NJ federal court upholds application of NJ anti-subrogation law in class action against Rawlings and ERISA Insurers

In Roche v. Aetna, Inc., 2016 WL 797553, (D.N.J. March 1, 2016) plaintiffs filed a class action suit in New Jersey state court against ERISA insurers and The Rawlings Company, seeking refunds and damages related to ERISA subrogation collections made in violation of New Jersey law which prohibits subrogation.  In addition to relying on New Jersey’s anti-subrogation law, Plaintiffs asserted claims under the New Jersey Consumer Fraud Act (NJCFA) and common law (breach of contract, theft, conversion, unjust enrichment).  Defendants removed to federal court.  This decision sustains a summary judgment for defendants as to the NJCFA and common law claims but recognizes that New Jersey’s anti-subrogation law does in fact apply to ERISA insurers through ERISA’s “saving clause.”

This action is similar to the action brought in Wurtz v. Rawlings Co., LLC, 761 F.3d 232, 243–44 (2d Cir. 2014) wherein the 2nd Circuit upheld the application of the New York anti-subrogation law through ERISA’s “saving clause.”  Since New Jersey is in the 3rd Circuit, however, the Defendants sought to avoid the application of Wurtz by (once again) arguing complete preemption.  This court rejects the “complete preemption” argument and applies the “saving clause,” stating at *6 at [4]:

[T]he claims under [New Jersey’s anti-subrogation statute] Section 42.10 are conflict preempted by ERISA § 502(a) as claims for benefits due, but Section 42.10 itself is saved from preemption under ERISA § 514(b)(2)(A) as a law regulating insurance, and so provides the relevant rule of decision for determining what benefits are due under a claim properly pleaded under ERISA § 502(a).

 Note that, according to Wurtz, the 2nd Circuit view is that a state law anti-subrogation claim is not cognizable under ERISA § 502(a)(1)(B).  The 3rd Circuit takes a different approach, as stated at *7 at [7]:

[C]laims for return of subrogation payments or to avoid payment of subrogation liens are claims for “benefits due” under ERISA § 502(a).

 As a result, the plaintiffs’ claims are controlled by state law and may proceed under ERISA. The Court stated at *7 at [5,6]:

The subrogation prohibition contained with Section 42.10 therefore “supplies the relevant rule of decision” for any ERISA § 502(a) claim.

Under Wurtz, the 2nd Circuit follows the view that the NY state anti-subrogation law is applicable to ERISA insurers, with a remedy available outside the ERISA remedies.  Under the ruling in this case, the NJ state anti-subrogation law provides the “rule of decision” regarding subrogation/reimbursement claims, with a remedy provided under ERISA’s § 502(a).

Thank you Professor Baron for the above commentary

A copy of the Opinion is attached

NJ federal court upholds application of NJ anti-subrogation law in class action against Rawlings and ERISA Insurers

In Roche v. Aetna, Inc., 2016 WL 797553, (D.N.J. March 1, 2016) plaintiffs filed a class action suit in New Jersey state court against ERISA insurers and The Rawlings Company, seeking refunds and damages related to ERISA subrogation collections made in violation of New Jersey law which prohibits subrogation.  In addition to relying on New Jersey’s anti-subrogation law, Plaintiffs asserted claims under the New Jersey Consumer Fraud Act (NJCFA) and common law (breach of contract, theft, conversion, unjust enrichment).  Defendants removed to federal court.  This decision sustains a summary judgment for defendants as to the NJCFA and common law claims but recognizes that New Jersey’s anti-subrogation law does in fact apply to ERISA insurers through ERISA’s “saving clause.”

This action is similar to the action brought in Wurtz v. Rawlings Co., LLC, 761 F.3d 232, 243–44 (2d Cir. 2014) wherein the 2nd Circuit upheld the application of the New York anti-subrogation law through ERISA’s “saving clause.”  Since New Jersey is in the 3rd Circuit, however, the Defendants sought to avoid the application of Wurtz by (once again) arguing complete preemption.  This court rejects the “complete preemption” argument and applies the “saving clause,” stating at *6 at [4]:

[T]he claims under [New Jersey’s anti-subrogation statute] Section 42.10 are conflict preempted by ERISA § 502(a) as claims for benefits due, but Section 42.10 itself is saved from preemption under ERISA § 514(b)(2)(A) as a law regulating insurance, and so provides the relevant rule of decision for determining what benefits are due under a claim properly pleaded under ERISA § 502(a).

