I.
CAVEAT.
Attorneys for plaintiffs and defendants must be aware of
claims by health insurers, automobile medical payments
insurers, workers compensation insurers, federal, state
and county governmental agencies, employers,
employer-sponsored health plans and union health and
welfare funds based on subrogation, derivation, or
assignment in all personal injury actions. The vast
majority of all personal injury cases involve such
claims. Every effort must be made to resolve these
claims in conjunction with the principal plaintiff’s
claim. If they are ignored, they may come back to haunt
the parties and attorneys, both as a liability and
potential ethical rules infraction. See Southern Council
of Industrial Workers v. Ford, 83 F.3d 966 (8th Cir.
1996)(district court should fashion a remedy either
under federal common law or state law for attorney's
failure to honor ERISA plan's subrogation right, but
attorney was not a plan fiduciary under ERISA law);
Hotel Employees & Restaurant Employees Int'l Union
Welfare Fund v. Gentner, 50 F.3d 719 (9th Cir.
1995)(attorney is liable for distributing settlement
proceeds to a client without reimbursing an ERISA fund).
This outline will attempt to boil the most frequently
litigated issues down to a workable set of fundamental
rules, with known exceptions, by highlighting the main
cases. There are many black letter rules, but they are
often swallowed by their multiple exceptions. This area
of the law is in a constant state of flux, and is ripe
for new developments. Simply put, there are no right
answers to many of the questions which arise. Due
diligence and imagination are required, but still may
not be sufficient to prevail.
II. THE
COLLATERAL SOURCE RULE.
A tort feasor’s liability for the
plaintiff’s damages shall not be reduced by the amount
of benefits received by a victim from any other sources.
Voge v. Anderson, 181 Wis.2d 726, 512 N.W.2d 749
(1994)(waiver of subrogation by UIM carrier did not
inure to benefit of tort feasor as an offset to
liability for damages). This is a rule of damages as
well as a rule of evidence. The result of the rule is
that a tort victim sometimes has a multiple recovery of
some item of damages, such as medical expenses and lost
earnings. Lambert v. Wrensch, 135 Wis.2d 105, 399 N.W.2d
369 (1987); Rixmann v. Somerset Public Schools, 83
Wis.2d 571, 266 N.W.2d 326 (1978); Thoreson v. Milwaukee
& Suburban Transport Corp., 56 Wis.2d 231, 201 N.W.2d
745 (1972); McLaughlin v. Chicago, Milwaukee, St. P. &
P. R. Co., 31 Wis.2d 378, 143 N.W.2d 32 (1966); Anderson
v. Garber, 160 Wis.2d 389, 466 N.W.2d 221 (Ct.App.1991);
American Standard Ins. Co. of Wis. v. Cleveland, 124
Wis.2d 258, 369 N.W.2d 168 (Ct.App.1985).
III.
SUBROGATION THEORY.
The collateral source rule is of no benefit to a tort
victim if there exists a subrogation right possessed by
a person who paid part of the victim’s losses. The
subrogation lien prevents the victim from making a
double recovery. The party who holds the subrogation
claim stands in the shoes of the victim in seeking
reimbursement from the tort feasor. Lambert v. Wrensch,
135 Wis.2d 105, 399 N.W.2d 369 (1987); Group Health
Co-op v. Hartland Cicero Mutual Ins. Co., 164 Wis.2d
632, 476 N.W.2d 302 (Ct.App.1991). Federal or state
statutes, contracts, or common law create subrogation
rights.
IV.
STATUTORY SUBROGATION.
A.
Medicare:
42 U.S.C.
1395y(b)(2) provides:
In general.
Payment under this title may not be made, except as
provided in subparagraph (B), with respect to any item
or service to the extent that—
...
(ii)
payment has been made or can reasonably be expected to
be made promptly (as determined in accordance with
regulations) under a workmen’s compensation law or plan
of the United States or a State or under an automobile
or liability insurance policy or plan (including a
self-insured plan) or under no fault insurance.
...
(B)
Conditional payment. (i) Primary plans. Any payment
under this title with respect to any item or service to
which subparagraph (A) applies shall be conditioned on
reimbursement to the appropriate Trust Fund established
by this title when notice or other information is
received that payment for such item or service has been
or could be made under such subparagraph.
(ii) Action
by United States. In order to recover payment under this
title for such an item or service, the United States may
bring an action against any entity which is required or
responsible under this subsection to pay with respect to
such item or service . . . .
(iii) The
United States shall be subrogated (to the extent of
payment made under this title for such an item or
service) to any right under this subsection of an
individual or any other entity to payment with respect
to such item or service under a primary plan.
Medicare Part A allows recovery of amounts paid to
hospitals and nursing homes. Medicare Part B allows
recovery of amounts paid to doctors. The Health Care
Financing Administration is the real party in interest,
although Donna Shalala, as administrator for the
Department of Health and Social Services, should be
named as the plaintiff in Wisconsin, and the United
States Attorneys offices for the Eastern and Western
District Courts will accept process.
Medicare
regulations are found in 42 C.F.R. 411.20 et. seq.
