SUBROGATION: WHOSE MONEY IS IT? Daniel L. Clayton KINNARD CLAYTON & BEVERIDGE 127 Woodmont Blvd Nashville, TN Board Certified Civil Trial and Medical Malpractice Specialist Past President: Tennessee Association for Justice Best Lawyers, Lawyer of the Year, Medical Malpractice, Nashville

Outline of Seminar Made Whole Made Whole ERISA ERISA Hospital Liens Hospital Liens Attorney Fees Attorney Fees

Made Whole Abbott v. Blount County, 207 S.W.3d 732 (2006) Abbott v. Blount County, 207 S.W.3d 732 (2006) Health Cost Controls, Inc. v. Gifford, 239 S.W.3d 728 (2007) Health Cost Controls, Inc. v. Gifford, 239 S.W.3d 728 (2007)

Abbott Key Points  Made-whole doctrine applies regardless of the language found in the insurance contract  Insurance Company can not require consent  Insured has the burden of proof

Health Cost Controls Key Points  Trial Court must consider all sources of insured’s recovery when determining whether person is made whole  Reimbursement should be awarded only to the extent that the injured party’s total recovery exceeds total damages  Party may present evidence of non-economic damages that is “as certain as the nature of the case permits”

Practice Points Get agreement with health insurance company Get agreement with health insurance company Get agreement with liability/UM carrier that person is not made whole Get agreement with liability/UM carrier that person is not made whole Conduct ‘mini trial’ – and put on proof of all damages Conduct ‘mini trial’ – and put on proof of all damages Provide Judge with extensive Findings of Fact Provide Judge with extensive Findings of Fact

ERISA ERISA does not apply to Government plan Government plan Church plan Church plan Plan maintained solely for purpose of complying with worker’s comp or unemployment compensation or disability insurance laws Plan maintained solely for purpose of complying with worker’s comp or unemployment compensation or disability insurance laws Plan maintained outside of U.S. for benefit of nonresident aliens; or Plan maintained outside of U.S. for benefit of nonresident aliens; or Plan that is an excess benefit plan and is unfunded Plan that is an excess benefit plan and is unfunded 29 U.S.C. 1003(b)

ERISA and MADE WHOLE Made Whole is the default rule in the 6 th Circuit. Marshall v. Employers Health Insurance Co., 1997 WL (6 th Cir. 1997) Made Whole is the default rule in the 6 th Circuit. Marshall v. Employers Health Insurance Co., 1997 WL (6 th Cir. 1997) Which means – the insurer does not have a right of subrogation until the insured has been fully compensated, “unless the agreement itself provides to the contrary.” Which means – the insurer does not have a right of subrogation until the insured has been fully compensated, “unless the agreement itself provides to the contrary.”

Significance Plan language must “conclusively disavow the default rule” Copeland v. Haupt, 209 F.3D 811 (6 th Cir. 2000) Plan must be “specific and clear in establishing both a priority to the funds recovered and a right to any full or partial recovery.” However, an attorney has no implied or common law right to be paid fees unless Plan language allows such. Smith v. Wal-Mart, 2000 WL (6 th Cir. 2000)

Practice Points Consider the following ERISA plan language: Consider the following ERISA plan language: “This plan collects from a third party any amount that the plan pays due to an injury or sickness caused by the actions of that third party… … you will pay back to (x) any amounts which you or your dependent collect from the third party or the party’s insurance. … The only purpose of the program is to provide reimbursement to (x) for expenses recovered from a third party.” $250,000 medical claim: $25,000 liability insurance; 100,000 UM coverage and 1,000,000 umbrella $250,000 medical claim: $25,000 liability insurance; 100,000 UM coverage and 1,000,000 umbrella

RECOVERY LIMITED TO LIABILITY INSURANCE COVERAGE OF $25,000 UM/UIM carrier is not a “third party”

UNCONSCIONABLE PLAN LANGUAGE COMPANY DEMANDED CLIENT SIGN DOCUMENT CONTAINING FOLLOWING: COMPANY DEMANDED CLIENT SIGN DOCUMENT CONTAINING FOLLOWING: “Amounts recovered in excess of (“Plan’s”) reimbursement and costs shall be paid to me, but such excess shall apply as a credit against any liability of (“Plan”) for further payments to or on behalf of my claim under the plan.” “Amounts recovered in excess of (“Plan’s”) reimbursement and costs shall be paid to me, but such excess shall apply as a credit against any liability of (“Plan”) for further payments to or on behalf of my claim under the plan.”

PLAN REFUSES TO PAY ATTYS FEES Suggested paragraph: “Please be advised the (client) will work with any attorney you hire to protect your interest. There are multiple depositions which will likely need to be taken in order to prove the reasonableness and necessity of the medical treatment. I will not advance those costs on your company’s behalf. Therefore, please advise me as to the attorney you are hiring to protect your interest in this matter. If you wish to employ me to do this, then I will – provided no conflict of interest arises – for a fee of 33 1/3%.” “Please be advised the (client) will work with any attorney you hire to protect your interest. There are multiple depositions which will likely need to be taken in order to prove the reasonableness and necessity of the medical treatment. I will not advance those costs on your company’s behalf. Therefore, please advise me as to the attorney you are hiring to protect your interest in this matter. If you wish to employ me to do this, then I will – provided no conflict of interest arises – for a fee of 33 1/3%.”

Plan won’t pay fees and won’t hire attorney – what next? ”A party only has a subrogation/right of reimbursement to the extent that there is a recovery. If there is no recovery for the medical bills, then there is no right of reimbursement. Let me be very clear. Because of your company’s refusal to pay the costs associated with proving the medical bills (either through hiring me in accordance with my earlier letter, or by hiring other counsel) I will not prove any medical bills. I will specifically ask the Judge to put a separate line on the verdict form for medical expenses. Since I will not prove any medical expenses in this case, I fully anticipate that a directed verdict will be granted on that issue and there will be a zero recovery for medical expenses.”

Plan attempts to recover from any monies received “The language in your plan states that your plan has a right to reimbursement, even if the monies are not related to medical expenses. Clearly, this phrase is invalid, and, to be blunt, does not make any sense. Jurors are frequently asked to determine whether certain medical expenses are reasonable. They are also asked to determine if the expenses are related to the injuries sustained in the wreck. If a jury determines the expenses are not reasonable and/or not related to the wreck, then there is no compensation. How can your company claim rights to reimbursement when the jury has determined that it is not related to the injury? The bottom line is – you can not.”

Hospital Liens – No attorney Fees Breazeale v. Hensley 2009 WL (Tenn.Ct.App. 2009) Breazeale v. Hensley 2009 WL (Tenn.Ct.App. 2009) Hospital Lien is not reduced by one-third attorney fees Hospital Lien is not reduced by one-third attorney fees

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THANK YOU! Daniel L. Clayton Kinnard Clayton & Beveridge 127 Woodmont Blvd Nashville, TN Board Certified: Civil Trial and Medical Malpractice Specialist Past President: Tennessee Association for Justice