ERISA SUBROGATION - ERIC BUCHANAN AND ASSOCIATES, PLLC

A. Is it an ERISA Plan?
ERISA applies in almost every case involving benefits provided by an employer. ERISA preemption means that almost all employee benefits plans that provide such benefits as health insurance, life insurance or disability insurance are preempted by Federal ERISA law; however, plans sponsored by governmental employers and churches are not usually preempted by ERISA. ERISA 4(a), 29 U.S.C. 1003(a) provides that ERISA

shall apply to any employee benefit plan if it is established or maintained- (1) by any employer engaged in commerce or in any industry or activity affecting commerce; or (2) by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce; or (3) by both.

However, ERISA does not apply to all employee benefit plans. ERISA 4(b), 29 U.S.C. 1003(b) provides:

(b) The provisions of this subchapter shall not apply to any employee benefit plan if-- (1) such plan is a governmental plan (as defined in 3(32) [29 U.S.C. 1002(32) of this title); (2) such plan is a church plan (as defined in 3(33) [29 U.S.C. 1002(33) of this title) with respect to which no election has been made under section 410(d) of the Internal Revenue Code of 1954 [Title 26]; (3) such plan is maintained solely for the purpose of complying with applicable workmen's compensation laws or unemployment compensation or disability insurance laws; (4) such plan is maintained outside of the United States primarily for the benefit of persons substantially all of whom are nonresident aliens; or (5) such plan is an excess benefit plan (as defined in 3 [29 U.S.C. 1002(36)] of this title) and is unfunded.

Courts have interpreted ERISA's preemption provisions very broadly, such that ERISA preemption has been referred to as "super preemption." For example, ordinarily, determining whether a particular case arises under federal law turns on the " 'well-pleaded complaint' " rule, looking only to those claims raised in the Plaintiff's allegations. Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 9-10, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). Also, the existence of a federal defense does not provide Federal Court jurisdiction, Louisville & Nashville R. Co. v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908), and "a defendant may not [generally] remove a case to federal court unless the plaintiff's complaint establishes that the case 'arises under' federal law." Franchise Tax Bd., supra, at 10, 103 S.Ct. 2841. As the Supreme Court recently re-affirmed, ERISA's preemption is so broad, it is an exception to those rules:

"[W]hen a federal statute wholly displaces the state-law cause of action through complete pre-emption," the state claim can be removed. Beneficial Nat. Bank v. Anderson, 539 U.S. 1, 8, 123 S.Ct. 2058, 156 L.Ed.2d 1 (2003). This is so because "[w]hen the federal statute completely pre-empts the state-law cause of action, a claim which comes within the scope of that cause of action, even if pleaded in terms of state law, is in reality based on federal law." Ibid. ERISA is one of these statutes.

Aetna Health Inc v. Davila, ___ U.S. ___, ___ S.Ct. ___, 2004 WL 1373230, slip op. p. 5 (2004) (Holding that a Texas state law, allowing a participant in an employer sponsored HMO to sue the HMO for damages if the HMO unreasonably denied coverage, to be preempted by ERISA.) Most Courts have held that a claim by a plan administrator to enforce the terms of an ERISA plan are preempted by ERISA.[1] ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." ERISA 514, 29 U.S.C. 1144. However, by statute, ERISA does not apply to governmental employees, or to church employees, unless the church "opts in" to ERISA. ERISA 4, 29 U.S.C. 1003.

If ERISA does not apply to an insurance company's claim, then ordinary state contract law applies, and the insurer may recover the benefits to the extent permitted by state law (except as prohibited by Social Security's anti-assignment provision. 42 U.S.C. 407, discussed below).[2]

B. What does ERISA allow?

1. Language of ERISA statute
ERISA itself only provides for certain remedies. ERISA 502, 29 U.S.C. 1132 states who may bring a cause of action under ERISA and what causes of action may be brought:

(a) Persons empowered to bring a civil action A civil action may be brought-- (1) by a participant or beneficiary-- (A) for the relief provided for in subsection (c) of this section, or (B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan; (2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title; (3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan; [Subsections 4-9 all give a cause of action only to the Secretary of Labor, not individuals] (emphasis added)

Congress, in passing ERISA, "set forth a comprehensive civil enforcement scheme" that included Congress's choice to allow certain remedies related to employee benefits plans and to prohibit others. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54, 107 S.Ct. 1549 (1987).

