The Lawletter Vol 41 No 1
When a catastrophic accident causes one or more people to die, multiple legal questions inevitably arise. Among these is the issue as to whether and to what extent the deceased person's medical insurance company is entitled to recoup the costs it paid for the person's medical treatment prior to death from any wrongful death settlement or verdict eventually entered in favor of the decedent's estate and/or beneficiaries.
Although the answer to this question depends on the law of each particular state, an examination of Administrative Committee of Dillard's, Inc. Group Health, Dental & Vision Plan v. Sarrough, No. 1:14-CV-01165, 2015 WL 3466568 (N.D. Ohio June 1, 2015), appeal dismissed, No. 15-3718 (6th Cir. Aug. 12, 2015), may be illuminating. There, Hanan Saah was injured in a February 2011 car accident in Ohio. Her employer, Dillard's, paid $260,000 of her medical expenses pursuant to a federal Employee Retirement Security Act of 1974 ("ERISA") health plan. Saah subsequently died in July 2011. Her estate was eventually awarded $300,000 in various wrongful death settlements. Dillard's then claimed a right to the settlement proceeds in order to recoup its $260,000 in medical costs.
The district court determined that, as an initial matter, it was important to distinguish, and to allocate the amount of funds attributable to, the two different components of the settlement: Saah's survival claim versus the wrongful death claim. Dillard's, as the ERISA-approved health benefit plan, had a right to obtain reimbursement of medical expenses paid from net settlement proceeds allocable to the survival portion of the settlement. Under Ohio law, the survival action belongs to the decedent's estate and, therefore, was subject to subrogation.
However, the court further ruled that the plan could not obtain reimbursement from funds allocable to the decedent's wrongful death claim. The funds allocable to the wrongful death claim belonged to the decedent's beneficiaries, not to the estate.
Notably, the provisions of ERISA, 29 U.S.C. § 1132(e)(1), do not preempt state law on this point. ERISA requires only that the portion of the net settlement proceeds attributable to the decedent's survival action be subject to subrogation by his or her medical benefit plan. Federal law does not affect the amount of the insurance proceeds payable to the decedent's legal beneficiaries as compensation for the decedent's wrongful death. As the court in Administrative Committee of Dillard's made clear, an ERISA plan is entitled to recover only funds paid to the covered person. The probate court in question concluded that the entire settlement was a recovery paid to Saah's children for her wrongful death rather than to Saah herself for pain and suffering prior to death. As a result, the settlement proceeds represented "a recovery outside of Dillard's reach." 2015 WL 3466568, at *2.
The reasoning of Administrative Committee of Dillard's is important in setting a limitation on the amount or proportion of a wrongful death settlement or verdict that must be paid over to a health plan provider to reimburse the plan for medical costs paid on the decedent's behalf. Because such medical costs are typically very high, reimbursement could potentially negate the entire settlement or verdict, leaving little or nothing for the decedent's beneficiaries. If the relevant state law places the portion of the settlement allocable to the wrongful death claim outside the reach of the ERISA medical plan, the decedent's family will retain a far greater share of the net settlement or verdict.