42 C.F.R.
411.24 provides:
If a
Medicare conditional payment is made, the following
rules apply:
...
(b) Right
to initiate recovery. HCFA may initiate recovery as soon
as it learns that payment has been made or could be made
under workers’ compensation, any liability or no-fault
insurance, or an employer group health plan.
(c) Amount
of recovery. HCFA may recover an amount equal to the
Medicare payment or the amount payable by the third
party, which ever is less.
(d) Methods
of recovery. HCFA may recover by direct collection or by
offset against any monies HCFA owes the entity
responsible for refunding the conditional payment.
(e)
Recovery from third parties. HCFA has a direct right of
action to recover from any entity responsible for making
primary payment. This includes an employer, an insurance
carrier, plan, or program, and a third party
administrator.
...
(g)
Recovery from parties that receive third party payments.
HCFA has a right of action to recover its payments from
any entity, including a beneficiary, provider supplier,
physician, attorney, State agency or private insurer
that has received a third party payment [emphasis
added].
The federal government is authorized by regulations to
sue any attorney who knowingly disregards a Medicare
right of reimbursement. 42 C.F.R. 411.24. There is a
regulatory formula for reducing the lien, which
basically discounts the Medicare lien by the same
portion of the gross recovery as the plaintiff’s
recovery is reduced by attorney’s fees and
disbursements. 42 C.F.R. 411.37. E.g., if fees and
disbursements are 35% of the gross recovery, Medicare
will accept 65% of its lien.
B. Federal Medical Care Recovery Act:
See Allen
v. United States, 668 F. Supp. 1242 (W.D. Wis. 1987).
The federal statute, 42 U.S.C. 2651(a) provides:
In any case in which the United States is authorized or
required by law to furnish hospital, medical, surgical,
or dental care and treatment (including prostheses and
medical appliances) to a person who is injured or
suffers a disease, after the effective date of this Act,
under circumstances creating a tort liability upon some
third person (other than or in addition to the United
States and except employers of seamen treated under the
provisions of section 322 of the Act of July 1, 1944 (58
Stat. 696), as amended (42 U.S.C. 249) to pay damages
therefore, the United States shall have a right to
recover from said third person the reasonable value of
the care and treatment so furnished or to be furnished
and shall, as to this right be subrogated to any right
or claim that the injured or diseased person, his
guardian, personal representative, estate, dependents,
or survivors has against such third person to the extent
of the reasonable value of the care and treatment so
furnished or to be furnished . . .
C. Employee Retirement Income Security Act:
a.k.a. ERISA: 29 U.S.C. 1001 et seq. ERISA is the most
dreaded and inflexible statute for claims attorneys. See
discussion below.
D. Medicaid and Medical Assistance:
Perkins v. Utnehmer, 122 Wis.2d 497, 361 N.W.2d 739
(Ct.App.1984); Waukesha County v. Johnson, 107 Wis.2d
155, 320 N.W.2d 155 (Ct.App.1982). Sec. 49.89 Wis.
Stats., formerly sec. 49.65 provides:
...
(2)
Subrogation. The department of health and family
services, the department of industry, labor and job
development, a county or an elected tribal governing
body that provides any public assistance under this
chapter or under s .253.05 as a result of the occurrence
of an injury, sickness or death that creates a claim or
cause of action, whether in tort or contract, on the
part of a public assistance recipient or beneficiary or
the estate of a recipient or beneficiary against a 3rd
party, including an insurer, is subrogated to the rights
of the recipient, beneficiary or estate and may make a
claim or maintain an action or intervene in a claim or
action by the recipient, beneficiary or estate against
the 3rd party.
...
(5)
Recovery; how computed. Reasonable costs of collection
including attorney fees shall be deducted first. The
amount of assistance granted as a result of the
occurrence of the injury, sickness or death shall be
deducted next, and the remainder shall be paid to the
public assistance recipient or other party entitled to
payment.
E.
Automobile Medical Expense, Uninsured and Underinsured
Motorist Coverage:
Sec. 632.32(4)(a)-(b) Wis. Stats., creates a statutory
right of subrogation for medical expenses, uninsured and
underinsured motorist payments.
F. Worker’s
Compensation Third Party Claims:
5 U.S.C. 8131-32 (federal employees); Sec. 102.29 Wis.
Stats. (Wisconsin public and private employees). The
formula provides that costs of collection (attorneys’
fees and costs are deducted first; out of the balance
remaining, the first one third goes to the injured
employee; out of the balance remaining, the worker’s
compensation insurer may recover its payments; if there
is a balance remaining, it goes to the employee or is
used as a cushion against future worker’s compensation
liability.
G. Crime
Victims Compensation Act:
Hamed v. Milwaukee County, 108 Wis.2d 257, 321 N.W.2d
199 (1982); Bruner v. Kops, 105 Wis.2d 614, 314 N.W.2d
892 (Ct. App.1981). Sec. 949.15 Wis. Stats. creates a
statutory right of subrogation in the department of
workforce development against a person responsible for
the injury or death of a crime victim who receives a
compensation award.