In recent years, the remedies available to a plan have swung back and forth like a clock pendulum; currently the pendulum has swung back to the side of the insurance companies. The Court of Appeals for the Sixth Circuit had allowed ERISA Plans and Plan Administrators to recover only if the Plan had explicit language allowing it. Then in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S.Ct. 708, 151 L Ed 2d 635 (2002), the Court held that a claim by an ERISA plan to recover a subrogation claim was not one for which a remedy was provided under ERISA. However, very recently, the Supreme Court issued another decision, allowing ERISA Plans and Plan Administrators to recover in most cases. See, Sereboff v. Mid Atlantic Medical Services, Inc., __ U.S. __, 126 S.Ct. 1869, 37 Employee Benefits Cas. 1929 (May 15, 2006). In order to understand the current law, plaintiff's lawyer's should be familiar with the development of this area of the law.

2. ERISA subrogation law Pre-Knudson
In Marshall v. Employers Health Insurance Co., 1997 WL 809997 (6th Cir. 1997), the Court of Appeals for the Sixth Circuit established that the made-whole doctrine is, as a matter of federal common law, the default rule in our circuit. The "made whole" doctrine holds that a victim must recovery all his own losses and be "made whole" before he is obligated to re-pay a third party. As the court explained in Marshall, the made-whole rule "is consistent with the equitable principle that the insurer does not have a right of subrogation until the insured has been fully compensated, unless the agreement itself provides to the contrary." However, "if a plan sets out the extent of the subrogation right or states that the participant's right to be made whole is superseded by the plan's subrogation right, no silence or ambiguity exists" and the Plan may recover, even if the plaintiff is not made whole.

In Copeland Oaks v. Haupt, 209 F.3d 811 (6th Cir. 2000), the Court of Appeals for the Sixth Circuit recognized that that the "made whole" doctrine is the default rule in ERISA cases, and that for the plan language to "conclusively disavow the default rule" of the made whole doctrine, "it must be specific and clear in establishing both a priority to the funds recovered and a right to any full or partial recovery." The plan language in that case read as follows:

The Covered Person agrees to recognize the Plan's right to subrogation and reimbursement. These rights provide the Plan with a priority over any funds paid by a third party to a Covered Person relative to the Injury or Sickness, including a priority over any claim for non-medical or dental charges, attorney fees, or other costs and expenses.

While the plan in Copeland Oaks established its right to priority, it did not do so explicitly with regard to a partial recovery, and thus the made whole doctrine applied. It is thus important to scrutinize the plan language to determine whether the plan has completely and unambiguously renounced the made whole doctrine. Also, the made whole doctrine applies in ERISA-covered subrogation and reimbursement claims. See, also, Phillips v. Humana Health Plans of Kentucky, 2000 WL 1872058 (6th Cir. 2000) (the made whole doctrine applied because the ERISA plan language did not sufficiently establish the plan's priority over a partial recovery.)

In Qualchoice Inc. v. Williams, 2001 WL 856951 (6th Cir. 2001), the Court of Appeals found that an ERISA plan "did not establish in specific and clear terms that the Plan had either a priority over any funds recovered or a right to any full or partial recovery;" therefore, the made whole doctrine applied. The Court also reiterated that the made whole rule applies to reimbursement provisions.

In Hiney Printing Co. v. Brantner, 243 F.3d 956 (6th Cir. 2002), the Court of Appeals applied the holding of Copeland Oaks v. Haupt, 209 F.3d 811 (6th Cir. 2000), and found that the ERISA subrogation and reimbursement provisions were ambiguous because they failed to clearly establish a right to priority over a partial recovery from a third party, thus the made-whole default rule was not overcome.

