Second Circuit Finds State Insurance Laws Prohibiting Insurer From Seeking Reimbursement For Medical Benefits Paid In Tort Settlements Not Preempted By ERISA
The Second Circuit held that ERISA does not preempt claims against defendant-insurers under a New York state law prohibiting insurers from seeking reimbursement of medical benefits paid in tort settlements. The opinion reversed the district court’s ruling and resulted in the revival of a New York state class action.
Specifically, N.Y. Gen. Oblig. Law § 5-335 provides 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.” A group of plaintiffs had received medical benefit payments from defendant-insurers in personal injury suits and then the defendants had asserted liens under the plaintiffs’ insurance plans to recover medical expenses that they paid to the plaintiffs. The plaintiffs then brought suit in New York state court seeking a declaration that the New York state law prevented the defendant-insurers from having a right to seek reimbursement or subrogation of medical benefits against the plaintiffs’ tort settlements.
The defendant-insurers removed the case to federal court where the district court dismissed the suit after concluding that the plaintiffs’ claims were preempted by ERISA. The Second Circuit reversed last week, finding that plaintiffs’ claims were neither expressly nor completely preempted. With respect to express preemption, the court found that the New York law was (1) directed at insurers and (2) affected risk pooling between insurers and the insured, and thus was saved from express preemption as a state law that regulates insurance. Further, the court noted that plaintiffs’ claims were premised independently upon state law and not on the terms of plaintiffs’ benefits plans. Thus, the plaintiffs’ claims also were not completely preempted by ERISA.
The court, however, recognized that its holding “is in some tension with holdings of the Third, Fourth, and Fifth Circuits in similar antisubrogation cases,” even though those cases were decided before the U.S. Supreme Court’s decision in Davila in which it established a two-part test for determining whether a claim was completely preempted by ERISA.