V.
CONVENTIONAL (CONTRACTUAL) SUBROGATION.
The vast majority of group health insurance policies and
plans, such as Blue Cross & Blue Shield, Wisconsin
Physicians Service, Wausau Insurance and Prudential
Insurance have express subrogation clauses, which give
the insurer a right to sue either the tort feasor or the
insured victim for reimbursement of any amounts paid for
medical expenses in the event that the victim makes a
recovery from the tort feasor. Associated Hospital
Services v. Milwaukee Automobile Mut. Ins. Co., 33
Wis.2d 170, 147 N.W.2d 225 (1967). Policies and plans
that do not provide express subrogation rights may
create an implied right of subrogation, as construed by
the courts. Cunningham v. Metropolitan Life Ins. Co.,
121 Wis.2d 437, 360 N.W.2d 33 (1985).
VI.
COMMON LAW (EQUITABLE) SUBROGATION – THE INDEMNITY
VERSUS INVESTMENT CONTRACT DILEMMA.
Sometimes a group health insurance contract does not
expressly provide for subrogation. If it is deemed to be
an indemnity contract, rather than an investment
contract, subrogation rights will be recognized under
the common law doctrine of equitable subrogation. If it
is deemed to be an investment contract, then subrogation
rights will not be recognized. It is extremely difficult
to determine whether the contract is one of indemnity or
investment. Traditionally, property insurance has been
considered indemnity insurance, while accident and life
insurance have been considered investment insurance.
Health and disability insurance could be either.
Cunningham v. Metropolitan Life Ins. Co., 121 Wis.2d
437, 360 N.W.2d 33 (1985); Horace Mann Ins. Co. v.
Wauwatosa Board of Education, 88 Wis.2d 385, 276 N.W.2d
761 (1979); Heifetz v. Johnson, 61 Wis.2d 111, 211
N.W.2d 834 (1973); Patitucci v. Gerhardt, 206 Wis. 358,
240 N.W. 385 (1932); Gatzweiler v. Milwaukee Electric
Ry. & Light Co., 136 Wis. 34, 116 N.W. 638 (1908).
VII. THE
MAKE-WHOLE DOCTRINE.
A. In
General:
Whenever a tort victim is not made whole by recovery of
all elements of damages from the tort feasor or the
liability insurance proceeds, any contractual and common
law subrogated parties are not entitled to
reimbursement. Ives v. Coopertools, 208 Wis.2d 55, 559
N.W.2d 571 (1997); Sorge v. National Car Rental System,
182 Wis.2d 52, 512 N.W.2d 505 (1994)(contributory
negligence may be taken into account to determine
whether the plaintiff has been made whole; and if the
net damages are collectible from the tortfeasor, then
subrogation is permitted, but subrogee stands in
subrogor's shoes, and takes a pro tanto discount for
contributory negligence); Schulte v. Frazin, 176 Wis.2d
622, 500 N.W.2d 305 (1993)(when victim settles with tort
feasor without resolving subrogation claim, but
indemnifies the tort feasor, and it is determined at a
Rimes hearing between the victim and the subrogated
party that the victim has not been made whole, the
subrogated party is not entitled to reimbursement);
Rimes v. State Farm Mut. Auto. Ins. Co., 106 Wis.2d 263,
316 N.W.2d 348 (1982)(automobile medical payments
carrier not entitled to recoup its payments from
liability insurer of tort feasor because insured had
settled claim with liability insurers without being made
whole); Garrity v. Rural Mut. Ins. Co., 77 Wis.2d 537,
253 N.W.2d 512 (1977)(first party fire insurer not
entitled to recoup its payments from minimum limits
liability policy it had sold to tort feasor because
farmer whose barn had burned down had uninsured damages
exceeding liability limits).
B. The
Latest Twist: What is the meaning of Ives v. Coopertools?
In this case, the plaintiff became paralyzed when he
fell out of a tree stand. He sued a component parts
manufacturer of the tree stand, and named his employer’s
non-ERISA insured health plan as a party. The parties
stipulated that the damages were 1.5 million dollars.
The health plan had paid $132,292 in benefits. Because
of the risk of a jury finding the plaintiff more than
50% contributorily negligent, and other trial
strategies, including difficulty of proof, corporate
successor liability, and the possible absence of
negligence by any party, the plaintiff settled with the
tort feasor for $261,250. After a Rimes hearing, the
Oneida County Circuit Court held that the plaintiff had
not been made whole, and therefore the health plan was
not entitled to subrogation. The Court of Appeals
vacated the order and remanded for a specific finding of
the plaintiff’s contributory negligence, holding that
the plan should share in the recovery pro-rata with the
plaintiff. Ives v. Coopertools, 197 Wis.2d 937, 541
N.W.2d 247 (Ct.App.1995). The Court of Appeals felt that
an insured is made whole whenever he recovers his total
damages discounted by his percentage of contributory
negligence, even if that percentage is greater than 50%.
