by or on behalf of the employer; (b) the denominator of the fraction depends on whether or not the trier of fact in the civil action assesses any fault to the employer's injured or deceased employee. That figure is either: (i) the total amount recovered from the tortfeasor, if no comparative fault was assessed against the employee; or (ii) when the trier of fact assesses fault to an employee, the total damages assessed against the tortfeasor by the trier of fact prior to the reduction of those damages due to the employee's comparative fault;

15 (3) the net amount remaining after subtraction of the fee and expenses from the recovery in the first step of the formula is multiplied by the fraction generated in the second step of the formula in order to determine the amount of the recovery to be allocated to the employer. Id. The employer s right to subrogation is not effective against a recovery on a UM policy. The Workers s Compensation statutes state that an employer shall be subrogated to the rights of an injured employee, [w]here a third person is liable to the employee... for [an] injury or death, the employer shall be subrogated to the right of the employee Because a UM carrier is not a third person liable to the employee, no lien attaches. Barker v. Palmarin, 799 S.W.2d 117, 118 (Mo. App. W.D 1990). H. Hospital Liens Under RSMo , a healthcare provider will have a lien for the amount of its services rendered against any recovery made by the patient. To attach, proper notice must be given. In addition, if the amount of all healthcare provider liens exceed 50% of the net proceeds due to the injured party, all lien holders must share 50% of the net proceeds on a pro-rata basis: If the liens of such health practitioners, hospitals, clinics or other institutions exceed fifty percent of the amount due the patient, every health care practitioner, hospital, clinic or other institution giving notice of its lien, as aforesaid, shall share in up to fifty percent of the net proceeds due the patient, in the proportion that each claim bears to the total amount of all other liens of health care practitioners, hospitals, clinics or other institutions. Net proceeds, as used in this section, means the amount remaining after the payment of contractual attorney fees, if any, and other expenses of recovery. RSMo

16 A healthcare provider lien does not apply to the proceeds of a wrongful death claim. The definition of a claim under the Missouri healthcare provider lien statute is a claim of a patient for: (a) damages from a tort-feasor; or (b) benefits from an insurance carrier. R.S.Mo A patient is defined as any person to whom a... hospital... delivers treatment, care or maintenance for sickness or injury caused by a tort-feasor from whom such person seeks damages or any insurance carrier which has insured such tort-feasor. Id. In a wrongful death claim, the patient is not seeking to recover. Rather, the beneficiaries under the wrongful death statute are seeking to recover. Therefore, the lien statute does not apply. American Fam. Mut. Ins. Co. v. Ward, 774 S.W.3d 135 (Mo. banc 1989). The same argument can be made that a healthcare provider lien does not apply to any recovery under a UM policy. In a UM claim, the plaintiff is not seeking damages from the tort-feasor or from the tort-feasor s insurance company. If that were the case, the UM coverage would not apply. Therefore, such a claimant is not a patient under the lien statute.