Wednesday, November 21, 2007

Wal-Mart, ERISA Subrogation, and "The Grand Irony"

Walmart_1 Roy Harmon of the Health Plan Law Blog brings to my attention a distressing Wall Street Journal article discussing the overlap between employer-provided health insurance plans under ERISA and the law of subrogation:

A collision with a semi-trailer truck seven years ago left 52-year-old Deborah Shank permanently brain-damaged and in a wheelchair. Her husband, Jim, and three sons found a small source of solace: a $700,000 accident settlement from the trucking company involved. After legal fees and other expenses, the remaining $417,000 was put in a special trust. It was to be used for Mrs. Shank's care . . . .

Instead, all of it is now slated to go to Mrs. Shank's former employer, Wal-Mart Stores Inc.

Two years ago, the retail giant's health plan sued the Shanks for the $470,000 it had spent on her medical care. A federal judge ruled last year in Wal-Mart's favor, backed by an appeals-court decision in August. Now, her family has to rely on Medicaid and Mrs. Shank's social-security payments to keep up her round-the-clock care.

As Roy points out, and some out there may be shocked to hear this, but this inequitable, horrendous outcome is considered appropriate, equitable relief for the Wal-Mart plan under ERISA and the states are helpless to do anything about it.  Two reasons why:

1.    The Scope of Equitable Relief under ERISA Section 502(a)(3): This provision provides participants, beneficiaries, and fiduciaries with the ability to sue for appropriate, equitable relief for violations of ERISA. Here, Wal-Mart's health plan is suing the Shanks (non-fiduciaries) under a reimbursement clause for the money the Shanks received from a third-party tortfeasor.  Since 1993 and the Mertens case, the Supreme Court has looked to the "time of the divided bench" to define what equity means rather than what was available under the common law of trusts (which Congress intended ERISA to incorporate to make it a full remedial statue).   As a result of this strict, literalist construction, the Wal-Mart plan had a claim for an equitable lien based on an agreement because the money in question was specifically identifiable, in the possession of the Shanks, and under the reimbursement clause, belonged rightfully to the plan. So "equity" in this bizarre world is served by the Shanks entire settlement fund being wiped out by the insurer.

2.   State Law Preemption: States are impotent to change this state of affairs. In FMC Corp. v. Holliday, the Supreme Court found that a Pennsylvania anti-subrogation law was preempted by ERISA. The analysis is somewhat complicated under the Savings and Deemer clauses of ERISA, but suffice to say that state insurance regulation of self-insured plans, like Wal-Mart's, is no longer possible.

Finally, and not that it matters that much, but this is really a reimbursement clause case, not a suborgation case. Subrogation cases allow the insurance company of an employer to put themselves in the shoes of the insured and sue the third-party tortfeasor for the medical expenses the plan has paid out. When a company like Wal-Mart is self-insured, they place reimbursement clauses in their plans which require participants and their beneficiaries to pay back the plan for money they received from a third-party tortfeasor.  The difference is that the self-insured employer does not have a claim unless the insured decides to sue, but once the insured does, the plan has the right to full reimbursement, regardless of whether the employee beneficiary takes home at the end of day more or less than what the plan demands.

In short, a truly horrible situation under ERISA, and not that far-fetched when one comes to understand the manner in which the scope of equitable relief under ERISA and ERISA preemption work together to create what I call the "Grand Irony of ERISA": that employers now use ERISA as a shield against employees; the same employees whose benefits ERISA was supposed to protect.

A Kafka-esque scheme is very there was one and yet another publicity black eye for Wal-Mart.

Finally, kudos to Roger Baron (South Dakota) for being quoted in the Wall Street Journal article.

PS

http://lawprofessors.typepad.com/laborprof_blog/2007/11/wal-mart-erisa.html

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Listed below are links to weblogs that reference Wal-Mart, ERISA Subrogation, and "The Grand Irony":

» Grand Irony, or Just a Need for Better Litigation Tactics: Protecting the Severely Injured Plan Participant Against Reimbursement Claims under ERISA from Boston ERISA Law Blog
Roy Harmon and the Workplace Prof have the story of a severely injured worker whose settlement with the tortfeasor was effectively taken, in its entirety, by the plan administrator - Wal-Mart - on a reimbursement claim in accordance with the... [Read More]

Tracked on Nov 26, 2007 8:41:48 AM

» More on that Grand Irony Theory from Boston ERISA Law Blog
Does the fact pattern below allow for a remedy under ERISA, particularly as the Sereboff/equitable relief line of cases has been interpreted in the First Circuit to date? The plaintiff employee says that she purchased a life insurance policy on... [Read More]

Tracked on Dec 3, 2007 8:33:22 AM

Comments

Clearly ERISA statutes require immediate update in favor of EMPLOYEE RIGHTS which must convey to EVERY GOVERNMENT AGENCY involved as well, i.e., DOL, EBSA, IRS, TREASURY, CMS, SSA, etc. (including all state and local agencies).

Protecting and preserving our rights as American Citizens should come first; if this happened to you, how would you feel? If you worked many years and became legitimately permanently disabled - how would you feel if you happened to have changed jobs and became seriously ill within 1.1 yrs of starting the new job and the group LTD carrier denied your claim stating your illness was "preexisting" even though you had not been diagnosed with it yet?

Employers, Insurance Companies and IRS always seem to be able to "recoup losses". Unfortunately, employees who ERISA was supposed to "protect" are more often "punished" by it.

Unfortunately, I had a really STUPID lawyer. I had a HIPAA Certificate of Creditable Coverage, which would have eliminate the preexisting condition period -- but he never thought to ask for it. This is a Huge Insurer of group LTD carriers and recently changed its name because of all the bad press.

Posted by: christina sampson | Mar 5, 2008 6:39:05 PM

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