The Supreme Court, in a decision with a unanimous vote
on the outcome but a 3-3 vote on the reasoning, reversed
and reinstated the order of the Circuit Court, holding
that subrogation would not be permitted simply because
the plaintiff had not been made whole. Ives v.
Coopertools, Div. of Cooper Industries, Inc., 208 Wis.2d
55, 559 N.W.2d 571 (1997). Because of the split vote on
rationale, neither of the concurring opinions is a
majority opinion, or carries any precedential weight. If
the Geske opinion is to be followed, then Sorge v.
National Car Rental System, Inc., 182 Wis.2d 52, 512
N.W.2d 505 (1994) is disavowed, and the plaintiff can be
considered not to have been made whole any time that
contributory negligence reduces his recovery, no matter
how slightly! If the Steinmetz opinion is to be
followed, then Sorge is still good law, and the
plaintiff is deemed to have been made whole, so that
subrogation is permitted, if the plaintiff’s total
damages discounted by contributory negligence are
collectible from the tort feasor.
VIII. THE MAKE-WHOLE DOCTRINE DOES NOT APPLY
TO MOST STATUTORY SUBROGATION
A. ERISA
PREEMPTION.
1. In
General:
Uninsured, self-funded group health plans maintained by
multistate employers are governed by ERISA, and are not
subject to the state statutes or common law rules on
subrogation, such as the make-whole doctrine. The
seminal case is F.M.C. Corporation v. Holliday, 498 U.S.
52, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990). An ERISA
self-funded plan beneficiary was seriously injured in a
motor vehicle accident. The plan paid over $200,000 of
the medical expenses. The victim recovered the liability
limits of $50,000 from the tortfeasor. In the plan's
suit for reimbursement, the United States Supreme Court
held that a Pennsylvania statute which barred
subrogation by group health plans against the proceeds
of automobile liability insurance settlements was
preempted by ERISA, 29 U.S.C. 1001 et seq. The plan was
allowed to recoup its payments.
The Holliday case has been followed many times. It
stands for the proposition that under circumstances
where ERISA applies, any conflicting state statutory or
common law rules are preempted. See also Metropolitan
Life Ins. Co. v. Massachusetts, 471 U.S. 724, 105 S.Ct.
2380, 85 L.Ed.2d 728 (1985), in which the United States
Supreme Court held that uninsured employee benefit plans
are exempt from state regulations and are governed
exclusively by applicable federal law.
In McGinnis v. Provident Life & Accid. Life Co., 21 F.3d
586 (4th Cir. 1994), the court held that ERISA preempts
the operation of North Carolina's wrongful death statute
limiting an estate’s liability for medical expenses to
$1,500, thereby allowing a health plan to recover full
reimbursement of medical expenses paid for the tort
victim against the proceeds of his estate’s recovery
from a drunk driver and the victim’s underinsured
motorist carrier. In Electro-Mechanical Corp. v. Ogan, 9
F.3d 445 (6th Cir. 1993), the court held that an ERISA
plan preempts a Tennessee statute barring recovery from
health care providers in a malpractice case of medical
expenses covered by a group health plan, thereby
allowing the plan to subrogate against victim’s total
recovery of settlement proceeds.
Wisconsin appellate cases have consistently held that
ERISA preempts Wisconsin’s subrogation law and allows
recovery by a self-funded health plan without proving
that the injured person has been made whole. Newport
News Shipbuilding Co. v. T.H.E. Ins. Co., 187 Wis.2d
363, 523 N.W.2d 270 (Ct. App. 1994); Petro v. D.W.G.
Corp., 148 Wis.2d 725, 436 N.W.2d 875 (Ct. App. 1989).
2. Is There
A Self-Funded Plan ?
The first inquiry is whether the plan is truly uninsured
and self-funded. Correspondence with the plan trustees
or administrator, and discovery of the plan documents,
not just a summary plan description or booklet, must be
undertaken in full in order to verify uninsured and
self-funded status. Plan language must be reviewed. Some
ERISA plans contain make-whole provisions, or provide
that state law controls questions of interpretation, or
are silent with respect to discretion to interpret the
plan.
Plans covering employees of governmental units or their
instrumentalities are not governed by ERISA, but whether
a particular plan is or is not private can be hotly
disputed. See Shannon v. Shannon, 965 F.2d 542 (7th Cir.
1992)(plan covering employees of West Allis Memorial
Hospital, a non-profit, corporate lessee and operator of
city-owned hospital facility, held governed by ERISA).
Primary insurance coverage will take the plan out of
ERISA, and make it subject to state law. However, the
federal preemption rule applies to those plans which
only have so called "stop-loss" insurance as a major
medical umbrella. See Ramsey County Medical Center, Inc.
v. Breault, 189 Wis.269, 525 N.W.2d 321 (Ct. App.
1994)(self-funded plan entitled to first dollar
subrogation even though stop-loss insurance coverage
existed for catastrophic losses payable by the plan
above a prescribed annual limit).
3.
