Subrogation Toolkit: Guidance on Personal Injury Subrogation/Reimbursement Claims
If a subrogation or reimbursement claim is asserted, first, proceed under the assumption that the Employee Retirement Income Security Act of 1975 (ERISA) governs the claim.
If the benefit arises out of the workplace and if the employer endorsed the benefit plan (e.g. the employer pays for part of the benefit, employer’s name is on the booklet or an insurance policy, the arrangement actually involves a contract between an insurer and the employer) it is likely ERISA governs. It is far better to assume that ERISA applies, even if it turns out that it does not apply, to avoid prejudice to your case. If you fail to follow certain ERISA procedures it can be detrimental, but if state law applies there is typically less harm.
Second, recognize the most commonly-encountered ERISA benefits that involve subrogation issues are health, short-term disability, and long-term disability.
These benefits commonly entangle other cases such as personal injury and workers' compensation cases. Your client may have one or more of these benefits that could impact the personal injury case. Next, understand that, for the most part, ERISA preempts or nullifies state law.
Thus, you only have ERISA for your arguments against a subrogation/reimbursement claim. The one bright spot is that there are disclosure obligations relating to the plan document and the claim record.
Certain violations, such as failure to provide a summary plan description or plan document in a timely manner can give rise to penalties under ERISA. The penalties are capped at $110 per day. However, these penalties are only awarded under certain circumstances.
Here are some simple steps to follow in exercising due diligence to analyze subrogation or reimbursement assertions.
1. Obtain the Plan Document
The first matter to undertake in any ERISA situation is to obtain the plan document.
All plan documents must be produced by the plan administrator. A refusal or failure to provide a plan document within 30 days of a written request permits a federal court to impose penalties of up to $110 per day after the first 30 days. It is often difficult to know the entity which is serving as the plan administrator. Therefore, it is prudent to make such a request of all potential plan administrators: the employer, the owner of the employer (if it is a wholly-owned subsidiary), the insurance company, and the claim administrator. The request must be made in writing.
A sample letter is included in this ERISA subrogation toolkit.
2. Obtain the Claim Record
Another leverage point with ERISA is that it requires the production of the claim record, or administrative record, after adverse action. Adverse action triggers a right to the claim records.
The assertion of the subrogation interest as to the right to obtain monies back from your client sounds pretty adverse. A claim denial or termination of benefits is certainly adverse action. Therefore, a right arises to obtain a copy of the claim record which should consist of documents supporting the subrogation assertion such as medical records, medical billing, guidelines, protocols, notes made by claims staff, internal communication within the subrogation department, and various other matters. It is prudent to obtain the entire claim record. The information can be cross-checked to reveal if all of the record has indeed been produced. Often, it has not. Failure to provide the entire claim record may be a breach of fiduciary duty, and it may provide grounds for the court to find that a full and fair review has not been performed regarding the subrogation assertion.
A sample letter is attached for this as well.
3. Review the Documents Received
Is there any indication in the claim record that ERISA does not govern the subrogation or reimbursement assertion?
Has the “make whole” rule been disclaimed in the plan document?
Has the plan document disclaimed the “common fund doctrine”?
Are the above disclaimers found in the main plan document rather than just a summary? A summary plan description may not constitute the main plan document.
Is there a procedure in the plan document or summary that describes how to assert a request to waive or reduce the plan’s right to subrogation or reimbursement? If so, make sure you follow the time frames and procedure to the letter.
Has a penalty claim arisen? If correct plan documents are not furnished in a timely manner or if only a summary plan description is provided instead of the full plan document, this may give rise to a statutory penalty claim.
Has the client already dissipated the recovery on non-traceable matters? ERISA plan or claims administrators are only permitted to bring an equitable remedy type of claim. The Supreme Court has recognized this and has made clear that a court may not order restitution from a plaintiff by ordering a monetary payment from the plaintiff’s general assets. That amounts to awarding legal relief that is not available. This same Court found that restitution sought by an insurer must involve the imposition of a constructive trust or equitable lien on particular funds or property in the insured’s possession from which the insurer’s claim for relief can be satisfied. Mixing assets do not make them untraceable. Funds that are spent on food or rent are nontraceable.
Is there a basis in the plan to assert a time bar the subrogation assertion? Most plans contain time limits as ERISA permits a plan to have its own limitation of action period, replacing the state statute of limitation. Examine if time limits possibly bar the subrogation or reimbursement claim asserted.
We have created an easy-to-use Subrogation Toolkit for our referral sources to utilize for health benefits, short-term disability, and long-term disability claims in your clients' personal injury and workers' compensation cases.