Reprinted with Permission of Roger Baron

In Ayers v. LINA, No. 6:08-cv-06287-AA, (D.Or. April 19, 2012), the court was adjudicating a dispute over LTD benefits under ERISA coverage.  The plaintiff sued alleging wrongful denial and the ERISA insurer counterclaimed for an alleged overpayment of $99,885.  This court ruled in favor of the plaintiff on coverage and then addressed whether the equitable defense of “unclean hands” is available as a defense to an action brought under ERISA § 1132(a)(3).  The court rejected LINA’s argument that “equitable theories do not apply to ERISA claims” by noting that LINA’s cited authorities merely stand for the proposition that “federal common law rules of contract interpretation cannot be applied to override the express terms of an ERISA plan.”   LINA’s cited authorities “do not address whether equitable defenses, such as unclean hands, are applicable to claims brought under section 1132(a)(3).”  The court then rules in favor of the participant, holding, “LINA cannot recover any overpaid amounts pursuant to 1132(a)(3) if Ayers can demonstrate that it was acting with unclean hands.”  As to whether or not “unclean hands” exists, the court holds that there is a “genuine issue of material fact,” overruling both parties’ motions for summary judgment on the counterclaim.

The discussion of “unclean hands” as an equitable defense to an action ERISA § 1132(a)(3) is found on pp. 36-47 of the court’s opinion.  To view the opinion click HERE

By Jason D. Lazarus, J.D., LL.M., MSCC, CSSC

The purpose of this post is to inform Florida attorneys about the Florida Supreme Court’s rejection of the proposed amendment to Rule 4-1.5.  Before discussing the Florida Supreme Court’s rejection, I first want to give you some background.  In the early part of 2010, an ethics opinion was sought from the Florida Bar regarding a lien resolution attorney charging a reverse contingency fee on reduction of hospital liens.  The ethics opinion issued by the bar concluded it was impermissible because when you add the reverse contingency charged by the lien resolution attorney to the contingency fee charged by the PI attorney, it resulted in too large of a fee overall.  The bar ethics opinion concluded any attorney fee charged by a lien resolution attorney would be too much because PI attorneys customarily resolved the liens as part of the underlying case at no additional fee.  Since the PI attorney is already charging a max fee at 40%, any additional fee would be excessive.  The opinion would have precluded any fee for a lien resolution attorney if the PI attorney was already charging the maximum allowed contingency fee.

The Bar ethics opinion was appealed to the Board of Governors by the requesting attorney.  By rule, that appeal went first to the Board of Governors committee called the Board Review Committee on Ethics.  That review committee then recommended to the entire Board that the ethics opinion should be upheld.  When it went before the entire board, some PI lawyers on the Board of Governors raised some serious concerns about the ruling and its effect.  The ethics opinion was then tabled.  Subsequently, the President of the Florida Bar appointed a special committee to review the issue and propose a rule change to give guidance to the plaintiff’s bar and lien specialists on what was permissible.  The proposed amendment to Rule 4-1.5 came out of that committee.  The Bar approved the amendment and it was sent up to the Florida Supreme Court for approval.  When the rule was discussed at the Florida Supreme Court’s hearings, Floyd Faglie spoke on behalf of the rule.  Based upon the questioning of the Justices, it did not appear they really understood the current state of affairs as it pertained to lien resolution.  Subsequently, the Court opened up the rule to commentary.  There was only one comment filed regarding the rule and it was anti-adoption of the rule.  The comment was made by a plaintiff PI practitioner.

On April 12^th, the Florida Supreme Court ruled on the proposed amendment to rule 4-1.5.  Here is what the court said:

“With respect to rule 4-1.5 (Fees and Costs for Legal Services), the Bar proposes new subdivision (f)(4)(E) and related commentary addressing subrogation and lien resolution services in contingent fee cases. This subdivision would provide that a lawyer in a personal injury or wrongful death case charging a contingent fee must include in the fee contract information about the scope of the lawyer’s representation relating to subrogation and lien resolution services; the rule would also provide that some medical lien and subrogation claims may be referred to another attorney for resolution with the client’s informed consent. The Court received one comment addressed to this proposal. After considering the concerns raised in the comment and the discussion at oral argument, we decline to adopt new subdivision (f)(4)(E). Indeed, we take this opportunity to clarify that lawyers representing a client in a personal injury, wrongful death, or other such case charging a contingent fee should, as part of the representation, also represent the client in resolving medical liens and subrogation claims related to the underlying case. Other technical corrections to rule 4-1.5 are adopted as proposed.”[1]

Given all of the foregoing, the question is what now?  The answer is we default back to the rules pre-proposed amendment of 4-1.5.  What complicates matters is the fact that there is a negative outstanding ethics opinion regarding charging fees for lien resolution in addition to a standard maximum PI contingency fee.  In situations where a flat fee is being charged for lien resolution services, the lawyer can absorb the cost or make sure that when combined with the contingency fee that the total fees do not exceed the maximum contingency fee.  Another alternative is that the client can contract with a lien resolution provider or attorney directly to resolve the health care liens and arguably the issue is avoided.  There are problems with the latter approach as it may not completely resolve the conflict created by the Florida Supreme Court’s statements rejecting the proposed amendments to rule 4-1.5 and the negative ethics opinion of the Bar.