Discretion to Interpret Plan:
Many plans do not address the situation where a
beneficiary has a tort claim which cannot be fully
compensated from the tort feasor's liability insurance,
and there is a conflict between the plan's right of
subrogation or reimbursement and the beneficiary as they
compete for limited tort settlement proceeds. Most
modern plans give the fiduciary discretion to interpret
the plan. Under such circumstances, the plan is often
interpreted to give the plan first dollar priority in
the settlement proceeds, without regard to whether the
beneficiary was made whole, and sometimes without regard
to the beneficiary's contributory negligence. The
attorneys for both sides of the tort dispute should
review the plan language case as soon as possible. The
actual plan documents, and not merely the beneficiary's
handbook or pamphlet, should be obtained and
scrutinized. From the perspective of claimant's counsel,
certain plan language may dictate that the case not be
accepted at all. From the perspective of defense
counsel, a close review may determine who gets a large
portion, if not all the money.
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 109
S.Ct. 948, 103 L.Ed.2d 80 (1989), is the seminal case
holding that a deferential standard of review is
appropriate in cases where the plan fiduciaries have
discretionary authority to determine eligibility for
benefits or to construe the terms of the plan. In such
cases, the court will only review the designation of
priorities by plan fiduciaries under an abuse of
discretion standard.
Land v. Chicago Truck Drivers, Helpers And Warehouse
Workers Union Health and Welfare Fund, 35 F.3d 509 (7th
Cir. 1994) held that ERISA did not unconstitutionally
delegate to private welfare-benefit plans authority to
preempt state law in providing for first dollar recovery
of subrogation claims in contravention of make-whole
rule.
The correctness of factual findings by a plan fiduciary
in denying benefits is limited to a review by the court
of whether the findings were arbitrary and capricious,
so long as interpretation of plan language is not in
dispute. Siska v. Travelers, 161 Wis.2d 14, 467 N.W.2d
174 (Ct. App. 1991).
4. Abuse of
Discretion:
Often claimants ask their lawyers if their ERISA plan
will have to continue to pay medical expenses after the
settlement and reimbursement.
The easy answer has traditionally been in the
affirmative. There is some support for that position. In
Davis v. NEPCO Employees Mut. Benefit Ass’n, 51 F.3d 752
(7th Cir. 1995), the court held that if an ERISA plan
participant and the plan separately provide a release to
a tort feasor in exchange for a settlement, without
explicitly allocating any portion of the settlement for
future medical expenses, the plan must continue to pay
such expenses after the settlement. However, this case
is notice to counsel that the plan may do the unexpected
and deny future benefits at some point. It is not
difficult to envision an aggressive plan fiduciary
interpreting the plan to deny coverage for future
medical expenses related to the original injury. That
eventuality occurred in the case below.
In Harris Trust And Savings Bank v. Provident Life &
Accid. Ins. Co., 57 F.3d 608 (7th Cir. 1995), an ERISA
plan paid over $400,000 in medical expenses for a
quadriplegic beneficiary, and was reimbursed when the
beneficiary settled a tort case for $7,000,000. A
successor plan which contained an exclusion for expenses
arising out of acts of third parties continued to pay
over $290,000 of additional medical expenses for several
more years until it learned of the settlement, and then
sought to recover amounts paid and to deny additional
benefits. The Seventh Circuit Court of Appeals let stand
the plan fiduciary's interpretation that the plan was
entitled to reimbursement either under federal common
law of restitution or unjust enrichment.
In Cutting v. Jerome Foods, Inc., 993 F.2d 1293 (7th
Cir. 1993), cert. denied, 510 U.S. 916, 114 S.Ct. 308,
126 L.Ed.2d 255 (1993) the Seventh Circuit Court of
Appeals held that where an ERISA plan granted an
employer discretion to interpret it, ERISA preempted the
common law of subrogation and barred the court from
creating federal common law in line with Rimes.
Our state courts take a similar view of ERISA. In
Newport News Shipbuilding Co. v. T.H.E. Insurance Co.,
187 Wis.2d 363, 523 N.W.2d 270 (Ct. App.1994), the court
held that an ERISA plan vested discretion in the
trustees to interpret the plan, and since the plan was
interpreted as granting first dollar priority in a
subrogation claim, the state make-whole rule was
trumped. See also Siska v. Travelers, 161 Wis.2d 14, 467
N.W.174 (Ct. App.1991), cert. denied, 502 U.S. 847
(1991)(ERISA plan giving authority to plan administrator
to construe plan provisions is reviewable only by an
arbitrary and capricious standard).
Court review is de novo in the event that the plan does
not give the trustees or administrator discretion to
interpret the plan language. Firestone Tire & Rubber Co.
v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80
(1989); Fuller v. CBT Corp., 905 F.2d 1055 (7th Cir.
1990).
5. Default
Application of Common Law Rules:
If the plan does not contain rules of priority for
subrogation or reimbursement, and the fiduciary neither
has the expressed nor implied right to interpret the
plan, the parties must litigate whether a federal common
law or state common law rule should be adopted by
default to resolve the issue.
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct.
1549, 95 L.Ed.2d 39 (1987), suggested that federal
courts may create federal common law where an ERISA plan
is silent on the designation of priorities.
