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The Rogak Report: 31 March 2004

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  • therogakreport
    HEALTH INSURER MAY NOT ASSERT SUBROGATION RIGHTS ON AN INSURED S PERSONAL INJURY VERDICT BUT IT CAN DO SO FOR A SETTLEMENT Niemann and New York Life Insurance
    Message 1 of 1 , Mar 31, 2004
      HEALTH INSURER MAY NOT ASSERT SUBROGATION RIGHTS ON AN INSURED'S
      PERSONAL INJURY VERDICT BUT IT CAN DO SO FOR A SETTLEMENT

      Niemann and New York Life Insurance Company, v. Luca, , 168 Misc.2d
      1023,645 N.Y.S.2d 401 (Supreme Court, Suffolk County)

      New York Life Insurance Company, a non-party to this personal injury
      action, moved for an order permitting it to intervene as a party
      plaintiff so as to protect its lien and subrogation rights for the
      medical benefits it paid to the plaintiff.

      The BI action arose out of a motor vehicle accident which occurred on
      January 6, 1992. Plaintiff Holly Niemann, then age 14, was one of
      three passengers in an automobile driven by defendant, Joseph N.
      Luca, Jr., when the car went out of control and struck a tree.
      Niemann suffered severe personal injuries in the accident and
      together with her mother commenced this action.

      New York Life Insurance Company, which has paid some $403,000 in
      medical insurance benefits to Niemann, moved for an order permitting
      it to intervene in this action and to serve its complaint for
      declaratory relief upon the defendants. New York Life asserted that
      the injured plaintiff was a covered person under a group health
      insurance plan affording coverage to her father, a long time employee
      of New York Life. New York Life further asserted that pursuant to the
      terms of its health insurance policy, it was granted a contractual
      right of subrogation by its insured. In the proposed complaint
      attached to its moving papers, New York Life, as intervenor, sought a
      judgment against the defendants declaring that 1) defendant New York
      Life was subrogated to the rights of Holly E. Niemann under the Group
      Insurance Plan issued to the plaintiff's father; and 2) the
      defendants were obligated to pay New York Life all amounts paid or
      all amounts New York Life was obligated to pay for medical expenses
      as a result of the injuries suffered by the infant plaintiff in the
      subject accident. New York Life later amended its papers to
      acknowledge that the subrogation right was not actually in the
      policy, but it nonetheless had the equitable right of subrogation.

      In discussing New York Life's rights as a health insurer, the Court
      stated that the subrogation rights of insurers have been the subject
      of several recent decisions of the Court of Appeals. In Federal
      Insurance Co. v. Arthur Andersen & Co., 75 N.Y.2d 366, 553 N.Y.S.2d
      291 (1990) and in Winkelmann v. Excelsior Insurance Co., 85 N.Y.2d
      577, 626 N.Y.S.2d 994 (1995), the Court explained that unlike
      contractual subrogation, where the insurer-subrogee's rights are
      defined in the contract between it and the insured-subrogor, the
      right of an insurer to recover from third persons legally responsible
      for the loss is equitable in nature and arises independently of any
      contract. Consequently, an insurer who has paid the policy limits to
      its insured possesses the derivative and limited rights of the
      insured and may proceed directly against the negligent third party to
      recoup the amount paid. This is so even though the insured's claimed
      losses were not fully covered by the proceeds of the policy. In both
      cases, the Court sustained the rights of insurers, each of whom paid
      their insureds the full amount under their respective policies, to
      proceed against third-party tortfeasors responsible for the loss even
      though the insured's claims against the third-party tortfeasors,
      including those for uninsured losses, had not yet been resolved.

      However, as the Court of Appeals held in Winkelmann, an insurer may
      not seek equitable subrogation against its own insured where the
      proceeds of insurance plus the insured's recovery from the negligent
      third party fall short of making the insured whole. This rule is
      based upon the nature of the relationship between the insurer and the
      insured: if the loss of one of the two must go unsatisfied, it should
      be the insurer who bears such loss since it is has been paid to
      assume the risk of such loss. Thus, where the sources of recovery
      ultimately available are inadequate to fully compensate the insured
      for its losses, then the insurer--who has been paid by the insured to
      assume the risk of loss--has no right to share in the proceeds of the
      insured's recovery from the tortfeasor.

      In Teichman v. Community Hospital of Western Suffolk, 87 N.Y.2d 514,
      640 N.Y.S.2d 472 (1996), a case more factually similar to the one at
      bar, the Court of Appeals permitted a health insurer, who provided
      medical benefits to an infant plaintiff, to intervene in the
      proceedings to compromise the claims of the plaintiff interposed in a
      medical malpractice action against the third-party tortfeasors. The
      Metropolitan Life Insurance Company, the medical insurer, sought
      intervention to pursue its contractual right to a refund of amounts
      expended on behalf of the infant plaintiff, which right was conferred
      upon it under the terms of the health insurance policy affording
      coverage to the infant plaintiff. Although the Court found that the
      contractual right of reimbursement did not give rise to a lien in
      favor of MetLife, it granted MetLife's motion to intervene in the
      compromise proceedings for the purpose of asserting its contractual
      right to be reimbursed for all past and future medical expenses it
      paid or was liable to pay under the terms of its health insurance
      policy. The Court thus permitted an insurer, whose subrogation rights
      rested upon a claim of contractual reimbursement, to assert a right
      of recoupment against the past and future medical expenses, if any,
      that were included in the settlement obtained by the insured from the
      third- party tortfeasors even though 1) there was no determination
      that the sources of recovery ultimately available were adequate to
      fully compensate the insured for all of its asserted losses; and 2)
      the insurer had not paid the full limits of its policy.