What is clear is that the Florida Supreme Court didn’t say that outsourcing of lien resolution to third party specialists was impermissible. The opinion only addressed the proposed amendment of rule 4-1.5 and focused on fees that were permissible related to resolution of medical liens.  So Florida attorneys will have to look to the current rule 4-1.5 and the opinion of the American Bar Association[2] when considering outsourcing of lien resolution. The rejection of the proposed amendments to rule 4-1.5 does not mean that Florida attorneys can no longer seek out third party lien resolution specialists to assist with complex healthcare lien resolution issues.  With the intricacies and nuances of healthcare lien resolution growing at an exponential rate, bringing in experts may be crucial to maximizing the client’s net recovery and preservation of future benefits.  Accordingly, attorneys in Florida must weigh all of these factors when making the decision whether to outsource healthcare lien resolution functions and we encourage this type of analysis.

Synergy’s lien resolution services group remains committed to assisting trial attorneys in the State of Florida.  If you have any questions about these issues, please contact Synergy at (877) 242-0022.

Reprinted with permission from Roger Baron

“Subrogation on personal injury claims by a health insurer was universally prohibited by law when Congress enacted ERISA in 1974.  Seizing upon the notion of ERISA preemption, ERISA plans and related insurers have manufactured the right of reimbursement (or subrogation) without regard to the impact on the victims.  The unique history of this phenomenon and the need for judicial oversight are addressed in this article.  The recent decision by the 3rd Circuit in US Airways v. McCutchen is highlighted as providing a solid basis for other federal courts to follow.”

http://erisawithprofessorbaron.com/published-articles/

Roger Baron

School of Law

University of South Dakota

If you need help with ERISA lien resolution, turn to Synergy Lien Resolution Services

By Stacey N. Jiunto, Esq. – Staff Lien Counsel

Group health plan descriptions are carefully worded to protect the plan’s reimbursement interests and expand their right of reimbursement. This is often accomplished with provisions stating the plan is entitled to reimbursement from the beneficiary’s recovery without a reduction for procurement costs (the attorney’s fees and litigation costs incurred by the beneficiary to obtain a recovery).

Although most litigation has centered on what qualifies as “appropriate equitable relief,” [1] the U.S. Court of Appeals for the Third Circuit[2] in US Airways, Inc. v. McCutchen, 663 F.3d 671 (3d Cir. Pa. 2011), addressed whether such relief is limited by certain equitable defenses. While the Third Circuit’s approach may be considered novel (at least until adopted by other courts), it presently allows equitable principles to override express plan language when justified by the necessities of the particular case[3]. For attorneys in other jurisdictions representing severely injured beneficiaries against self-funded ERISA liens with strong plan language, referencing the Third Circuit’s logic may prove beneficial.

Facts and Procedural Background

Appellant, James McCutchen, sustained severe injuries as a result of a motor vehicle collision and, with the assistance of counsel, recovered $110,000 from the tortfeasors. Subsequently, US Airways (as administrator for the self-funded ERISA Plan) sought reimbursement for the $66,866 it paid for McCutchen’s medical expenses. The amount demanded did not reflect a reduction for procurement costs.

When McCutchen did not pay, US Airways filed suit in the District Court seeking “appropriate equitable relief” under §502(a)(3) of ERISA. Under the plan description, a beneficiary was required to “reimburse the Plan for amounts paid for claims out of any monies recovered from a third party.” McCutchen argued that US Airways would be unjustly enriched if it were to receive a reimbursement of the entire amount paid, without contributing to his attorney’s fees and expenses, while he failed to be fully compensated for his injuries, pain, and suffering. The District Court granted summary judgment to US Airways based on the language, “any monies recovered,” and ordered McCutchen to turn over the portion of his recovery held in trust ($41,500) and pay the additional $25,366 from his own funds. McCutchen appealed.