 Note that, according to Wurtz, the 2nd Circuit view is that a state law anti-subrogation claim is not cognizable under ERISA § 502(a)(1)(B).  The 3rd Circuit takes a different approach, as stated at *7 at [7]:

[C]laims for return of subrogation payments or to avoid payment of subrogation liens are claims for “benefits due” under ERISA § 502(a).

 As a result, the plaintiffs’ claims are controlled by state law and may proceed under ERISA. The Court stated at *7 at [5,6]:

The subrogation prohibition contained with Section 42.10 therefore “supplies the relevant rule of decision” for any ERISA § 502(a) claim.

Under Wurtz, the 2nd Circuit follows the view that the NY state anti-subrogation law is applicable to ERISA insurers, with a remedy available outside the ERISA remedies.  Under the ruling in this case, the NJ state anti-subrogation law provides the “rule of decision” regarding subrogation/reimbursement claims, with a remedy provided under ERISA’s § 502(a).

Thank you Professor Baron for the above commentary

A copy of the Opinion is attached

Big win for plaintiffs in ERISA lien case

Congratulations to Peter Stris for this significant victory (Montanile v. Board of Trustees) handed down today by the U.S. Supreme Court. Today’s decision sustains the arguments made by the ERISA participant and denies a cause of action to the ERISA Plan.

In Montanile, the ERISA plan sued the participant for $121,402.02 seeking to collect from the participant’s general assets. The participant had previously notified the plan that he received a tort settlement of $500,000 and attempted to negotiate an agreement. When negotiations failed, the participant’s attorney notified the plan that he would be distributing the entire balance of funds in his trust account unless the plan objected within 14 days. The plan did not object. The participant dissipated the assets and the plan sued, seeking to collect from the participant’s general assets. Both the trial court and the 11th Circuit sustained a cause of action for the plan, but the Supreme Court reversed, stating:

We hold that, when a participant dissipates the whole settlement on nontraceable items, the fiduciary cannot bring a suit to attach the participant’s general assets under §502(a)(3) because the suit is not one for “appropriate equitable relief.”

This opinion recognizes and summarizes its three previous ERISA Subrogation cases: 1st Knudson (2002) (denying a cause of action where the named defendants did not actually possess settlement funds which had been placed in a trust, holding that a suit for money judgment is not a form of equitable relief); 2nd Sereboff (upholding a cause of action against specifically identifiable funds maintained in a bank account, pending resolution of the ERISA plan’s claim); and 3rd, McCutchen (again upholding a cause of action against a third party settlement fund, enforcing an “equitable lien by agreement,” notwithstanding the harsh impact upon the ERISA participant). Following its discussion of these three cases, the Court rules in favor of the ERISA participant, explaining the history of equitable relief:

In sum, at equity, a plaintiff ordinarily could not enforce any type of equitable lien if the defendant once possessed a separate, identifiable fund to which the lien attached, but then dissipated it all. The plaintiff could not attach the defendant’s general assets instead because those assets were not part of the specific thing to which the lien attached. This rule applied to equitable liens by agreement as well as other types of equitable liens.

Justice Ginsburg dissented.

Thank you to our good friend Professor Roger Baron for notifying us of this decision and the above post.

Rawlings and Asbestos: How a CD and Cover Letter Changed the Future of your Settlements

If your firm handles asbestos claims, there is a very good chance that you have received a letter from Rawlings and Associates that threatens to file a lawsuit against your firm.  It states that certain Medicare statutes require claim reimbursement to Medicare Advantage providers, including providers associated with your asbestos litigation.  The letter then suggests that Rawlings is going to collect retroactively for 15 years.  Accompanying this letter is a corresponding list of the claims that Rawlings’ plans allegedly paid on your clients’ behalf.