In another case involving a "Reimbursement Agreement," Hamrick's, Inc. v. Roy, 2002 WL 753208 (Tenn. Ct. App. 2002), the plaintiff an her lawyer signed a reimbursement agreement, but settled and distributed the money without paying the ERISA plan back. Specifically, Roy sustained injuries in a wreck caused by Nguyen. Roy's employer, Hamrick's, paid her health care expenses through a self-insured ERISA plan. Roy and her lawyer signed a "Reimbursement Agreement" in which they agreed to reimburse Hamrick's out of any recovery. Without the knowledge of Hamrick's, Roy accepted a settlement of $25,000 from Nguyen. Roy took two-thirds of the settlement, and her lawyer kept one-third. Hamrick's then filed suit against Roy and her lawyer seeking to enforce the reimbursement agreement and recover the sums it paid on Roy's behalf.

Attempting to reduce the amount of the reimbursement claim, Roy argued on appeal that only certain medical bills paid by Hamrick's were related to the wreck. The court gave deference to the trial court's conclusion, however, that most of the bills were related to the wreck. Roy also argued that she had not been made whole by the $25,000 settlement, but the court agreed that Roy had not proved this contention in the trial court. The court agreed that Roy was required to execute the reimbursement agreement under the terms of the benefit plan. Interestingly, the court of appeals held that Roy's suit could proceed in state court. In so holding, the court relied upon the U.S. Supreme Court's decision in Great West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 203 (2002), which barred claims for legal relief for contractual damages. The court did not discuss ERISA preemption of Roy's claims and apparently this issue was not raised.

In Rodriguez v. Tennessee Laborers Health & Welfare Fund, 89 Fed. Appx. 949 (6th Cir. 2004), the Court of Appeals again read the language of an ERISA plan very strictly to determine the made-whole doctrine still applied. The Court of Appeals also ruled that, a "subrogation agreement" sent to the participant by the plan did not disavow the made-whole doctrine.

Relying on the ERISA statutory scheme, the U.S. District Court for the Middle District of Tennessee has held that the lawyer for the injured person has a legal duty to send the portion of settlement funds owed to the plan under the subrogation clause. Greenwood Mills v. Burris, 2001 WL 92117 (M.D. Tenn. 2001). In this case, the court agreed that a lawyer does not have a fiduciary duty to an ERISA plan, even though the lawyer is aware of the existence of a subrogation agreement between the plan and the beneficiary. ERISA, the court concluded, "requires that a fiduciary exercise 'authority or control respecting management or disposition' of plan assets." Because the settlement funds received by the lawyer did not become 'plan assets' when he received them, he did not fall within the definition of a fiduciary.

However, the judge found the lawyer and his firm liable for violating the plan's terms under Section 1132(a)(3), which provides:

A civil action may be brought . . . by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of this plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations of (ii) to enforce any provisions of this subchapter or the terms of the plan.

The court relied on Tennessee law on this topic since it did not contradict the policies of ERISA. Under such law, a Tennessee lawyer 'will be held civilly liable to a non-client where he knowingly participates in the extinguishment of a subrogation interest of a non-client third party and delivers to his client funds that he knows belong to the third party and knows or should know, that he has already placed the funds beyond the reach of the third party." For that reason, the court ruled that the plaintiff's lawyer was liable for failing to honor his client's obligation under the ERISA plan to pay the subrogation interest.

