One of the more frustrating aspects of the personal injury practice is explaining the concept of subrogation to clients. Last week, Wal-Mart insured that subrogation will continue to be an evil in the tort world. The Wal-Mart’s, and those of their ilk, have cultivated a new breed of subrogationist — the catfish of the industry.
Subrogation is one of those “fine print” aspects of health insurance policies that gives insurers and employers a legal claim on a client’s recovery in a tort case. That is, the health insurer is able to get first dibs on any money paid before the injured person can recover for his/her personal loss. To make matters worse, the health insurers don’t care whether the injured person is made whole and refuse to contribute to attorney’s fees and costs incurred.
It is, indeed, one of the most blatant abuses of tort law by corporations, and the courts have refused to step in and put an end to this practice. As a result, many claimants not only suffer physical injuries, but they lose the right to recover fully by greedy insurance companies.
Last week, a federal appeals court in Missouri gave the green light to these egregious collection practices by health insurers. Last year, the Supreme Court in Sereboff v. Mid Atlantic Medical Services, ruled that a health plan could sue for recovery of settlement money held in a separate, identifiable fund under ERISA provisions allowing suits for “equitable relief.” As the Missouri case demonstrates, recoveries under subrogation clauses are anything but equitable.
Last week’s case involved a collision with a semi-trailer truck seven years ago that left 52-year-old Deborah Shank permanently brain-damaged and in a wheelchair. Her husband, Jim, and three sons found a small source of solace: a $700,000 accident settlement from the trucking company involved. After legal fees and other expenses, the remaining $417,000 was put in a special trust. It was to be used for Mrs. Shank’s care.
Instead, all of it is now slated to go to Mrs. Shank’s former employer, Wal-Mart Stores Inc. under a subrogation clause hidden in the plan that covered her medical bills. The details of the case were reported in the Wall Street Journal on November 20, 2007. The article can be viewed by clicking here.
The efforts by Wal-Mart have been condemned on many fronts. The LA Times has called the move legal, but wrong (click here to read that opinion piece). The folks at Wal-Mart Watch have called it moral bankruptcy (click here to read that opinion piece). The American Bar Association has warned that some people who are injured and receive a settlement or verdict are getting a big surprise: more litigation from the health plan that paid their benefits and now wants the money back.
The ABA also noted that insurers recover some $1 billion a year, according to the industry group, American Benefits Council and America’s Health Insurance Plans (See amicus brief filed by ABC, at p. 3, n. 3). A “cottage industry” of subrogation lawyers and benefit-recovery firms help companies go after the money.
It appears that unless Congress steps in, subrogation will be an obstacle that will prevent injured people from recovering, and pad the pocketbooks of greedy health insurers.