Is it a bluff? Would Rawlings really file these lawsuits?  Who knows.  They did, however, give everyone, including themselves, an out. Yes, in their grand, majestic benevolence, Rawlings drafted a Private Lien Resolution Program (PLRP).  The terms include amnesty for past claims, a 45% lien reduction, 20-25% lien caps, waiver of certain deminimus claims, waiver of a Medicare Advantage lien claim if the asbestos exposure was before December 5, 1980, opt out provisions, and hard timelines.

On its face the PLRP appears to be a decent deal.  It’s not perfect.  Victims are receiving pennies on the dollar in some instances, so it is tough to call any deal “fair.” But ultimately and unfortunately plaintiffs may have no other choice than to agree.

If you would like to discuss this further, please call Clayton Starnes at 512-382-5100.

Wurtz v The Rawlings Company

Our Good friend Roger Baron shared this on his list serve today – and congrats to another one of our good friends, Franklin Solomon.

“Today the U.S. Supreme Court denied cert in this case (summarized below).

In Wurtz v. The Rawlings Company, — F.3d—, 2014 WL 3746801, the U.S. Court of Appeals for the 2nd Circuit rendered a major decision yesterday, 7/31/14, holding that New York’s antisubrogation law is “saved” by ERISA’s “saving clause” and applicable to health insurers providing coverage through ERISA plans. This is a significant victory for ERISA participants and beneficiaries. The underlying action was filed as a class action in New York state court against The Rawlings Company, LLC; Oxford Health Plans (NY), Inc.; and UnitedHealth Group, Inc. alleging violations of New York law relating to efforts to secure reimbursement of medical benefits from plaintiffs’ tort settlements. The defendants removed the case to federal court and the federal trial judge dismissed it on the basis of ERISA preemption. The 2nd Circuit reversed and remanded, holding that neither “complete preemption” nor “conflict preemption” were applicable to the plaintiff’s claims seeking enforcement of state law which is saved by ERISA’s “saving clause.” The Court relied upon the 1990 Supreme Court decision in FMC v. Holliday and noted that its ruling “is in some tension with holdings of the Third, Fourth, and Fifth Circuits in similar antisubrogation cases.”

In responding to the assertion that subrogation/reimbursement was required to uphold national uniformity under ERISA, the Court stated,

Allowing plaintiffs’ state‐law claims under [New York statute] section 5‐335 to proceed will not disturb ERISA’s goal of providing national uniformity. ERISA has strong preemptive provisions, the purpose of which are “to provide a uniform regulatory regime over employee benefit plans.” Davila, 542 U.S. at 208. But “ERISA says nothing about subrogation provisions. ERISA neither requires a welfare plan to contain a subrogation clause nor does it bar such clauses or otherwise regulate their content.” Member Servs. Life Ins. Co., 130 F.3d at 958 (internal quotation marks omitted). Because ERISA is silent on subrogation, our decision does nothing to disturb ERISA’s goal of national uniformity in employee benefit plan regulation.”

Medicare Part C update – Collins v. Wellcare Healthcare Plans

Amanda Saylor from our office posted the following…

On the December 16, 2014 case Collins v. Wellcare Healthcare Plans, Inc. a Louisiana District Court provided additional jurisprudential support for the 3rd circuit’s 2012 In re Avandia decision allowing for a private cause of action for Medicare Part C plans under the Medicare Secondary Payer statute (“MSP”). Collins v. Wellcare Healthcare Plans, Inc., 2014 WL 7239426 at 10 (E.D.La. Dec. 16, 2014). In analyzing whether defendant Wellcare could bring a private cause of action against Plaintiff Aimie Collins the Court examined (1) whether a tort settlement could be considered to be a “primary plan” under the MSP, and (2) whether Wellcare had made a conditional payment as contemplated in 42 U.S.C. § 1395y(b)(2)(B). Id. at 11. The Court determined that the statutory language of the MSP clearly supports that a beneficiary’s tort settlement is a “primary plan” under the MSP. Id. at 13. In rejecting Collins’ contention that Wellcare’s payments were not conditional for failure to definitely ascertain whether another payer would accept financial responsibility, the Court highlighted that no case law support had been offered nor was there any statutory support suggesting that a Part C plan had such a responsibility. Id. at 15. While this decision provides another layer of statutory support for Part C plans claiming reimbursement rights on par with traditional Medicare, it still represents a small victory for beneficiaries of tort settlements as Judge Fallon went on to preclude Part C plans from seeking double damages in certain tort settlement cases. The rationale behind double damages is to deter primary private insurers from failing to make payments thus leaving the financial burden of medical care on the government, Judge Fallon explained, and in this case the Plaintiff did not conceal or spend the money at issue rather she put her settlement into a trust pending a judicial determination of which party had a rightful claim to it. Id. at 15-16. Accordingly the facts in this case were insufficient to support a finding that “failure to provide payment” had occurred justifying a claim for double damages under 42 U.S.C. § 1395y(b)(3)(A). Id. at 16. In analyzing the appropriate reimbursement amount in light of the facts of this case, the Court declined to make a ruling because the nature of the settlement continues to be a disputed material fact. Id. at 18. The Court concluded that the amount of reimbursement that a Part C plan is entitled to seek in a given case will depend largely upon the nature of the settlement, specifically whether the settlement released the tortfeasor from liability for medical expenses and whether the tort settlement provided compensation for medical expenses regardless of the extent of that compensation. Id. at 17-18.

