7.4 Reimbursement and Subrogation (other Than Fire Insurance)
Library | Insurance Law in Virginia (Virginia CLE) (2020 Ed.) |
7.4 REIMBURSEMENT AND SUBROGATION (OTHER THAN FIRE INSURANCE) 142
7.401 Comparison. 143 Reimbursement and subrogation both address the opportunities available to an insurer to recover from the true tortfeasor, a joint-tortfeasor, or an insurer of either all or part of payments made by the insurer. Reimbursement calls for direct repayment to the insurer for all or part of a payment made to or on behalf of an insured. Subrogation allows the insurer to "step into the shoes" of the insured or the party receiving its payment and advance whatever claims that person or entity might have had, subject to any defenses against that claim, as if it was still held by the original insured or party receiving payment.
7.402 Subrogation. While rights of subrogation exist at common law and can be established by contract or by statute, some rights may actually be blocked by express statutory language. 144 In the joint tortfeasor scenario, whether a subrogation or reimbursement claim (in the form of contribution), the implications of section 8.01-35.1 of the Virginia Code must always be considered and appropriate steps taken to protect any claims.
7.403 Statutory Provisions Affecting Subrogation. If health- care treatment is administered for personal injuries caused by the negligence of another, the health care treatment facility or provider is granted a lien on the claim of the injured person against the person or entity causing the harm in the amounts of $2,500 per hospital or nursing home, $750 per health care
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provider, and $200 for each emergency medical services provider or agency. 145 A municipal corporation or any other person, firm, or corporation that pays the charges for which this lien is provided is subrogated to the lien. 146 In order to create or effectuate the lien, written notice to the responsible party may be required. 147 However, no subrogation is allowed if a health insurer pays for hospital, medical, surgical, or similar or related benefits to or on behalf of persons residing or employed in Virginia. 148 Certain types of self- insurance plans issued under the Federal Employee Retirement Income Security Act (ERISA) 149 are by federal statute specifically excluded from state regulation and, therefore, maintain rights of subrogation and reimbursement. 150
In pursuing a subrogation claim, an insurer is given the option of either pursuing it in the name of the party that received payment or in its own name. 151
Medical payments coverage pursuant to an automobile insurance policy cannot be recovered by way of subrogation. 152
Subrogation under ERISA health insurance contracts that are not self-funded also has been eliminated by statute. 153 However, FMC Corp. v. Holliday 154 is the controlling case law concerning whether ERISA subrogation clauses preempt state law where the plan is self-funded. 155 In 2013, the United States Supreme Court issued a long-awaited decision in US Airways,
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Inc. v. McCutchen. 156 In a unanimous decision, the Court ruled that equitable principles (for example, the Made Whole Doctrine and Common Fund Doctrine) cannot override the clear terms of an ERISA plan requiring reimbursement. Therefore, counsel representing plaintiffs should at the outset determine the exact nature of the client's health insurance as to whether it is covered by ERISA. This can make all the difference in how to approach settling the case and help avoid complications (and even malpractice claims) later.
The direct right of reimbursement is preserved in favor of the Department of Medical Assistance Services (Medicaid). 157 The same is true for Medicare payments. By operation of federal law, if a Medicare payment is made, then rights of subrogation, through the Health-Care Financing Administration (HCFA), are preserved. 158 Plaintiffs' counsel should connect with Medicare or Medicaid (and ERISA providers) early in the case to determine those liens. With either ERISA-covered plans or Medicare or Medicaid, these providers usually will negotiate a lien reduction to compensate the plaintiff's attorney for his or her efforts made in securing the lien for the provider. A reduction of one-third is common. Also, further reductions can be bargained for on behalf of the plaintiff when there is a plausible argument that it will help the case to settle rather than going to trial where all compensation may be lost in a defense verdict. Counsel should be aware that simply because the provider has not given notice of its claimed lien to counsel or the client— written or otherwise—counsel must not assume that the lien is waived. Protecting the lien is a contractual (ERISA) or statutory (Medicare or Medicaid) obligation where the onus is on counsel to make specific inquiry as to the existence and amount of the lien before resolving the case can even be considered.
Subrogation rights in favor of insurance companies for uninsured and underinsured payments are expressly preserved by statute against the person or entity causing the injury. 159 Subrogation rights of underinsured motorist insurers against underinsured drivers, however, may be extinguished via settlement pursuant to section 38.2-2206(K) of the Virginia Code. Also, while not expressly stated in this statute, the Virginia Supreme Court
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has strongly signaled its view that subrogation rights against an insurer's own insured will not be read into this statute. 160
Subrogation for property damage claims paid pursuant to collision coverage, for example, can still be pursued. However, section 38.2-2231 of the Virginia Code seeks to impose mandatory arbitration of these claims when there is insurance on both sides of the dispute and the issues are limited to liability and damages. Insurers can opt out if an agreement is reached to do so on a case-by-case basis. Notwithstanding that all insurers in Virginia must be members of the Nationwide Intercompany Arbitration Agreement, an action can be filed in a court of competent jurisdiction if a company cannot furnish proof of membership. 161
7.404 Proceedings. Since the insurer steps into the shoes of its insured for subrogation purposes, the usual mechanisms or procedures for filing and pursuing a claim are applicable. With regard to property damage claims involving automobiles, proof of damages requirements have been streamlined by allowing evidentiary use of values developed by the National Automobile Dealers' Association (NADA) or any vehicle valuation service regularly used and recognized in the automobile industry and affidavits of repairmen and estimators. 162
7.405 Reimbursement. Reimbursement is a term often used in the context of health insurance provided pursuant to ERISA. 163 A reimbursement provision in such a plan gives the applicable plan the right to recover from the beneficiary for payments made by the plan if the beneficiary is entitled to recover from a third party. It is not unusual for the plan to assign the reimbursement right to a health insurer.
In Great-West Life & Annuity Insurance Co. v. Knudson, 164 a health insurer was not pleased with the reimbursement amount authorized by a trial court approving a personal injury settlement. The health insurer was
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awarded only three-tenths percent of the value of its claim, 165 and the bulk of the settlement funds were earmarked for the beneficiary's attorney fees and a trust fund for the injured person.
The health insurer sought to enforce the reimbursement provision by pursuing an action under ERISA. Unfortunately for the insurer, the United States Supreme Court concluded that the insurer was seeking legal relief— the imposition of personal liability for a contractual obligation to pay money—which was not allowed by section 502(a)(3) 166 of ERISA, because that section only permits equitable relief. 167 The Court also rejected the insurer's corollary argument that its effort to procure restitution constituted equitable relief, explaining that
"restitution is a legal remedy when ordered in a case at law and an equitable remedy . . . when ordered in an equity case," and whether it is legal or equitable depends on "the basis for [the...
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