Tuesday, November 24, 2009

New York Collateral Source and Anti-Subrogation Amendment: Part F

It relates to the Governor’s mandate-relief bill, S6068/S52205/A9052, which passed both the Senate and Assembly on Tuesday night. The law passed the Assembly by a vote of 135 – 0 and the Senate by a vote of 59 - 2, and now awaits Governor David Paterson’s expected signature. Part F of the bill amends both the CPLR and GOL as well as repeals certain provisions of CPLR relating to collateral source payments. This synopsis was prepared by Mike Russell, the attorney in our firm who spearheads our Private/ERISA lien resolution practice. Mike’s summary follows:

The rationale of a modified version of the collateral source rule, C.P.L.R. § 4545, has been discussed by New York courts for years. The general consensus is that the thrust of the collateral source rule was to prevent double recoveries by plaintiffs. Additionally, there has been agreement that the “question of whether the defendants' liability insurance carriers should be held ultimately responsible for all of the plaintiff's damages, even for damages specified in section 4545 which have been compensated from collateral sources, is a question best left to the Legislature, and not the courts” (Humbach v. Goldstein, 229 A.D.2d at 67-68). That question has been answered by the Legislature after the passage of a new bill which 1) amends subdivision (c) of section 4545 of the Civil Practice Law and Rules and 2) adds section 5-335 to the General Obligations Law.

· §4545(c) – In actions for personal injury, injury to property, or wrongful death, the law allowed for the admission (and subsequent reduction of awards) of evidence pertaining to collateral source benefit payments. The amendment adds clarity and exempts only life insurance and payments for which there is a statutory right for reimbursement from the definition of collateral source.
· §5-335 – This new section limits and essentially eliminates the non-statutory right of benefit providers to reimbursement and subrogation in the case of third party settlements and claims (personal injury and wrongful death). Benefit providers are defined as any insurer, health maintenance organization, health benefit plan, preferred provider organization, employee benefit plan or other entity which provides for payment or reimbursement of health care expenses, health care services, disability payments, lost wage payments or any other benefits under a policy of insurance or contract with an individual or group. Those parties entering into a third party settlement would not be subject to subrogation or reimbursement claims or liens of a benefit provider unless such provider had a statutory right to reimbursement. Furthermore, it would be presumed that settlements would incorporate the modified collateral source rules of §4545- i.e. settlement would not include damages which were compensated by benefit provider unless provider had statutory right.


Collateral Source Provider’s Rights of Recovery Greatly Limited

For several years there have been efforts to pass the above amendments and to essentially eliminate a collateral source provider’s right to recovery unless such provider had a right set forth by statute. Today the right of recovery is limited to only those provider’s who have a “statutory right to reimbursement.” This statutory right is conferred upon worker’s compensation benefit providers and government benefit providers including Medicare and Medicaid. Such providers are granted liens according to the law. However, health insurance providers or those defined as “benefit providers” are not granted such a statutory right and hence their rights of recovery are effectively eliminated. In the state of New York there is currently no statute which addresses a provider’s rights to reimbursement/subrogation for benefits or payments made pursuant to an insurance policy or other agreement.

Furthermore, there are no statutory rights under ERISA. Any group benefit plan, while falling under the shadow of ERISA (29 USC § 1002(1)), will only have a contractual right to subrogation/reimbursement. This contractual right is rooted in the language of the particular policy and agreement between the Plan and its members. Within ERISA there are no provisions which provide for subrogation or reimbursement. Rather, there is a provision which provides for “appropriate equitable relief” in the enforcement of plan language (29 USC §1132(a)(3)). Hence under ERISA there is not a clause which confers the right of subrogation or reimbursement. A plan’s contractual language controls its rights and thus under ERISA “benefit providers” will have a contractual but NOT a statutory right.

Presumption Established: Collateral Source Principle Extended to Settlements

In Teichman v. Community Hosp. of Western Suffolk, 87 N.Y.2d 514, the Court of Appeals made it very clear that the reach of §4545 extended only to admissibility at trials and actual judgments. The Court took notice of the section’s silence regarding settlements and stated that while parties to a settlement could consider the receipt of collateral source payments, there was nothing in §4545 which compelled “the conclusion that medical expenses were necessarily excluded from [a] settlement” (Id. at 523). It was this decision that provided the insurer with an interest in the matter and ultimately allowed for their intervention.

With the addition of §5-335 there is silence no more. This section very clearly states that “when a plaintiff settles with one or more defendants in an action for personal injuries, medical, dental, or podiatric malpractice, or wrongful death, it shall be conclusively presumed that the settlement does not include any compensation for the cost of health care services, loss of earnings or other economic loss to the extent those losses or expenses have been or are obligated to be paid or reimbursed by a benefit provider except for those payments as to which there is a statutory right to reimbursement.” This presumption language is the driving force behind the exclusion of liens and rights to subrogation/reimbursement.

Interplay with ERISA: Will Preemption Apply?

It is uncontested that almost every single group benefit plan in this country is subject to ERISA regardless of its particular funding structure. The exceptions usually being government plans, church plans, and individual plans. Under ERISA, all state laws are preempted insofar as they relate to employee benefit plans (29 USC § 1144(a)). So the question becomes will this new law be preempted?

ERISA preemption does not apply to those laws which regulate insurance, banking, or securities (29 USC § 1144(b)(2)(A)). This is known as the Savings clause. The Supreme Court in FMC Corp v. Holiday, 498 US 52, 61 (1990) held that self-funded ERISA plans (employer directly pays benefits rather than purchasing insurance to do so) are exempt from state laws BUT that state laws which regulate insurance are “saved” from preemption with regard to insurance companies and that “an insurance company that insures a plan remains an insurer for purposes of those laws.” Thus if this new law “regulates insurance” then ERISA preemption will not apply.

According to the United States Supreme Court’s opinion in Kentucky Assoc. of Health Plans v. Miller, 123 S.Ct. 1471, 1478 (2003), for a state law to be considered a law that “regulates insurance” under the Savings clause it must satisfy the two following requirements: (1) state law must be specifically directed toward entities engaged in insurance and (2) the state law must substantially affect the risk pooling agreement between the insurer and the insured. First §5-335 is specifically directed toward entities engaged in insurance as it defines not only benefit providers (see insurance industry single out above) but it also specifically excludes their liens and rights of reimbursement/subrogation if not statutorily based. Second, by shifting responsibility for a portion of a plaintiff’s damage, there can be no doubt that this new law will substantially affect the risk pooling agreement. In conclusion, we believe that this new law will regulate insurance and thus will not be preempted by ERISA.

I hope this synopsis has been helpful. Should you have any questions regarding the above, or if you would like to discuss Private Health/ERISA, Medicare Medicaid, hospital and/or workers compensation lien resolution issues in general, please do not hesitate to contact me or Mike Russell, the author of this synopsis or visit http://www.garretsonfirm.com/.