Analysis

Looking at ERISA’s legislative intent, it must be noted that §502(a) limits the available relief to “appropriate equitable relief.” Under Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 218 (2002), such a limitation requires the court to recognize the difference between legal and equitable forms of restitution. Thus, the Supreme Court has “interpreted the term ‘appropriate equitable relief’ in §502(a) as referring to those categories of relief that, traditionally speaking (i.e., prior to the merger of law and equity) were typically available in equity.” Cigna Corp. v. Amara, 131 S. Ct. 1866, 1878 (2011). The court in Sereboff v. Mid. Atlantic Medical Services, Inc., 547 U.S. 356 (2006), held that the plan administrator’s claim for reimbursement under the terms of the plan and §502(a)(3) could be based on an equitable lien by agreement but expressly reserved its decision on whether the term “appropriate” would make equitable principles and defenses applicable.

McCutchen argued that “appropriate equitable relief” meant the relief sought must be limited by what is “appropriate” under traditional equitable principles. The Third Circuit agreed, holding that “appropriate equitable relief” must be something less than all equitable belief. US Airways, 663 F.3d at 676. The Third Circuit further acknowledged that “it would be strange for Congress to have intended that relief under §502(a)(3) be limited to traditional equitable categories, but not limited by other equitable doctrines and defenses that were traditionally applicable to those categories.” Id. Specifically, the Third Circuit held that, absent any indication in the language or structure of §502(a)(3) to the contrary, “Congress intended to limit the equitable relief available under §502(a)(3) through the application of equitable defenses and principles that were typically available in equity.” Id.

Upon consulting standard works such as Dobbs, Palmer, Corbin, and the Restatements, the Third Circuit found support for McCutchen’s position that the principle of unjust enrichment is broadly applicable to claims for equitable relief. Id. at 677. US Airways, nevertheless, cited prior decisions (Ryan, Bollman Hat, and Gourley) in which the Third Circuit declined to implement a federal common law rule limiting an ERISA plan administrator’s right to reimbursement under the plan’s terms. However, these decisions came before the Supreme Court’s decisions in Knudson and Sereboff, which clarified the meaning of “appropriate equitable relief” in §502(a)(3) and undermined the reasoning and holdings of the prior decisions.

Moreover, the Third Circuit declared its disagreement with the cases US Airways cited from other Courts of Appeals (O’Hara, Shank, Bombardier Aerospace, and Varco) that refused to apply common law theories to override the express language of benefit plans. The Third Circuit maintained that the written benefit plan is subject to modification or equitable reformation under §502(a)(3). US Airways, 663 F.3d at 678; see Cigna, 131S. Ct. at 1879. Essentially, the notion that plan language can be overcome by equitable principles may serve as additional ammunition in an arsenal of lien reduction arguments.

Applying the principle of unjust enrichment, the Court held that the judgment requiring McCutchen to provide full reimbursement to US Airways constituted inappropriate and inequitable relief. Particularly, “[b]ecause the amount of the judgment exceeds the net amount of McCutchen’s third-party recovery, it leaves him with less than full payment for his emergency medical bills, thus undermining the entire purpose of the Plan. At the same time, it amounts to a windfall for US Airways, which did not exercise its subrogation rights or contribute to the cost of obtaining the third-party recovery.” Id. at 679.

Conclusion

The District Court’s final judgment was vacated and remanded for further proceedings to determine what would constitute appropriate equitable relief for US Airways based on full factual findings. Specifically, factors such as the distribution of the third-party recovery between McCutchen and his attorneys, the nature of their agreement, the work performed, and the allocation of costs and risks between the parties to the suit are pertinent to the determination of “appropriate equitable relief.”

By Jessica D. Thomas, Esq. – Staff Lien Counsel

On May 5, 2010, the Second District Court of Appeals of Florida decided Ingenix v. Ham, 35 So.2d 949 (May 5, 2010). This case addresses the issue of health insurance carriers’ reimbursement reductions. A health insurance company can pursue litigation for subrogation pursuant to Florida Statute section 768.76, which mandates that they are subject to the pro rata reduction for case cost and attorney’s fees. Alternatively, an insurance company may sue under the policy language for breach of contract and reimbursement from the non-ERISA policy holder. However, the second District in Ham reasoned that if Florida Statute Section 768.76(4) is applicable than it, not the policy, controls. Below is a summary of the facts and procedural background with a summary of the important aspects of the Second District Court of Appeal’s holding.

In 2004, Gerald Ham suffered complications from an elective laparoscopic gastric bypass procedure, which resulted in his death. UnitedHealthcare paid Mr. Ham’s medical bills and asserted a lien for reimbursement from any recovery his estate obtained from the medical malpractice suit. Ham argued that under Florida Statute 768.76(4) UnitedHealthcare was only entitled to reimbursement reduced by a pro rata share of attorney’s fees and costs. The Second District court framed the issue as whether or not Florida Statute Section 768.76 applied in light of the language in the insurance policy providing for full reimbursement.