Eastern District of Missouri applies Missouri law through ERISA’s “saving clause” to reform ERISA life insurance policies

In Haug v. LINA, (E.D.Mo. 9/16/14), the Court recognized the application of Missouri law through ERISA’s “saving clause” in connection with life insurance policies issued through an ERISA plan. In particular, the Court holds that Missouri’s statutory provisions relating to incontestability clauses – requiring that statements made by an insured may not be used to contest a claim unless a copy of the instrument has been furnished to such person or beneficiary. The Court sustained a summary judgment motion seeking “reformation” of the ERISA policy so as to come into compliance with state law. In so doing, the Court stated,

Defendant does not contest that the Policy was delivered in Missouri but argues that Plaintiff’s reliance on Missouri law for her reformation claim is preempted by ERISA.

ERISA preempts state laws that “relate to any employee benefit plan,” but it explicitly exempts from preemption state laws “which regulate[] insurance, banking, or securities.” 29 U.S.C. §§ 1144(a), 1144(b)(2)(A). A state law “regulates insurance” if it is “specifically directed toward entities engaged in insurance,” and if it “substantially affect[s] the risk pooling arrangement between the insurer and insured.” Ky. Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329, 341-42 (2003).

The Supreme Court has “repeatedly held that state laws mandating insurance contract terms are saved from preemption under § 1144(b)(2)(A).” UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 375 (1999); see also Ky. Ass’n of Health Plans, Inc., 538 U.S. at 339 n.3 (holding that state law rule “which dictates to the insurance company conditions under which it must pay for the risk that it has assumed . . . certainly qualifies as a substantial effect on the risk pooling arrangement between the insurer and insured”). There is, however, a distinction between “a substantive state insurance law, which if saved will provide a relevant rule of decision in an ERISA civil enforcement action, and a state judicial remedy, which is conflict-preempted . . . even if it was created or authorized by a state insurance statute.” Fink v. Dakotacare, 324 F.3d 685, 689 (8th Cir. 2003) (emphasis in original) (citations omitted). Only the former is saved from preemption. Werdehausen v. Benicorp Ins. Co., 487 F.3d 660, 669 (8th Cir. 20 7) (“Of course, any state law remedy is preempted by ERISA’s comprehensive remedial scheme[,] [b]ut . . . [Mo. Rev. Stat.] § 376.1361(13), [which] supplies a relevant rule of decision in resolving the Wederhausens’ ERISA claims under 29 U.S.C. § 1132(a)(1)(B)” is not preempted.) (emphasis in original) (citations omitted). Here, where Plaintiff does not seek a state law remedy but seeks an equitable remedy under ERISA, 29 U.S.C. § 1132(a)(3), her reliance on Mo. Rev. Stat. § 376.697(3) to resolve the reformation claim is not barred by ERISA. See Larson v. United Healthcare Ins. Co., 723 F.3d 905, 912 (7th Cir. 2013) (“[W]hen an [ERISA] plan includes an insurance policy, contract terms mandated by state insurance law become plan terms.”).