      CPLR 4545, the collateral source rule, mandates that all such
      reimbursed costs and expenses must be "set off" against the amounts
      awarded by the jury. Application of the rule here would thus preclude
      the plaintiffs from recovering from the defendants all costs and
      expenses that have been replaced or indemnified by any collateral
      source and those which are reasonably certain to be replaced or
      indemnified in the future from any collateral source, less the cost
      of insurance premiums incurred by the plaintiffs. The medical
      benefits previously provided to the infant plaintiff by New York Life
      and those which it is liable to pay in the future (less the cost of
      any premiums paid for such insurance) "are clearly collateral source
      payments within the contemplation of CPLR 4545."

      As equitable subrogee of the plaintiffs, New York Life stands in the
      shoes of its insureds and its rights to proceed against the
      defendants, being derivative in nature, are limited to such rights as
      the plaintiffs would have had against such defendants.

      Since the plaintiffs have no right to recover on a judgment for
      damages for past and future costs and expenses that have been or will
      be reimbursed from collateral sources, "New York Life has no viable
      claim to recoup the value of the medical benefits it has provided or
      will provide in the future to the infant plaintiff which are the
      subject of a damages award by the jury."

      However, held the Court, "it is now clear that the collateral source
      rule is inapplicable to personal injury claims which are resolved by
      settlement, rather than by verdict Teichman v. Community Hospital of
      Western Suffolk, 87 N.Y.2d 514, 640 N.Y.S.2d 472). The plaintiffs are
      thus not precluded from recovering, under the terms of any settlement
      struck with one or more of the defendants, monies paid in
      satisfaction of the plaintiffs' claims for medical expenses. As the
      subrogee, New York Life has the right to assert its claim for
      recoupment of covered medical expenses in an action against the third-
      party tortfeasor, and may recover the value of the past medical
      expenses it provided its insured.

      Any questions regarding whether the health insurer has fully met its
      obligations to the insured so as to qualify as an equitable subrogee
      must be resolved in a declaratory judgment action, held the Court.

      Having determined that a medical insurer may, as equitable subrogee
      of its insured, maintain a separate action against the third party
      tortfeasor to recoup some or all of the covered medical benefits
      recoverable by the insured, by settlement, "it follows then that the
      insurer-subrogee should be permitted to intervene in a pending action
      commenced by its insured against the third party tortfeasor and
      therein assert such claims against the tortfeasors directly. That the
      insurer-subrogee's right to recoup covered medical benefits included
      in any settlement struck between the insured might be adversely
      affected by the terms of a settlement entered into and/or submitted
      for final approval without input from the insurer is obvious, as the
      creative machinations of counsel aimed at defeating the subrogation
      rights of insurers are well documented (see, Kozlowski v. Briggs
      Leasing Corp., 96 Misc.2d 337, 408 N.Y.S.2d 1001 [1978])."

      Accordingly, that portion of the instant motion by New York Life for
      leave to intervene in this action to 1) assert its claims for
      recoupment of any medical expenses included in the terms of any
      settlement offered by the defendants and accepted by the Niemann
      plaintiffs in satisfaction of their claims; and 2) to participate in
      the proceedings for court approval of any such settlement was
      granted, subject to the following condition: that within 15 days, New
      York Life serve upon all parties a complaint for such declaratory
      relief against the defendants, complete with a copy of the policy
      affording coverage to the plaintiffs.

      The motion by New York Life for leave to intervene in this proceeding
      was "granted to the limited extent that New York Life may intervene
      herein for the purpose of asserting its equitable subrogation rights
      against the defendants to recoup covered medical expenses, if any,
      that are included in the terms of any settlement between the
      plaintiffs and the defendants and shall thus have the concomitant
      right to appear at and be heard on the proceedings brought to obtain
      court approval of such settlement. That portion of New York Life's
      motion by which it seeks to intervene for the purpose of asserting
      its equitable right to subrogation against the defendants to recoup
      covered medical expenses awarded by a jury and to participate at the
      trial of this action and/or at the post-trial proceedings conducted
      pursuant to CPLR 4545 is denied."

      Comment: In summary, then, a plaintiff has no right to collect a
      judgment for medical expenses that have been reimbursed through
      insurance. Since the plaintiff is not allowed to collect it, his or
      her health insurance company, as subrogee, is not allowed to collect
      it either. However, there is no ban on collecting medical expenses
      in a settlement, even if those medical expenses have been paid by
      insurance. The health insurer therefore has subrogation rights
      against settlements. A health insurer may be granted leave to
      intervene in its insured's personal injury lawsuit for the purpose of
      protecting its rights if the plaintiff settles with the tortfeasor.
      But the health insurer may not intervene for the purpose of
      participating at trial because it has no rights recoup its payments
      out of a verdict.
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