Minor’s settlements vs. ERISA reimbursement
February 26, 2016 1 Comment
Today Chancellor Primeaux’s blog features a reprise repost regarding minor’s settlements that I commend to your reading. It contains an outline from Chancellor Ed Patten that hits the high points required of the petition, hearing, approval of the settlement and accountings.
Within the petition section of the outline, reference is made to “any need to join ancillary 3rd parties..” In most any minor’s settlement there are medical bills related to the minor’s injuries. Those medical bills are either outstanding or have been paid by someone. The payment may have come from private payment, private insurance or an insurance plan subject to the Employee Retirement Income Security Act of 1974 (ERISA). Most insurance plans have a contractual provision providing that they have a right to repayment or subrogation should the insured receive money from a tort settlement or judgment. In many cases, this language is extended to uninsured motorist claims.
ERISA is codified at 29 U.S.C. §1001 et seq. and has broad application to most every conceivable employer sponsored health insurance plan with certain exceptions for plans described in §410 (c)(1)(A-D) (church plans, government plans, and trade association plans) and those exemption by the “safe harbor” provisions prescribed by the Secretary of Labor. See 29 C.F.R. § 2510.3-1(j) (1993).
ERISA in and of itself does not have a provision requiring subrogation or giving an insurance company a lien on settlement/judgment proceeds. Typically the right of recovery for an ERISA plan is governed by the insurance contract. In Yerby v. United Healthcare, 846 So.2d 179 (Miss. 2002), the Mississippi Supreme Court held that the made whole rule is not the default rule in an ERISA plan. The Fifth Circuit has likewise rejected the made whole rule where it was not included in the ERISA plan, and held that a clear and unambiguous subrogation/reimbursement provision entitles an ERISA plan to the full amount of medical benefits paid on the insured’s behalf. See Sunbeam-Oster Company, Inc. v. Whitehurst, 102 F.3d 1368, 1376 (5th Cir. 1996); AT&T v. Flores, 322 Fed. Appx. 391, 394 (5th Cir. 2009). As a result, an ERISA plan seeking contractual subrogation in Mississippi against an adult’s injury claim is entitled to subrogation regardless of whether or not the insured has been made whole by the settlement or judgment.
With respect to adults provided coverage by an ERISA plan, Yerby and Sunbeam control. But what if the injured party is a minor insured by an ERISA health insurance plan? Chancery Court approval is required in order to validly assign a minor’s right to insurance proceeds. Methodist Hosps. of Memphis v. Marsh, 518 So. 2d 1227, 1228 (Miss. 1988); McCoy v. Preferred Risk Ins. Co., 471 So. 2d 396, 398 (Miss. 1985).
In Cooper Tire v. Striplin, 652 So. 2d 1102 (Miss. 1995), the Mississippi Supreme Court stated “the subject of minor’s estates is a matter within the field of domestic relations not governed by ERISA,” and that the law did not “directly or indirectly relate to pension plans.” Striplin, 652 So. 2d at 1004. At least one Federal Court considering the issue has found likewise. See Clardy v. ATS Inc. Employee Welfare Benefit Plan, 921 F. Supp. 394 (N.D. Miss. 1996). Therefore, if your client is a minor, an ERISA plan must have chancery court approval before a parent can contract away the rights of the minor though a subrogation or reimbursement provision.
Since 1995, most attorneys familiar with Striplin have taken it for granted that ERISA plans had no valid subrogation claim to a minor’s injury award. This continued until Judge Jordan’s opinion in Richardson v. Bankplus, 3:12-cv-248 DPJ-FKB, 2012 U.S. Dist. LEXIS 187690 (S.D. Miss. September 24, 2012).
Whereas Striplin and the handful of cases that followed it analyzed subrogation claims of ERISA plans against minor’s settlements in terms of conflict preemption, Judge Jordon analyzed the subrogation claim in Richardson in terms of complete preemption. The Richardson case was settled shortly after Judge Jordan issued the opinion.
Subsequent to Richardson, but never referencing it is the case of In the Matter of O.D. v. The Ashley Healthcare Plan where a health plan removed a chancery court action for approval of a minor’s claim arguing that the state court claim (1) fell within ERISA’s civil enforcement statutes and (2) preempted plaintiff’s claims. Judge Aycock referenced Clardy and found “[P]laintiff’s claims for approval of the minor’s settlement are not preempted by ERISA.” O.D. v. Ashley Healthcare Plan, 2013 U.S. Dist. LEXIS 139266 (N.D. Miss. Sept. 27, 2013). As a result, the case was remanded to the Chancery Court of Pontotoc County, Mississippi.
Not content with simply a remand, the plaintiff sought sanctions under the Mississippi Litigation Accountability Act (Miss. Code Ann. 11-55-1). The chancellor found the removal was improper stating “[t]he only purpose for removal of the minor’s settlement . . . was for Defendants to engage in forum shopping and delay the final outcome of this matter.” Ashley Healthcare Plan v. Dillard (In re O.D.), 2015 Miss. LEXIS 390 (Miss. Aug. 6, 2015). The Defendant appealed the sanction award of over $18,000. The Mississippi Supreme Court held that the plaintiffs
had the option of filing such a motion in state court under the Litigation Accountability Act for the plan’s frivolous removal of the case to federal court. Moreover, because the plan pursued a remedy which was not cognizable under the ERISA civil enforcement statute and because there was clearly established precedent that ERISA did not preempt a chancery court’s power to settle the claims of minors, we hold that the chancery court did not err by assessing attorney’s fees against the plan…
Ashley Healthcare Plan v. Dillard (In re O.D.), 2015 Miss. LEXIS 390, 33-34 (Miss. Aug. 6, 2015). At no point in the O.D. trilogy before the chancellor, federal judge or Mississippi Supreme Court prior to the ruling of August 6, 2015 does it appear that anyone referenced the Richardson v. Bankplus case. Counsel for Ashley Healthcare did point to Richardson on a motion for rehearing in Ashley, but the Mississippi Supreme Court denied rehearing without comment on November 12, 2015.
So, if you represent a minor in an injury suit that requires approval in Chancery Court, what do you do about claimed ERISA liens or subrogation? The best practice is to notice anyone claiming any interest in the minor’s settlement including any ERISA plans, doctors, etc. and let the Chancellor decide.
If you represent an ERISA plan seeking reimbursement for medical benefits paid on behalf of a minor beneficiary, what do you do when noticed for a hearing in Chancery? Clearly, you have the option to show up in the Chancery proceeding and state your claim. It isn’t likely to go far, but you can try it. What about removal? If you remove the case to the Northern District of Mississippi, your case will likely be remanded to state court and you could be looking at sanctions similar to the Ashley Healthcare Plan case. If you have the ability to remove the case to the Southern District of Mississippi, you might do a bit better if your case is assigned to Judge Jordan and he follows Richardson. In either event, you better have a long talk with your client, followed up in writing concerning the potential for recovery and the potential for sanctions. At some point this issue will travel the path to the Fifth Circuit and ultimately the STOTUS. Until then, the uncertainty creates an environment where all parties may do well to compromise.