3. ERISA subrogation law Post-Knudson
The Supreme Court addressed what remedies were available to an ERISA plan administrator in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S.Ct. 708, 151 L Ed 2d 635 (2002), a case that, for a while, changed the landscape of the ability of an ERISA LTD plan to seek and pursue claims for the recovery of money properly paid in the first instance from an ERISA beneficiary. Great West paid over $411,000 to medical providers treating injuries sustained by Janette Knudson. Ms. Knudson also sued Hyundai on a products liability theory for her injuries. Ms. Knudson settled with Hyundai for $650,000, allocating as part of the judicially supervised settlement a little more than $13,800 to repay Great West for its plan created lien on her personal injury claims. Great West sued for recovery of the entire amount of its lien, refusing to negotiate the check payable to it pursuant to the terms of the judicially supervised settlement. The Supreme Court held inter alia that ERISA did not permit Great West to pursue a legal remedy to enforce the terms of the plan. Great-West Life, 534 U.S. at 220-221 citing 29 U.S.C. 1132(a)(3) (ERISA 502(a)(3)). The Court's rationale rested on the form of restitution sought by Great West, a money judgment from undifferentiated assets of Ms. Knudson. Because that action is classified as "legal" rather than "equitable" the limited grant of authority given to plans and their fiduciaries by 29 U.S.C. 1132(a)(3) deprived Great West of a cognizable theory of equitable relief under ERISA. The majority opinion written by Justice Scalia clearly states the law:

We have observed repeatedly that ERISA is a "'comprehensive and reticulated statute,' the product of a decade of congressional study of the Nation's private employee benefit system." Mertens v. Hewitt Associates, 508 U.S. 248, 251 (1993) (quoting Nachman Corp. v. Pension Benefit Guaranty Corporation, 446 U.S. 359, 361 (1980)). We have therefore been especially "reluctant to tamper with [the] enforcement scheme" embodied in the statute by extending remedies not specifically authorized by its text. Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 147 (1985). Indeed, we have noted that ERISA's "carefully crafted and detailed enforcement scheme provides `strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly.'" Mertens, supra, at 254 (quoting Russell, supra, at 146-147).

In sum, Knudson stands for the following proposition: If an insurance company or other ERISA Plan Administrator provides benefits under plan that is preempted by ERISA, and the administrator is seeking to recover from a beneficiary of the plan, the only cause of action available to the administrator is one found in ERISA. Under ERISA, the only cause of action available to the administrator is ERISA 502(a)(3), which limits remedies to "equitable" remedies. The Supreme Court held that "equitable remedies" were the narrow set of remedies available in a court sitting in equity prior to the merger of equity and law courts. Thus, if an administrator is seeking to enforce the term of an insurance policy or similar document, the administrator is really seeking to enforce a contract, which is a cause of action at law, and not available under ERISA. However, the Court reserved the question whether or when equitable remedies are available to administrator. In Qualchoice, Inc v. Rowland, 367 F.3d. 638 (6th Cir. 2004), the Court of Appeals for the Sixth Circuit held that, when a Plan Fiduciary seeks to enforce the terms of an ERISA plan, that is a cause of action to enforce the terms of a contract under ERISA, and, as such, is a cause of action at law, for which there is no equitable remedy. Therefore, even though the cause of action is preempted by ERISA, there is no cause of action available for the Plan Fiduciary under ERISA. Id at 650 and 651. Thus, any claim by a plan administrator to enforce the terms of a plan is both preempted by and prohibited by ERISA. Because there is no cause of action that provides the Plan Fiduciary a remedy, the Sixth Circuit held there is no cause of action over which the Federal Court has jurisdiction, either, and the claim must be dismissed. See also Community Health Plan of Ohio v. Mosser, 347 F.3d 619 (6th Cir. 2003) (an insurance company sought to recover from a plan participant the money that had been paid toward medical expenses after settlement of the lawsuit. The Court of Appeals found that "CHPO, like Great-West in Knudson, does not seek equitable relief, but rather 'seek[s] legal relief--the imposition of ... liability on respondents for a contractual obligation to pay money.' " Id at 623.) A more recent case out of the Sixth Circuit, Primax Recoveries, Inc. v. Gunter, 433 F.3d 515 (6th Cir. 2006), held that, where a fiduciary brings a claim to recover an overpayment under the terms of the plan, such a claim is an action at law, which is not permitted under ERISA. However, because the court has subject matter jurisdiction under ERISA in general, a party may seek attorneys' fees under ERISA 502(g) for successfully resisting a claim by an ERISA fiduciary.

