New Hampshire Personal Injury Lawyers

ERISA PLANS: SUBROGATION AND REIMBURSEMENT ISSUES

A. Introduction

With increasing frequency, subrogation and reimbursement claims to the proceeds of personal injury claims are the bane of personal injury practice. In an era of modest verdicts and settlements, it is increasingly difficult to divide the settlement pie satisfactorily to all.

Counsel, of late, routinely receive letters from health insurers or their assignees demanding payment of 100% of the amount paid for accident-related medical bills. In the past, most allowed an offset for attorney fees. Some now will not. If the insurance program in question stems from an employer, the subrogation or reimbursement claimant often disavows any notion of reducing the claim for the attorney/procurement costs of obtaining the settlement or judgment. The justification for this approach is that no such sharing is allowed by the "plan's documents", and the plan's documents are given primacy under ERISA and federal law.

"Employee welfare benefit plans" and employer-sponsored health insurance come within ERISA's embrace. Plans which do not come within ERISA's embrace include government Plans, church Plans, trade association Plans, and certain multiple-employer Plans.

B. Subrogation under New Hampshire Law

By 1983, it was well established that a health insurer could seek to enforce its subrogation rights established under its policy of insurance. Blue Cross/Blue Shield of N.H./VT v. St. Cyr, 123 N.H. 137 (1983). The Supreme Court in St. Cyr observed:

"When an insurance policy contains a valid subrogation clause, the insurer's subrogation rights are determined by the clause." Id. At 140.

By 1983, it was well established that a health insurer could seek to enforce its subrogation rights established under its policy of insurance. Blue Cross/Blue Shield of N.H./VT v. St. Cyr, 123 N.H. 137 (1983). The Supreme Court in St. Cyr observed:

"When an insurance policy contains a valid subrogation clause, the insurer's subrogation rights are determined by the clause." Id. At 140.

In Wolters v. American Rep. Ins. Co., 149 NH 599 (2003), the health insurer had no subrogation provision in its policy. The Court refused to recognize an equitable right to subrogation, in the absence of an express contractual provision, for a health insurer.

The Court in Wolters observed that "subrogation is generally not allowed where the insured's total recovery is less than the insured's actual loss. Id. at 603, citing Dimich v. Lewis, 127 NH 141, 144 (1985).

The foregoing is an expression of the so-called "made whole" where there is a "reduced recovery settlement" in a tort case, the insurer recovers on its subrogation claim only on a pro-rata basis what it paid out to the insured. Id. at 145. See also Lutkus v. Lutkus, 141 N.H. 552 (1997). A fuller explanation of the principal is as follows:

That in the absence of contrary statutory law or valid contractual obligations to the contrary, the general rule under the doctrine of equitable subrogation is that where an insured is entitled to receive recovery for the same loss from more than one source, e.g., the insurer and the tortfeasor, it is only after the insured has been fully compensated for all of the loss that the insurer acquires a right to subrogation, or is entitled to enforce its subrogation rights. The rule applies as well to instances in which the insured has recovered from the third party and the insurer attempts to exercise its subrogation right by way of reimbursement against the insured's recovery. 16 Lee R. Russ, Thomas F. Segalla & Steven Pitt, COUCH ON INSURANCE § 223:134 (3d ed. 2000).

Dimich also integrated the "common fund" doctrine with reference for the need for the insurer to share in the attorney fee/costs of procurement incurred by the insured. See Ray v. Ducnuigeon, 130 N.H. 24, 26 (1987). Where litigation fees confer a "substantial benefit" to another, attorney fees may be imposed on the other. Silva v. Botsch, 121 N.H. 1041, 1043 (1981).

The "made whole" doctrine and the "common fund" doctrine may not be available if the subrogation claim is being pursued by a so-called ERISA plan.

However, two U.S. Supreme Court decisions put some restrictions on a ERISA Plan's rights to enforce its subrogation and reimbursement provisions.

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