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IN A PERSONAL INJURY CLAIM WITHOUT ENOUGH INSURANCE WHO SHOULD BE PAID FIRST? ACCORDING TO THE LAW OF ERISA AND SOME RECENT COURT RULINGS, THE HEALTH INSURANCE, EVEN IF THE INJURED GETS NOTHING.

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I recently wrote to the American Bar Association legislative counsel and got no response. I thought I might as well post here and start a grass roots movement on such an unfair subject. Here is what I wrote last week, (and got no response by the way)

“My name is James Ballidis. I am a practicing member of the California State Bar Member (119461) and specialize in personal injury auto and truck accident lawsuits enforcing injured victim rights.
Over my 23 year career, we have always had to deal with liens and claims arising from ERISA policies, but thanks to the judiciary, ERISA has been interpreted to allow for just and equitable apportionment of damage proceeds between the victim, the treating doctors not paid by ERISA health insurance, and ERISA providers seeking reimbursement.

ERISA, drafted so many years ago, did not anticipate the current environment of reimbursement and was relatively silent on the rules of reimbursement. 29 USC 1132 [a](3) provides for reimbursement claims to fall under the ‘appropriate equitable relief” standard, when enforcing liens and reimbursement rights. As a practical matter, our district has taken the view in the past, that principals of equity, in the absence of specific legislative language, would apply to reimbursement issues. Thus when there is inadequate insurance and assets to compensate all parties aggrieved by a third party’s actions, such concepts of unjust enrichment, and the “common fund” theory of equitable apportionment of proceeds to all parties were used, to allow the practitioner to manage a fair settlement providing recovery to all in a proportionate and fair manner.

Recently however, a troubling case came down in the 8th Circuit that now places a priority on ERISA liens to be paid from the proceeds of settlement before any sums are paid to a victim. While Courts will hide behind language suggesting that the language of the policy could allow for less than full reimbursement, as a practical matter, all policies of health insurance demand reimbursement and language is almost always drafted to give the most reimbursement to the carrier at the expense of the victim.

I direct your attention to the case of Admin. Comm. of the Wal-Mart Stores, Inc. v. Shank, 500 F.3d 834. This case was later denied review by the Supreme Court probably because there has not been another district deciding on these facts directly.

In This case, a woman was severely injured in a major accident, had catastrophic brain injury, will never work again and sustained $462,000 in medical bills paid by Wal-Mart. The plan sought reimbursement (OF THE ENTIRE AMOUNT PAID) from a $700,000 settlement. After attorney fees and costs, the amount to the Plaintiff was $417,000. Thus Wal-Mart sought to capture all the proceeds leaving this poor woman without any possible fund for future use, or recovery for lost wages, damages for pain and suffering or otherwise.

All the typical arguments were raised on appeal to an order that the entire sum not be payable to Wal-Mart. Common fund, which suggests that each party be reimbursed a ratio of their damages to the total damages was rejected. So was the theory of the victim must first be made whole before any reimbursement is required. Common Law Pro Rata reimbursement was also rejected. The Court reasoned that “Appropriate equitable relief” meant appropriate to maintain and protect the plans funds and integrity, without consideration for the victim at all.
Wal-Mart Won. Of Course the media crushed them and they gave the money to the victim but the damage has been done. The impact on this case has been immediate. Virtually all reimbursement companies are now demanding full reimbursement with little ability to counter their demand.

Let’s discuss the typical case:
Client is involved in a clear liability accident but the defendant is woefully uninsured. Defendant owns a house (with little equity now) and had a $100,000 policy limit of insurance. They have no other assets, ie Middle America defendant. The client required 3 surgeries and incurred $150,000 in medical fees paid by their employer under an ERISA plan. The client has underinsured motorist coverage of $100,000 thinking they are protected but it does not apply.
The Plan refuses to accept anything less than the $100,000 policy limit or at least the amount after attorney fees to collect it, leaving the victim no money for being out of work, providing no pain and suffering, no co-pay assistance and generally causing this life to be in turmoil. If the injuries are severe enough that they do not work again they will become a ward of the state. If they are lucky enough, they get back to work but are in financial crisis.
THIS OUTCOME HAS BEEN NOW OCCURRING IN VIRTUALLY EVERY CASE IN MY OFFICE WITH AN ERISA PLAN SEEKING TO BE PAID IN FULL AT THE EXPENSE OF THE CLIENT.

The fair and reasonable approach, which obviously will have to come from legislative amendment is:
A fair compromise of a settlement should be to drafted to protect the rights of the ERISA plan and the victim.

Here is an amendment that seems reasonable:

“Appropriate equitable relief as it pertains to ERISA plans seeking reimbursement or enforcement of liens means: an equitable apportionment of the proceeds of any settlement between the ERISA plan and the victim in accordance with each of their total damages claims, after deduction of attorney fees and costs, if any.”
This needs immediate attention for victims and working attorneys who are now faced with heartbreaking news for the family of an accident.

May I please have your response
Respectfully James Ballidis”

I will keep you posted if the ABA responds and if not, what I am going to do about it.

James Ballidis

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