4. ERISA subrogation Post-Sereboff
In the recent ERISA case of Sereboff v. Mid Atlantic Medical Services, Inc., __ U.S. __, 126 S.Ct. 1869, 37 Employee Benefits Cas. 1929 (May 15, 2006) , the pendulum swung almost all the way back to the insurance companies. The Sereboffs were involved in an automobile accident in California and suffered injuries; Mid Atlantic provided medical benefits to the Sereboffs totaling $74,869.37. Sereboffs filed a lawsuit against the tortfeasors. Mid Atlantic notified Sereboffs' attorney of its asserted a lien on the anticipated proceeds from the suit over the two and a half years the case was pending; however after the case settled for $750,000 neither the Sereboffs or their attorney sent any money to Mid Atlantic.

Mid Atlantic filed a claim as an ERISA fiduciary under ERISA 502(a)(3) to enforce the terms of the Plan, which gave Mid Atlantic a subrogation right. The Supreme Court distinguished Great West v. Knudson on the grounds that, in Knudson, the recovery in the underlying tort case was placed directly in a special needs trust, and was never in the hands of the Knudsons. Then, despite the clear language in Knudson that only equitable causes of action can provide an equitable remedy, the Court in Sereboff held that the character of the underlying cause of action does not "prove relief is not equitable; that would make 502(a)(3)(B)(ii) an empty promise." Sereboff, 126 S.Ct. at 1874. The Court relied on a 90 year old case, Barnes v. Alexander, 232 U.S. 117, 34 S.Ct. 276, 58 L.Ed. 530 (1914), for the proposition that equity provides for a rule "that a contract to convey a specific object even before it is acquired will make the contractor a trustee as soon as he gets a title to the thing." Id., at 121, 34 S.Ct. 276. The Court then explained that, the Court's previous analysis in Knudson that equity only provided for certain remedies where the specific assets could be traced to specific funds did not provide a complete list of all available equitable remedies. The Court explained that:

Knudson simply described in general terms the conditions under which a fiduciary might recover when it was seeking equitable restitution under a provision like that at issue in this case. There was no need in Knudson to catalog all the circumstances in which equitable liens were available in equity; Great-West claimed a right to recover in restitution, and the Court concluded only that equitable restitution was unavailable because the funds sought were not in Knudson's possession.

Sereboff at 1876. Thus, while the Court does not explicitly overrule Knudson, Sereboff effectively overruled most of Knudson, in that a Plan administrator or ERISA fiduciary can recover money from a beneficiary to enforce the terms of the plan even without specifically being able to trace identifiable funds into the beneficiaries possession. Thus, the only part of Knudson left is that if the funds are not paid directly to the plaintiff, but are placed in a trust, then either a plan cannot recover, or would need to at least establish a constructive trust over the funds.

Lastly, the Court added insult to injury, by rejecting Sereboff's argument that any equitable claim by the ERISA fiduciary would be subject to equitable defenses. The Supreme Court explained that the fiduciaries claim was not truly an equitable claim, but rather was an ERISA claim to recover under the terms of the plan; therefore, "the parcel of equitable defenses the Sereboffs claim accompany any such action are beside the point." Sereboff, at 1877. Then, in footnote 2, the Court left the door open to arguments that, a recovery by a plan fiduciary that does not take into account equitable defenses, such as the made-whole doctrine, may not be an "appropriate" equitable remedy under ERISA 502(a)(3), but, because that issue was not raised below, the Supreme Court declined to consider it for the first time. Therefore, the Supreme Court has left open the question whether equitable defenses, such as the made-whole doctrine, that was the rule in the Sixth Circuit prior to Knudson, are still available after Sereboff.

III. The insurance company's rights under state law

A. Subrogation under Tennessee insurance law.
Tennessee courts had long recognized a common law right of insurance companies to recover benefits that they have paid, that should have been paid by a third-party tort-feasor. The Tennessee Supreme Court recognized this cause of action at common law under principles of equity and natural justice. Castleman Constr. Co. v. Pennington, 432 S.W.2d 669 at 675 (Tenn.1968). One of the principals permitting insurers to bring a subrogation action is to prevent an insured from obtaining a double recovery for the same loss; another is to ensure that the actual tort-feasor compensate the insurance company for the payments the insurance company has to make due to the fault of the tort-feasor. Wimberly v. Am. Cas. Co. of Reading, Pennsylvania, 584 S.W.2d 200 at 203 (Tenn.1979). However, Tennessee courts have consistently balanced the equities in subrogation cases by determining that the insurance company cannot recover, and must bear the ultimate risk of loss when the victim of a tort has not fully recovered all that he has lost; that is the risk the insurance company has been paid to assume. Wimberly v. Am. Cas. Co. of Reading, Pennsylvania, 584 S.W.2d 200 at 203 (Tenn.1979).

