Subrogation Quandry

[mal]

A self insured ERISA health plan has been sued in state

court as part of a personal injury lawsuit. One count of

the complaint is essentially a claim for payment of benefits

that asf today have not been paid. (The member has

refused to sign the subro agreement as clearly required

by the terms of the plan.)

Prior to the QualChoice case which came out earlier this

month in the 6th Circuit, I would have simply removed the

case and gone through the constructive trust/equitable

lien hoops. However, QualChoice effectively killed these

options within the 6th Circuit. Therefore, if I remove the

case, the federal court is likely to give us a quick boot.

I am tenatively planning to discuss this matter with the

P.I. attorney and have his client sign the subro agreement.

This will allow us to participate in the state court action

under a true subrogation theory (plan v. tortfeasor).

Questions...

1. What are your thoughts on this approach?

2. Does the state court have subject matter jurisdiction over

an action brought by the ERISA plan against the 3rd party

tortfeasor?

3. Any issues or options I am missing?

[Guest jmccreaa]

If the state law claim is really a claim for benefits under the plan, then there is federal question jurisdiction under 29 USC 1132(a)(1)(B). The case could be removed on this basis alone, with the other state law claims coming up under supplemental jurisdiction.

I don't think Qualchoice impacts this analysis, since if I recall correctly, that case concerned the absence of federal jurisdiction over a plan's action to enforce a subrogation agreement. As I understand your post, the plan has not paid the claims because the participant has refused to sign the subro agreement. Assuming that the plan actually requires execution of a subro agreement as a condition to receiving benefits, this would be a good defense to a claim for benefits. Until such time as the plan has paid money, no subrogation right will arise.

[mal]

QualChoice makes it impossible to enforce subrogation

or reimbursement rights once the fund has paid

the benefits and been stiffed by a participant....

Our only basis for not paying the benefits is that

the participant has not signed the form which acknowledges

the plan's subrogation/reimbursement interest....

Given our inability to enforce our subrogation rights,

do the fiduciaries act in an arbitrary fashion by insisting

the participant sign the lien form? On one hand they

are adhering to the plan terms, but on the other they

are relying upon a legally meaningless form to deny

benefits.

[GBurns]

On 1 hand you say:

"Our only basis for not paying the benefits is that

the participant has not signed the form which acknowledges

the plan's subrogation/reimbursement interest...."

But, then you state:

"but on the other they are relying upon a legally meaningless form to deny

benefits. "

I thought that it was your side that was refusing to pay the benefits because the participant would not sign the form.

If that is the case and you just had a typo, then I have to ask how come you are witholding payment if the form is meaningless???

[mal]

Because prior to the QualChoice case it was not

meaningless. Even now we still have potential

offset rights if they refuse to reimburse the plan.

Additionally, the plan terms require a signed

lien form before we pay benefits.

It just seems that if this were challenged, a

judge could look at QualChoice/Great West

and be skeptical of the refusal to pay benefits

based solely on the lien acknowledgement form.

[mbozek]

It appears to me (without knowledge of the specifics of the Qual com case) that the

participant has two choices: One- file a claim for benefits which would permit payment after satisfying all conditions including executing a subrogation agreement. Two- sue the third party in state court and take his chances on recovery from the third party or his insurer. Under the principal of unjust enrichment which applies to ERISA a participant could not recover from both the plan and the third party for the same expenses. Even f the plan is a party to a state ct acton for the failure to pay benefits the state ct would have to rule according to ERISA, because state laws are preempted from applying to benefit claims.

[mal]

Assuming the participant continues to refuse to sign

the subro agreement (as required by the plan) I

believe I am going to file a motion to dismiss based

on the fact he has not exhausted his internal claim

procedures. The downside to this approach is that

he may sign the agreement immediately after we

are released from the state ct action. If so, I will

be moving to intervene and jump back into the

suit.

Any hope the Sup. Ct. hears a case to clarify their

Great West decision???

[Guest jmccreaa]

Back again after having reread the Qualchoice opinion. My recollection was correct that the case says there is no federal jurisdiction to entertain a claim for reimbursement. I do not read it to say that there is no claim for reimbursement, only that it can not be litigated in federal court (absent some other basis for federal jurisdiction, like diversity). In your case, the plan requires the participant to execute an appropriate agreement to reimburse. Such a requirement is not illegal - in fact, it is standard. Therefore, you violate the plan if you pay benefits without the requisite agreement.

Once you get an agreement, then it becomes enforceable in an action at law in state court as a contract.