Personal Injury Settlements Can Avoid Health Insurer Liens

Posted on: February 24th, 2015 by Lawrence A. Friedman

On Feb. 23, 2015, the Supreme Court declined to review a key decision by the U.S. Court of Appeals for the Second Circuit Wurtz v. Rawlings Co., LLC , — F.3d —, 2014 WL 3746801 (2nd Cir. 2014). The Second Circuit’s July 2014 decision held that New York personal injury settlements are not required to reimburse health insurers for accident related treatments under fully insured employer health plans. By rejecting the certiorari application, the Supreme Court allowed the Second Circuit ruling to stand.

The Second Circuit’s reasoning turns on the interplay between the Employee Retirement Income Security Act (“ERISA”) and state insurance law. Essentially, ERISA is designed to make the laws governing employer plans uniform throughout the United States allowing employers to provide similar benefits in various locations without running afoul of different state employment laws. At the same time, however, ERISA isn’t intended to preempt state laws that regulate insurance.

The Second Circuit held that a New York law precluding health insurers from recouping accident related care costs from personal injury settlements is sufficiently directed at insurance to avoid preemption by ERISA. While Wurtz turns on arcane issues of federalism, ERISA, and insurance law, its effect is crystal clear. At least in New York State, personal injury plaintiffs who are employees need not repay fully insured employer health plans for accident related care.

The holding in Wurtz applies only to employer health plans that are fully covered by insurance and to personal injury settlements in a New York or another Second Circuit state with an anti-subrogation law similar to New York’s. This raises two issues. Wurtz doesn’t preclude self insured employer health plans from claiming against personal injury settlements and it doesn’t foreclose such claims where state law doesn’t prohibit them. It also isn’t binding outside the Second Circuit. Thus, the practical effect of Wurtz  will be to provide different repayment obligations depending where and by whom a personal injury plaintiff is employed.

Typically, small and medium size companies buy health coverage from insurers. These kinds of plans would be covered by Wurtz if brought in New York or another state in the Second Circuit with similar law. (Since Wurtz is a Second Circuit, it doesn’t automatically apply in other states.)

Plaintiffs who work for major corporations are not likely to benefit from Wurtz because large companies typically self insure their health plans. In other words, the employer funds care costs covered by the plan. However, this isn’t always obvious because self insured plans often contract with insurers like Aetna and Blue Cross to administer their plans. For a plan to be subject to Wurtz, the insurer must be liable to pay for benefits, not just administer the plan with the employer funding care costs.

Where does that leave New Jersey plaintiffs? While Wurtz may be persuasive, it isn’t precedential because we aren’t in the Second Circuit. In addition, New Jersey doesn’t have an anti-subrogation law similar to New York’s.

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