Clarity On ERISA Liens
Since the passage of the Employee Retirement Insurance Security Act which is also known as ERISA and the General Obligations Law 5-335, which is also known as the New York anti subrogation law, New York personal injury lawyers have been in a state of limbo. Erisa provides a right for certain insurance companies to recoup benefits which they have paid out for the medical expenses, however New York’s anti subrogation law states that a personal injury settlement presumptively does not include any compensation for the cost of health care services or other losses that are obligated to be paid or reimbursed by a benefit provider (such as an insurer), and that benefit providers have no “right of subrogation or reimbursement against any such settling party. In essence New York law only provides for subrogation where New York law mandates, such in the case of Workers Compensation benefits or Medicaid/Social Services claims. Certain companies including the Rawlings company have been claiming that under ERISA, they have a lien which trumps New York’s statutory no subrogation law.
In a recent decision in The Wurtz v. Rawlings Co., the Second Circuit resolved this quandry and provided clarity to New York personal injury lawyers, by holding that ERISA did not pre-empt New York’s anti-subrogation law. The Wurtz case involved some of the most active companies which attempt to secure repayment of benefits form personal injury lawsuits, namely The Rawlings Company, LLC; Oxford Health Plans (NY), Inc.; and UnitedHealth Group, Inc. These companies generally assert liens for payments made on behalf of the injured plaintiffs’ insurance plans to recover medical expenses that they had paid to plaintiffs treating physicians. Consequently these companies seek to be reimbursed by an injured Plaintiff’s recovery of funds in their personal injury lawsuits.
In reaching its holding, the Second Circuit recognized that the States are independent sovereigns in a federal system, and the Court must presume that Congress does not cavalierly pre-empt state-law causes of action. The issue turned on the definition of what is an employee benefit plan under ERISA’s terms. ERISA preempts any state law that relates to any employee benefit plan, but specifically exempts laws that law regulates insurance. The Second Circuit specifically reasoned that New York’s General Obligations Law 5-335 relates to ERISA plans, but that New York’s law is “saved” from express preemption as a law that regulates insurance. A law “regulates insurance” under this savings clause if it (1) is specifically directed toward entities engaged in insurance, and (2) substantially affects the risk pooling arrangement between the insurer and the insured.
The Court recognized a claim objecting to an insurance company from asserting subrogation claims against an injured plaintiffs’ tort recoveries in settlement cannot be construed as colorable claims for benefits under 502(a)(1)(B). ERISA 502(a)(1)(B) allows a plaintiff to recover benefits due under the terms of a plan, to enforce his rights under their terms of the plan, or to clarify his rights to future benefits under the terms of the plan. However an objection to subrogation does not do any of these things. Accident victims are not claiming that they have a right to keep their tort settlements under the terms of their plans, rather, they contend that they have a right to keep their tort settlements under New York’s General Obligations Law 5-335. Thus accident victims do not seek to “enforce” or “clarify” their rights “under the terms of their plans because the right they seek to enforce to be free from subrogation is not provided by their plans.
This holding clearly resolved that under New York law, the claim to an ERISA lien is no longer tenable.