In Sunbeam-Oster Co. v. Whitehurst, 102 F.3d 1368 (5th
Cir. 1996) the court said that it had serious doubts
whether it would ever approve or adopt the make-whole
rule as the third circuit’s default rule for the
priority of recovery in reimbursement or subrogation
between an ERISA plan and its participant or
beneficiary. Accord, Serembus on Behalf of UIU v.
Mathwig, 817 F. Supp 1414 (E.D. Wis. 1992), holding that
Wisconsin’s make-whole subrogation rule would not be
adopted as federal common law for self-funded employee
plans subject to ERISA.
However, see Sanders v. Scheideler, 816 F.Supp. 1338
(W.D. Wis. 1993), aff’d by unpublished order, 25 F.3rd
1053 (7th Cir. 1994), holding that where a self-funded
plan failed to assign priority rules to third party
proceeds of settlement, the common law make-whole
doctrine would be applied. Accord, Schultz v. NEPCO
Employees Mut. Benefit Ass’n, Inc., 190 Wis.2d 742, 528
N.W.2d 441 (Ct.App. 1994)(federal common law make-whole
rule applies to ERISA plan which fails to set forth
priority rules for third party settlements or to provide
fiduciaries with discretion to construe the plan); Cagle
v. Bruner, 112 F.3d 1510 (11th Cir. 1997)(make-whole
rule applies where ERISA plan does not expressly disavow
it); Barnes v. Independent Automobile Dealers Ass’n of
Cal. Health & Benefit Plan, 64 F.3d 1389 (9th Cir.
1994)(make-whole rule should be applied as the default
federal common law rule in the absence of ERISA plan
language defining priority rules).
B. Other Statutory Preemption of Make-Whole Doctrine:
1. Medical
Assistance:
Coplein v.
DHSS, 119 Wis.2d 52, 349 N.W.2d 92
(Ct.App.1984)(make-whole doctrine does not apply to bar
Medicaid lien); Waukesha County v. Johnson, 107 Wis.2d
155, 320 N.W.2d 1 (Ct.App.1982)(reimbursement formula
set forth in sec. 49.65 Wis. Stats. permitted county to
be reimbursed for medical assistance payments from the
proceeds of automobile accident settlement despite the
fact that the recipients had not been fully
compensated).
2. Workers
Compensation Preemption:
Martinez v.
Ashland Oil, 132 Wis.2d 11, 390 N.W.2d 72 (Ct. App.
1986)(make-whole doctrine does not apply to bar worker’s
compensation lien pursuant to sec. 102.29 Wis. Stats.).
3. State
Employees’ Health Plans:
A contrary
result was reached in Leonard v. Dusek, 184 Wis.2d 267,
516 N.W.2d 453 (Ct. App.1994), holding that Wisconsin’s
insurance subrogation law permitting a subrogated
insurer to be reimbursed only if the insured has been
made whole does apply to the Wisconsin state employee
self-funded health plan governed by chapter 40, Wis.
Stats.
IX. SUBROGATION AGAINST THE PROCEEDS OF UNINSURED AND
UNDERINSURED MOTORISTINSURANCE.
The language of the contract will control whether a
health insurer may subrogate against a UM or UIM
carrier. In Employers Health Ins. Co. v. General Cas.
Co. 161 Wis.2d 937, 469 N.2d 172 (1991) the supreme
court held that language in a health insurance policy
providing for subrogation against any "responsible third
party" was insufficient to allow subrogation against the
proceeds of a UM policy, because the UM carrier was not
an insurer of the tort feasor. However, soon thereafter
the court of appeals decided Dailey v. Secura Ins., 164
Wis.2d 14, 467 N.W.2d 299 (Ct. App. 1991), holding that
language in a health insurance policy providing for
subrogation against "any party who may be liable" was
broad enough to include a UM carrier. Accord, Wendy's
International, Inc., v. Karsko, 94 F.3d 1010 (6th Cir.
1996)(ERISA plan providing that it must be reimbursed if
beneficiary "recovers monies from a third party . . . on
account of such injury" can reasonably be construed,
under arbitrary and capricious standard, to permit
subrogation against UM policy).
A subrogated health insurer may be considered an
"injured party" under the terms of an underinsured
motorist policy, so that the lien must be enforced.
Gurney v. Heritage Mutual Ins. Co., 183 Wis.2d 270, 515
N.W.2d 526 (Ct. App.1994). The court of appeals has held
that language in an uninsured motorist endorsement which
attempts to exclude claims by a subrogated health
insurer violates the public policy of the mandatory UM
coverage statute, sec. 632.32(4)(a) Wis. Stats.
(1991-92). WEA Insurance Corp. v. Freiheit, 190 Wis.2d
111, 527 N.W.2d 363 (Ct. App.1994). However, even though
underinsured motorist coverage is not required by
statute, the language in an underinsured motorist
endorsement which attempts to exclude claims by a
subrogated health insurer may be ineffective to bar
subrogation, if the health insurance contract prohibits
the insured from impairing the health insurer’s
subrogation rights. Kulekowskis v. Bankers Life and Cas.
