Supreme Court Provides More Guidance Regarding Health Plan Subrogation Claims

On January 20, 2016, the Supreme Court handed down yet another case addressing health plan subrogation.

From the Supreme Court’s earlier decision in Sereboff v. Mid Atlantic Medical Services, Inc. (547 U.S. 356) (2006), we know that a medical plan may use an “equitable lien” to recover on a subrogation claim as long as the plan can find a specific fund or asset traceable to the settlement upon which to place the equitable lien. On the other hand, Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002), teaches that a medical plan may not enforce a subrogation clause by simply pursuing a claim for monetary damages.

The Supreme Court’s most recent foray into the morass of subrogation claims, Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 577 U.S. ___ (2016), provides health plans with a lesson regarding the importance of vigilantly pursuing the plan’s right to settlement proceeds. Montanile involved a fairly typical factual situation. Mr. Montanile was seriously injured in an automobile accident. The plan paid more than $120,000 in medical expenses and sought to recover that amount from a $500,000 settlement. When settlement negotiations between the participant and the plan broke down, the participant’s attorney notified the plan that the balance of the settlement proceeds (less attorneys’ fees and advances) would be distributed to Mr. Montanile unless the plan objected within 14 days. No objection was received and the attorney distributed the balance of the settlement proceeds to Mr. Montanile.

Six months later, the plan sought to enforce its subrogation claims. Unlike the participant in Sereboff, though, Mr. Montanile apparently did not deposit the settlement proceeds in a separate account, and, instead, spent a good portion of the settlement proceeds on non-traceable, consumable items.

The Supreme Court ruled that to the extent that the settlement proceeds had been spent on non-traceable consumable items, the plan was left without any recourse. Although the plan presumably could have traced the settlement proceeds to a specific bank, investment or other account had it acted promptly, the plan could not assert a lien against non-traceable, general assets.

The lesson to be learned from Montanile is fairly simple. To the extent that a plan continues to believe that subrogation makes sense, it needs to assert its claims vigorously and promptly. Once the settlement proceeds have been dissipated, the plan has no recourse against the participant.

This entry was posted in Employee Benefits, Health & Welfare Plans.

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