This holding is arguably applicable to Missouri’s anti-subrogation law which prohibits subrogation by health insurers as a matter of public policy. Arguably, language creating subrogation or reimbursement in favor of a health insurer or stop loss insurer could be “reformed” by a court to come into compliance with Missouri’s anti-subrogation law.

Finally, and sad to note, the plaintiff won the battle on the issue of “reformation” but she lost the lawsuit because the Court sustained Defendant’s motion for summary judgment on all other aspects of her lawsuit, denying her recovery.

Thank you Professor Roger Baron for the above commentary.

Changes to the CMS’ Policy on Liability Insurance in Post-December 5, 1980 Cases

On August 19, 2014, the Centers for Medicare and Medicaid Services revised its October 11, 2011 article titled: Liability Insurance (Including Self-Insurance): Exposure, Ingestion, and Implantation Issues and December 5, 1980.

As of August 19, 2014, Medicare will assert a recovery right if exposure on or after December 5, 1980, is claimed in the most recently amended operative complaint or comparable supplemental pleading. This language was added to the October 11, 2011 article, which did not require that exposure be alleged or released in the most recently amended complaint.

Conversely, Medicare will not assert a recovery claim when the following three requirements are met for each individual Defendant:

1. All exposure or ingestion ended or the implant was removed before December 5, 1980
2. Exposure, ingestion, or an implant on or after December 5, 1980, has not been claimed in the most recently amended operative complaint (or comparable supplemental pleading) and/or specifically released; and
3. There is either no release for the exposure, ingestion, or an implant on or after December 5, 1980, or where there is such a release, it is a broad general release (rather than a specific release), which effectively releases exposure or ingestion on or after December 5, 1980. The rule also applies if the broad general release involves an implant.

Plaintiffs’ attorneys should pay increased attention to those Defendants named in subsequent pleadings, as CMS will look the most recently filed complaint to determine Medicare’s recovery rights. This added language is particularly important to asbestos exposure cases, in which numerous Defendants are often released or dismissed without prejudice after the initial complaint is filed. Importantly, CMS will require that all “operative” amended complaints be filed prior to the date of settlement, so as to avoid cases in which amended complaints are filed for the purpose of avoiding Medicare reporting requirements.

 

Wurtz v. The Rawlings Company

In Wurtz v. The Rawlings Company, — F.3d—, 2014 WL 3746801, the U.S. Court of Appeals for the 2nd Circuit rendered a major decision yesterday, 7/31/14, holding that New York’s antisubrogation law is “saved” by ERISA’s “saving clause” and applicable to health insurers providing coverage through ERISA plans. This is a significant victory for ERISA participants and beneficiaries. The underlying action was filed as a class action in New York state court against The Rawlings Company, LLC; Oxford Health Plans (NY), Inc.; and UnitedHealth Group, Inc. alleging violations of New York law relating to efforts to secure reimbursement of medical benefits from plaintiffs’ tort settlements. The defendants removed the case to federal court and the federal trial judge dismissed it on the basis of ERISA preemption. The 2nd Circuit reversed and remanded, holding that neither “complete preemption” nor “conflict preemption” were applicable to the plaintiff’s claims seeking enforcement of state law which is saved by ERISA’s “saving clause.” The Court relied upon the 1990 Supreme Court decision in FMC v. Holliday and noted that its ruling “is in some tension with holdings of the Third, Fourth, and Fifth Circuits in similar antisubrogation cases.”

In responding to the assertion that subrogation/reimbursement was required to uphold national uniformity under ERISA, the Court stated,

Allowing plaintiffs’ state‐law claims under [New York statute] section 5‐335 to proceed will not disturb ERISA’s goal of providing national uniformity. ERISA has strong preemptive provisions, the purpose of which are “to provide a uniform regulatory regime over employee benefit plans.” Davila, 542 U.S. at 208. But “ERISA says nothing about subrogation provisions. ERISA neither requires a welfare plan to contain a subrogation clause nor does it bar such clauses or otherwise regulate their content.” Member Servs. Life Ins. Co., 130 F.3d at 958 (internal quotation marks omitted). Because ERISA is silent on subrogation, our decision does nothing to disturb ERISA’s goal of national uniformity in employee benefit plan regulation.

Thank you Professor Baron for passing this along

Will Shapiro

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