Florida Statute Section 768.76(4) provides that a collateral source provider that has a right of reimbursement shall be limited to the actual amount of collateral sources recovered minus its pro rata share of attorney’s fees and costs. Ham argued that the attorney’s fees and cost were 47% of the settlement and thus the UnitedHealthcare lien should be reduced by 47% as well. UnitedHealthcare paid almost all of Ham’s medical expenses in the amount of $154,075.46. The total settlement proceeds were $1,150,00.00. Ham sought to reduce UnitedHealthcare’s lien amount to $81,660.00 under Florida Statute Section 768.76(4). UnitedHealthcare argued that under the policy they were entitled to full reimbursement. The trial court ruled in favor of the Ham Estate and UnitedHealthcare appealed.

UnitedHealthcare argued that Florida Statute Section 768.76(4) only applied where the right of reimbursement was not founded on a contract, pursuant to Travelers v. Boyles, 679 So.2d 1188 (Fla. 4^th DCA 1996). In Travelers the health insurer argued that it was not seeking reimbursement under the statute but rather under the terms of its policy. The insured’s argument was that Travelers’ claim was barred since the uninsured motorist carrier was not a tortfeasor, as indicated in the policy language. According to the holding in Travelers, where the statute is not implicated, a policy provision may allow for full reimbursement. Travelers however, does not stand for the proposition that a policy provision controls when section Florida Statute Section 768.76(4) is otherwise applicable.

In Ham the Second District Court of Appeals relied on their previous decision in Osler v. Collins, 870 So.2d 65, 67-68 (Fla. 2d DCA 2003). In Osler the court held that where an insurance policy contains a right of reimbursement, Florida Stature Section 768.76(4) applies and requires a reduction of the amount of the insurer’s reimbursement by it’s pro rata share of costs and attorney’s fees.

The Second DCA shows a clear understanding that a right of reimbursement comes with a sharing of the cost to obtain such reimbursement. The Ham decision provides some much needed relief regarding the question of whether a right of reimbursement claim, such as this one is subject to a reduction for a pro-rata share of fees and costs. Ham provides hope for the plaintiffs in such cases who are often left with a net of zero after payment to the lien holder. The end result after the ruling in Ham, is that the contract doesn’t always control the outcome of your claim regarding reductions in reimbursement. Instead there has to be an extensive review of the policy language to reveal if the Florida collateral sources provision, Florida Statute Section 768.76(4) applies.

By Stacey N. Jiunto, Esq. – Staff Lien Counsel

Two questions are at the forefront of every injured party’s mind concerning litigation: 1) how much will I recover, and 2) how long will it take to receive my money? Outsourcing your lien resolution needs offers a solution that can help address both of these issues. Lien resolution specialists strive to efficiently provide the injured party with significant savings[1] in as little as a few months after settlement.[2]

Ethical Guidelines Permitting Outsourcing

The American Bar Association has outlined several guidelines (Formal Opinion 08-451) to address any ethical concerns that may arise when outsourcing. The Florida Bar has also issued its own mandate (Opinion 07-2) in regard to outsourcing that provides similar guidance. Specifically, a lawyer may outsource legal or non-legal support services provided the lawyer remains ultimately responsible for rendering competent legal services to the client. Reasonable efforts should be made to ensure that the conduct of the lawyers or non-lawyers to whom tasks are outsourced is compatible with one’s own professional obligations as a lawyer. Additionally, client consent should be obtained, and appropriate disclosures made, regarding the use of lawyers or non-lawyers outside of the lawyer’s firm. The fees charged must be reasonable and the outsourcing lawyer must avoid assisting the unauthorized practice of law.

Advantages of Outsourcing

The benefits of outsourcing lien resolution to specialists include minimizing operating costs of the firm, gaining a knowledgeable partner, and providing the best possible result to the client. Each phone call made or correspondence written consumes precious firm resources and time of lawyers and support staff. Moreover, inefficiencies abound when lawyers and support staff work with lien holders without being armed with all available arguments that may reduce or eliminate lien obligations. A personal injury law firm that conducts lien resolution services in-house must remain well-versed in all relevant laws and practices in addition to any changes or developments. Alternatively, lien resolution attorneys and analysts already possess the requisite knowledge to handle even the most difficult lien holders and have an established history of achieving results. In addition, lien resolution specialists spend all day every day dealing with subrogation issues so they can more efficiently resolve issues. Lastly, high client satisfaction with regard to the resolution of lien obligations may produce repeat business and/or boost referrals from new clients. Having a client receive a check very quickly after settlement because of efficient lien resolution means a happy client and hopefully a future referral source.

If you have questions about lien resolution outsourcing or the obligations associated with it, contact our lien resolution experts today.