In the more recent case of York v. Sevier County Ambulance Authority, 8 S.W.3d 616 (Tenn. 1999), The Tennessee Supreme Court discussed and reaffirmed the made whole doctrine. The Court ruled that the made-whole doctrine bars recovery by a subrogation interest unless the insured is first made whole. The Court found that this doctrine applies to both subrogation clauses and reimbursement clauses in insurance contracts. Otherwise, the Court held, an insurer could circumvent the made whole doctrine by simply inserting a "right of reimbursement" clause in place of a subrogation clause. However, Tennessee Farmers Mut. Ins. Co. v. Farmer, 23 TAM 39-14 (Tenn. Ct. App. 8/20/98) holds that the plaintiff in the underlying claim bears the burden of proving that he or she has not been made whole; therefore, the plaintiff's lawyer must present evidence of the plaintiff's damages in order to invoke the doctrine.

In Nelson v. Innovative Services, Inc., 2001 WL 1480515 (Tenn. Ct. App. 2001), the Court found that the plaintiff had not met her burden that she was not made whole and allowed recovery by the subrogation interest where her lawyer did not present any evidence to support the argument that she had not been made whole.

If the insurance carrier is not given the opportunity to participate in settlement negotiations, and does not waive its subrogation interest, then generally the subrogation interest must be honored in full. Doss v. Tennessee Farmers Mut. Ins. Co., 2001 WL 1565883 (Tenn. Ct. App. 2001). But even if the carrier did not participate in settlement talks or waive its rights, its subrogation claims will still be defeated, if the parties have agreed that the plaintiff has not been made whole by the tort recovery, or the underlying facts are clear that the plaintiff did not make a full recovery. Id.

In Sherer v. Linginfelter, 29 S.W.3d 451 (Tenn. 2000), the Tennessee Supreme Court refused to allow an uninsured motorist carrier to collect its subrogation interest out of an injured woman's recovery for enhanced injuries against a manufacturer in a products liability action. The carrier had argued that the policy language allowed it to make a claim against the recovery received from "any" source. The Court rejected this point of view, holding that Tenn. Code. Ann. 56-7-1204 limits the liability of a UM carrier to "payments for damages caused by the uninsured/underinsured provisions motorist in the ownership, maintenance, or use of the vehicle" and that the UM carrier can recover from its insured only out of those same damages. Here, since the enhanced injuries were caused not by the uninsured driver, but by the manufacturer, the UM carrier had no right to make a claim against the funds received from the manufacturer.

In Health Cost Controls, Inc. v. Gifford, 108 S.W.3d 227 (Tenn. 2003), the Supreme Court again held that plaintiffs bear the burden of proving that they have not been made whole. In settlement of his personal injury claims, the plaintiff accepted the liability insurance limits of $100,000. His health insurer, through its assignee Health Cost Controls, filed suit for reimbursement of the $37,795.08 it had paid for related medical care. The injured plaintiff argued that he was not required to reimburse the insurer because he had not been made whole. Health Cost Controls claimed that it was entitled to reimbursement, first because it mistakenly paid the bills while unaware of the third-party liability. It also argued that the plaintiff had failed to establish that he was not made whole. In its decision, the Tennessee Supreme Court analyzed York v. Sevier County Ambulance Authority, 8 S.W.3d 616 (Tenn. 1999), emphasizing that the made whole doctrine applies both to subrogation and reimbursement provisions.