Co., 563 N.W.2d 533 (Ct.App.1997);Demmer v. American
Family Mut. Ins. Co., 200 Wis.2d 94, 546 N.W.2d 169 (Ct.
App.1996).
A worker’s compensation insurer may not seek subrogation
under sec. 102.29 Wis. Stats., against an uninsured
motorist carrier. Berna-Mork v. Jones, 165 Wis.2d 661,
478 N.W.2d 301 (Ct. App.1991), but a reducing clause in
an uninsured motorist policy is now valid, pursuant to
the 1995 amendments to sec. 632.32(5) Wis. Stats.,
changing the law of Niemann v. Badger Mut. Ins. Co., 143
Wis.2d 73, 420 N.W.2d 378 (Ct. App.1988).
X. A SUBROGATED PARTY HAS A CLAIM INDEPENDENT FROM THAT
OF THE TORT VICTIM.
A subrogated party may sue the tort feasor or victim
directly, whether or not the victim brings suit against
the tort feasor, and its claim cannot be discharged
without its consent. Muchow v. Goding, 198 Wis.2d 609,
544 N.W.2d 218 (Ct.App.1990); Blue Cross & Blue Shield
United of Wisconsin v. Fireman’s Fund, 140 Wis.2d 544,
411 N.W.2d 133 (1987)(subrogated insurer allowed to sue
tort feasor after victim had already settled case with
tortfeasor), overruled in part by Schulte v. Frazin, 176
Wis.2d 622, 500 N.W.2d 305 (1993); Mutual Service Cas.
Co. v. American Family Ins. Co., 140 Wis.2d 555, 410
N.W.2d 582 (1987)(tortfeasor’s insurer could not walk
away from case by sending one check payable to victim
and subrogated insurer, without getting all parties to
agree to division and obtaining a release by all);
Valley Forge Ins. Co. v. Home Mut. Ins. Co. 133 Wis.2d
364, 396 N.W.2d 348 (Ct.App.1986)(property damage claim
by first party carrier against tort feasor-anomalous
holding that make-whole rule barred recovery because
victim had uncompensated personal injury damages).
XI.
BURDEN OF PROOF.
The party seeking subrogation must allege and prove the
basis for the claim, but if the injured plaintiff fails
to do so and the tort feasor seeks to deny recovery for
amounts subject to a lien, the defendant has the burden
of proof to show that a party is subrogated. Jindra v.
Diederich Flooring, 181 Wis.2d 579, 511 N.W.2d 855
(1994); Lambert v. Wrensch, 139 Wis.2d 105, 399 N.W.2d
369 (1987); Cunningham v. Metropolitan Life Ins. Co.,
121 Wis.2d 437, 360 N.W.2d 33 (1985); Rixmann v.
Somerset Public Schools, 83 Wis.2d 571, 266 N.W.2d 326
(1978); Karl v. Employers Ins. of Wausau, 78 Wis.2d 284,
254 N.W.2d 255 (1978); Gordon v. Wisconsin Health Org.
Ins. Corp., 181 Wis.2d 515, 510 N.W.2d 832 (Ct.App.
1993)(party seeking subrogation must plead in complaint
the basis for its right to subrogation); Leonard v.
Dusek, 184 Wis.2d 267, 516 N.W.2d 453 (Ct.
App.1984)(right to a Rimes hearing is waived if not
requested by either party).
A subrogated party may lose its rights if it is named as
a party and declines to exercise one of the following
options: to participate in the prosecution of the
action, to agree to have its interest represented by the
party who caused the joinder, or to move for dismissal.
Buchanan v. General Casualty Co., 191 Wis.2d 1, 528
N.W.2d 457 (Ct.App.1995)(subrogated insurer waives claim
if it unilaterally ignores pretrial orders to
participate or fails to obtain leave not to
participate); Sampson v. Logue, 184 Wis.2d 20, 515
N.W.2d 917 (Ct.App.1994)(subrogated party may be liable
for costs if it elects to be bound by the judgment and
principal plaintiff loses); Radloff v. General Cas. Co.,
147 Wis.2d 14, 432 N.W.2d 597 (Ct.App.1988)(subrogated
insurer lost its claim by failing to exercise one of the
three options in sec. 803.03(2)(b), Stats.- to
participate, to agree to have its interest represent by
the party who caused joinder, or to move for dismissal).
The proper procedure by a subrogated party to follow is
to file pleadings asserting its interest, obtain
admissions to requests to admit the reasonableness and
necessity of its payments, and participate in the
litigation to the extent required by the trial court.
Ryan v. Sigmund, 191 Wis.2d. 178, 528 N.W.2d 43
(Ct.App.1995). In the event that the injured victim and
the tort feasor settle, the subrogated party should
request a Rimes hearing to establish whether the victim
was made whole. Ives v. Coopertools, Div. of Cooper
Industries, Inc., 208 Wis.2d 55, 559 N.W.2d 571 (1997);
Schulte v. Frazin, 176 Wis.2d 622, 500 N.W.2d 305
(1993).
