Third party legal cases that involve first party medical payment plans and subrogation interests can be tough to resolve. Quite often, a medical payer will assert a subrogation interest and lien on a third party liability claim, in an effort recover the full payment of medical bills. As Pennsylvania catastrophic injury and car accident lawyers, we believe that all plans, even self-funded ERISA plans, should be forced to reduce such medical liens in proportion to the amount spent on attorneys’ fees for third party recovery.
In the case of US Airways, Inc. v. McCutchen, 663 F.3d 671 (3rd Cir. 2011), the Third Circuit Court reversed, on appeal, the decision of a Western Pennsylvania trial court ruling that a lien had to be repaid in full, with no reduction. The case involved a self-funded ERISA plan, to which the Court applied the traditional equity principle of unjust enrichment. It held that any judgment requiring the victim or plaintiff to provide a full reimbursement to the employer—in this case, US Airways—would constitute inequitable relief, because the amount exceeded the net amount of the victim’s third party liability recovery. The Court ruled that requiring the victim to fully reimburse his or her employer’s health plan would result in a windfall for the employer—who had contributed nothing to the cost of obtaining a third party recovery. Noting that “equity abhors a windfall,” the Court concluded that equity applies to subrogation rights under an ERISA plan. In the case of McCutchen, Counsel successfully argued that, if legal fees or costs were not taken into account, the employer , US Airways, would effectively be reaching into its beneficiary’s pocket—thereby placing the beneficiary in a worse position than if he or she had not pursued a third party recovery in the first place.
A third party lien holder that attempts the full recovery of a subrogation interest, and wrongfully seizes or attaches the funds of another for its own purposes, is committing what is known as a theft- by-conversion. Conversion is when a defendant assumes and exercises ownership or control over property or funds belonging to someone else —without authorization—thereby depriving the other person of property or funds. Whenever a third party lien holder or medical plan claims the right to full recovery, and either refuses to reduce its recovery, or insists on a minimal reduction, the victim needs aggressive legal protection to ensure that he or she will not be cheated by an insurance carrier, adjuster, or independent adjuster who violates the law.
This principle applies to many personal injury cases—particularly, settlements involving a spouse’s right of compensation and/or recovery for loss of consortium—which are “off limits” for the recovery of subrogation interests. In one case, that of ACS Recovery Services Inc. v. Griffin, 676 F.3d 512 (5th Cir. 2012), the Court stated that—unless the plan agreement states specifically that it can seek reimbursement from an award for loss of consortium made to a beneficiary’s spouse—it cannot recover such funds. In other words, the plan, or third party lien holder, would have no rights to recovery on any portion of the spouse’s settlement.
Jeffrey Reiff is a catastrophic injury and car accident lawyer in Pennsylvania who has been recognized as one of the Top 100 Lawyers in Philadelphia and one of the Top Northeast Lawyers. He has regularly been named a Pennsylvania Super Lawyer, and has consistently been rated Superb by Avvo.com.