The Supreme Court gave short shrift to the insurer's argument with respect to its allegedly mistaken payments. The Court stated that "we made no distinction or exception [to the made whole doctrine] for cases in which an insurer claims that it made a payment because it did not know of a third party's liability." The Court then remanded the case to the trial court for a determination of whether the plaintiff had been made whole. The Court concluded: "It follows that the key issue in any such case requires a factual determination of whether the insured had received full compensation for the damages incurred. Since the critical issue was not addressed or determined under the circumstances of this case, we reverse the Court of Appeals' judgment, and remand to the trial court for further proceedings consistent with this opinion."

A group health insurance carrier had no right to enforce its claim for reimbursement against by attempting to collect from a mother of her dependant son's injuries, at least not without specific language permitting that recovery. Board of Trustees of Sumner County Employees' Trust Fund ex rel. Sumner County Employees' Trust v. Graves, 1999 WL 1086454 (Tenn. Ct. App. 1999). The policy allowed the mother to name her son for coverage under the policy. The son was injured, and the plan paid money for his injuries. He collected a settlement from the tortfeasor. The plan provided that the carrier had the right to be reimbursed by the insured (mother) or the dependent (son). The plan did not require reimbursement by both. Therefore, the plan's claims against the mother under the plan failed under basic contractual principles and the mother defeated the carrier's claims against her. This case shows the importance of reviewing the policy or plan as soon as possible in the process. While reimbursement clauses are increasingly very broad and hard to defeat (except in the non-ERISA context where an injured person is not made whole), close scrutiny may reveal holes in them.

B. Subrogation related to workers' compensation cases.
The subrogation rights of a workers' compensation carrier are controlled by Tennessee Code Annotated 50-6-112. That provision provides that the carrier has the right to recover the amounts it has paid, less a reasonable attorney's fee, from a third-party action. In Castleman v. Ross Engineering, Inc., 958 S.W.2d 720 (Tenn. 1997), the Supreme Court held that the made whole doctrine does not apply to workers' compensation. Furthermore, the carrier was found to be entitled to full reimbursement of its claimed interest when employee found partially at fault in underlying tort case.

However, an employer may not be entitled to offset its future medical payments based on a workers' compensation settlement. In Graves v. Cocke County, 24 S.W.3d 285 (Tenn. 2000), a worker was injured in a car wreck. He accepted a sum of $138,000 to settle the tort case. He also settled the workers' compensation claim for $122,140 in permanent disability benefits (minus an overpayment of temporary disability benefits), and agreed to pay back the employer $77,998.57 for its "subrogation interest for medical expenses that had already been paid." A dispute arose over the employer's right to receive a credit for future medical payments against the amount paid in settlement. The full Supreme Court ultimately ruled that the employer does not have a right to such a credit, mainly because of the uncertainty that would result. Since workers cannot know when they may need future medical care, and how much such care may cost, the workers would be placed in a very uncertain position about whether to spend their settlements if the employer received the credit. The Court worried that this may cause an employee to avoid future medical care for injuries, and that the credit could lead parties to re-appear in court many times over the years.

In Hunley v. Silver Furniture Mfg. Co., 38 S.W.3d 555 (Tenn. 2001), the Tennessee Supreme Court held that the employer's right to subrogation in a workers' compensation case is restricted to sums recovered by the injured worker from a third-party tortfeasor. The subrogation right does not extend to the recovery of the injured worker's spouse (e.g., for loss of consortium damages).

IV. Can the attorney get paid for recovering all that money for the insurance company?

In Roberts v. Sanders, 2002 WL 256740 (Tenn. Ct. App. 2002), the Middle Section of the Tennessee Court of Appeals addressed the right of a plaintiff's lawyer to collect a fee from the entire proceeds of a $33,000 settlement received by the client. Access MedPLUS, the TennCare managed care organization that had paid $12,687 in medical expenses, asserted rights to a portion of the settlement. Access MedPLUS also refused to pay any portion of the attorney's fee from its share of the settlement proceeds. The trial court awarded the plaintiff's lawyer a one-third contingent fee from the subrogation interest and Access MedPLUS appealed. The Court of Appeals affirmed the trial court's decision and held that the lawyer had a right under Tenn. Code Ann. 71-5-117(c) to collect a fee from the proceeds of the settlement and that Access MedPLUS failed to prove the existence of circumstances to disentitle the lawyer from those fees.