XII.
STATUTE OF LIMITATIONS.
The statute of limitations is tolled for all parts of
the entire claim when the principal claim is filed, and
all derivative claims relate back, but joinder of the
party possessing a claim based on subrogation,
derivation or assignment is required. Sec. 803.01 and
803.03 Wis. Stats.; Anderson v. Garber, 160 Wis.2d 389,
466 N.W.2d 221 (Ct.App.1991); Bruner v. Kops, 105 Wis.2d
614, 314 N.W.2d 892 (Ct.App.1981). The confusing
discussion of statute of limitations issues in Lambert
v. Wrensch 135 Wis.2d 105, 399 N.W.2d 369 (1987) and
Heifetz v. Johnson, 61 Wis.2d 111, 211 N.W.2d 834
((1973) may be irreconcilable with holdings of the court
of appeals, but seems to be ignored in most cases.
The pendency of an action by an insured does not toll
the statute of limitations for any unjoined, independent
subrogated claim arising out of the same occurrence.
Aetna Cas. & Surety Co. v. Owen, 191 Wis.2d 745, 530
N.W.2d 51 (Ct.App.1995)(fire insurer’s action against
tort feasor filed beyond the expiration of the statute
of limitations held barred, despite insured’s prior
action for damages not covered by policy, because
insured settled claim before insurer commenced its
action).
XIII.
ATTORNEY’S FEES AND COSTS.
Even when the subrogated party does not request that
counsel for the principal plaintiff also represent its
interests, counsel may attempt to seek fees and
disbursements from the subrogated party. Attorney's fees
and costs usually cannot be collected from the
subrogated party, unless agreed upon in advance or the
"fund doctrine" applies. . State Farm Mut. Auto. Ins.
Co. v. Geline, 48 Wis.2d 290, 179 N.W.2d 815 (1970)(fund
doctrine requires "res" earned exclusively by victim’s
attorney, notice to subrogee of action and fee claim,
and no joinder or participation). See also sec.
803.03(2)(b) Stats.
In the event that the subrogated party requests counsel
for the victim to represent its interests, counsel
should beware of the possibility of a conflict of
interest. If there is any question about the victim’s
ability to be made whole by the amount of the tort
feasor’s insurance coverage, dual representation should
be declined. There is by definition a conflict of
interest in such situations, because the parties must
take opposing positions on the make-whole issue, and
there will either have to be a negotiated agreement or a
Rimes hearing.
There may also be a conflict of interest for counsel to
represent a tort victim and an ERISA plan in most cases.
The ERISA plan may not be subject to defenses such as
contributory negligence.
Attorney’s fees are not considered in determining
whether a party has been made whole. Oakley v. Wisconsin
Fireman’s Fund, 162 Wis.2d 821, 470 N.W.2d 882
(1991)(attorney’s fees not an element of damages).
The Illinois Supreme Court recently allowed the offset
of a tort victim’s attorney’s fees and costs against an
ERISA plan trustee’s request for medical expense
subrogation out of a tort recovery in Scholtens v.
Schneider, 173 Ill.2d 375, 671 N.E.2d 375 (1996). The
court held that ERISA does not preempt application of
the common fund doctrine.
The Seventh Circuit Court of Appeals followed Scholtens
in Blackburn v. Sundstrand Corp., 115 F.3d 493, (7th
Cir. 1997), holding that since the Illinois common fund
doctrine arises out of state law, it is not preempted by
ERISA, and that the federal district court had no
subject matter jurisdiction to bar the tort victim’s
attorney from assessing a pro-rata share of his fees
against the health plan’s subrogation claim.
There is some other federal authority in accord, such as
Provident Life & Accident Ins. Co. v. Waller, 906 F.2d
985 (4th Cir. 1990), cert. denied, 498 U.S. 982, 111
S.Ct. 512, 112 L.E.2d 524 (1990)(reimbursement of plan
member’s attorney’s fees is required under theory of
unjust enrichment to other plan beneficiaries) and
Serembus v. Mathwig, 817 F. Supp. 1414 (E.D. Wis. 1992).
However, the majority of the federal cases are contrary. See
Bollman Hat Company v. Root, 112 F.3d 113 (3rd Cir.1997)
(ERISA plan need not contribute to the legal expenses of
a plan participant’s recovery against a third party);
Ryan v. Federal Express Corp., 78 F.3d 123 (3rd Cir.
1996)(ERISA plan participant whose third party recovery
is subject to subrogation by the plan may not withhold
attorney’s fees where the plan unambiguously requires
full reimbursement); Land v. Chicago Truck Drivers,
Helpers And Warehouse Union Health & Welfare Fund, 25
F.3d 509 (7thCir. 1994)(dicta); Cutting v. Jerome Foods,
Inc., 993 F.2d 1293 (7th Cir. 1993), cert. denied, 510
U.S. 916, 114 S.Ct. 308, 126 L.Ed.2d 225 (1993)(federal
common law rule preventing full reimbursement would not
be adopted where the clear language of ERISA plan
requires full reimbursement without deduction for
attorney's fees).
