The Revictimization of Personal Injury Victims by Erisa Subrogation Claims

• Publication year: 2022

45 Creighton L. Rev. 325. THE REVICTIMIZATION OF PERSONAL INJURY VICTIMS BY ERISA SUBROGATION CLAIMS

THE REVICTIMIZATION OF PERSONAL INJURY VICTIMS BY ERISA SUBROGATION CLAIMS

Roger M. Baron!(fn*) Anthony P. Lamb(fn**)

Seizing upon ERISA preemption, the health insurance industry imposed the right of subrogation in personal injury claims, thereby rendering enforceable in federal court that which was universally prohibited by law when Congress enacted ERISA in 1974.

According to industry statistics,(fn1) the Employee Retirement Income Security Act of 1974(fn2) ("ERISA, plans and related insurers are collecting in excess of $1 billion annually through the seizure of tort recoveries intended for personal injury victims.(fn3) Collection agents, working for ERISA plans and their commercial insurers, aggressively pursue(fn4) subrogation (or reimbursement) on a "first dollar priority" basis with absolutely no consideration for the impact reimbursement leaves upon the insured.(fn5) Language fostering these claims is found in documents created by ERISA plans, with enforcement made available through federal courts under the auspices of ERISA's broad grant of federal preemption.

In defense of the subrogation industry's efforts to seize these funds, it is claimed that subrogation is a lawful right with which insurers have been historically vested. Recently, an attorney spokesman for the industry claimed that the roots of ERISA subrogation trace back to the thirteenth century's Magna Carta.(fn6)

While it is true that subrogation in a property insurance setting has been permitted historically, subrogation by health insurers was forbidden by the common law.(fn7) Furthermore, subrogation by health insurers was uniformly prohibited in all jurisdictions until 1974 when ERISA was adopted into law.(fn8)

Because of ERISA's preemptive effect, there is no oversight on the ability of ERISA plans and these insurers to pursue subrogation or reimbursement. It is no small irony that Congress originally passed ERISA for the purpose of uniformly protecting "[t]he interests of participants in employee benefit plans and their beneficiaries."(fn9) The legislative history of ERISA establishes that Congress was motivated, at least in part, by "the absolute need that safeguards for plan participants be sufficiently adequate and effective to prevent the numerous inequities to workers under plans which have resulted in tragic hardship to so many."(fn10) The opening section of ERISA, the portion which is designated as expressing findings and public policy,(fn11) provides that "the continued well-being and security of millions of employees and their dependents are directly affected by these plans . . . and that it is therefore desirable in the interests of employees and their beneficiaries . . . that minimum standards be provided assuring the equitable character of such plans."(fn12) Notwithstanding this background, the health insurance industry has been able to seize upon the vacuum created by ERISA's preemptive effect to create the reimbursement mechanism that has the effect of crushing personal injury victims who are victimized twice-initially by a tortfeasor and then again by their own health insurer.

I. Insurance regulation

The insurance industry has escaped regulation by the Federal government. The lack of federal regulation is not evidence of congressional apathy but is rather attributed to the 1868 United States Supreme Court ruling in Paul v. Virginia,(fn13) which held an insurance policy was not an item of interstate commerce and therefore beyond the reach of Congressional authority.(fn14) The aftermath of the Court's ruling in Paul was the evolution of state regulation. The interests of the consuming public vis-a-vis commercial insurers became the proper subject for control and regulation by the various states.(fn15) Each state moved into a position of aggressively and extensively regulating the insurance industry.(fn16)

States have been able to exercise regulatory authority through statutory provisions enacted directly by the state legislature, through common law as determined by the courts, and through administrative regulation created by the state agencies.(fn17) Each and every state created its own division or department of insurance and its own unique set of statutory provisions regulating insurance. The states have, through this process, successfully struck a balance that accommodates consumer protection and also fosters an environment where insurance companies are able to conduct business.(fn18)

The rather tenuous basis for the Court's decision in Paul-the notion that a policy of insurance is not an item of interstate commerce- did not endure. On June 5, 1944, the United States Supreme Court handed down United States v. South-Eastern Underwriters Ass'n,(fn19) overruling Paul. In South-Eastern Underwriters Ass'n, the Court held that insurance was indeed part of interstate commerce. As a result, Congress was now fully authorized to regulate the insurance industry.

The framework for extensive regulation by the states, however, had already been laid into place. The states had developed significant expertise as regulators.(fn20) It must also be noted that the South-Eastern Underwriters Ass'n decision was handed down the day before D-day and America's entrance into the European theater of World War II.(fn21) It is no surprise, therefore, that Congress elected "not" to step into a regulatory role concerning the insurance industry. Instead, Congress quickly enacted the McCarran-Ferguson Act(fn22) to respond to the South-Eastern Underwriters Ass'n ruling.(fn23) Federal public policy, as set forth in the McCarran Ferguson Act, is as follows:

Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.(fn24)

The McCarran Ferguson Act also expresses a presumptive form of "reverse preemption" or "deference to the states" through another provision, which provides:

No Act of Congress shall be construed to invalidate, impair or supersede any law enacted by any State for the purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance . . .(fn25)

II. SUBROGATION ON PERSONAL INJURY CLAIMS

Subrogation allows an insurer who has indemnified an insured to stand in the shoes of the insured on a claim for compensation against a third party, usually a tortfeasor.(fn26) Historically, subrogation existed primarily in the area of property insurance and has remained largely stable.(fn27) In the 1960s automobile insurers attempted to expand subrogation into medical expenses and other non-property claims.(fn28) During this period, subrogation clauses were inserted into first party medical payments coverage in automobile policies, uninsured and un-derinsured motorist coverage, and medical and hospitalization cover-age.(fn29) Initially, the common law successfully resisted the expansion of subrogation rights given the law's prohibitions against the assignment of personal injury claims(fn30) and splitting causes of action involving personal injuries.(fn31) The continued efforts of the insurance industry, however, eventually led many jurisdictions to allow subrogation directly.(fn32)

The states developed a wide variety of approaches regarding how to handle subrogation in personal injury claims.(fn33) Some states chose to preserve the common...