In its ruling, the Court specifically addressed the argument by Access MedPLUS that the statute should be read narrowly to authorize the payment of attorney's fees only to lawyers the managed care organization or the state has retained. Performing an in-depth analysis of the statutory purpose and legislative history, the Court held that Tenn. Code Ann. 71-5-117 permits a lawyer representing a TennCare recipient "to insist that a portion of his or her fee be paid from the State's subrogation interest in the proceeds from any recovery from a third party." The Court then considered whether Access MedPLUS demonstrated that the plaintiff's lawyer was not entitled to collect a portion of his fee from its subrogation interest because it had notified him that it was looking out for its own subrogation interest and did not authorize him to perform legal work on its behalf. Again performing an extended analysis of the issue, the Court rejected Access MedPLUS's argument and held instead that the subrogee's consent or authorization "is not an essential ingredient" and instead applied the four questions underlying the application of the common fund doctrine. The Court then held that, under this analysis, Access MedPLUS failed to meet its burden of presenting evidence showing that it was entitled to an exception from the common fund doctrine because it failed to show that it was "actively involved in the efforts to secure the settlement" by "fail[ing] to act diligently to protect its own subrogation interest" and failing "to assist in advancing [the plaintiff's] claim."

For other cases on attorneys' rights to be paid for subrogation recoveries, see Boston, Bates & Holt v. Tennessee Farmers Ins. Co., 857 S.W.2d 32 (Tenn. 1993) (carrier liable for attorney's fee when actions established that lawyer was also representing carrier); Travelers Ins. Co. v. Williams, 541 S.W.2d 587 (Tenn. 1976) ("whether or not an attorney is entitled to collect from the insurer a fee with respect to a subrogation claim depends upon whether an express or implied contract or quasi contractual relationship exists between them")[4] ; and, Luther, Anderson, Cleary & Ruth v. State Farm Mutual Auto Ins. Co., 1996 WL 198233 (Tenn. Ct. App. 1996) (lawyer for injured person deemed to be volunteer for, instead of representative of, carrier when carrier did not want to be represented by lawyer).

In an ERISA case, the Court of Appeals for the Sixth Circuit has held that the plaintiff's attorney is not entitled to any fee for his work recovering from the tortfeasors the amount that had to be turned over to the plan, absent express language permitting the attorney to charge a fee. In Smith v. Wal-Mart Associates Group Health Plan, 2000 WL 1909387 (6th Cir. 2000), the Sixth Circuit addressed the issue of whether the plan's interest could be reduced to account for reasonable attorney's fees where the plan was silent as to such fees. The plaintiff suffered injuries to her neck and back in a car wreck. The plan paid for medical bills relating to the wreck. After the plaintiff settled her tort case, her attorney disbursed two-thirds of the settlement to her and retained one-third for himself. The plan argued that it was entitled to the full amount of its interest, even though the plaintiff's settlement proceeds were not enough to pay the plan in full. In dissecting the plan, the court found that the language unambiguously required the plaintiff to fully reimburse the plan. Because the plan was clear on this point, the court concluded that the absence of an attorney's fee provision was unimportant. The Court held:

A fair interpretation of this language is that full reimbursement is required without a deduction for attorneys' fees expended to obtain a settlement. See Wal-Mart Stores, Inc. Associates' Heath and Welfare Plan v. Scott, 27 F.Supp.2d 1166, 1174 (W.D.Ark.1998). The language of the Plan does not limit or restrict its right to full reimbursement in any manner. Of course, it would have been preferable for the Plan to state specifically that it does not permit a deduction in reimbursement amounts for attorneys' fees expended to obtain a settlement; nonetheless, when a plan is clear and unambiguous, we cannot apply a common-law rule of interpretation but, instead, must give the plain language of a plan its natural meaning.

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