Clear Direction

A recurring issue for health plan subrogators is what language is sufficient to override the make whole rule.  On the one hand, Circuits like the Fifth Circuit have held that no particular language is required to overcome the make whole rule.  In the Fifth Circuit (and others like it), plan language simply providing for 100% recovery is sufficient.

On the other hand, some Circuits like the Eleventh Circuit require that a health plan specifically disclaim the make whole rule by saying something to the effect that the plan can recover 100% of the medical expenses paid even if the member has not been made whole. 

In Board of Trustees v. Hill, 2008 U.S. Dist. LEXIS 96239 (N.D. Cal. Nov. 25, 2008), the Court held that plan language establishing priority of payment — without specifically disclaiming the make whole rule — was sufficient to disclaim the concept. 

The plan language in Hill provides:

If an Eligible Individual has an illness, injury, disease or other condition for which a third party may be liable or legally responsible by reason of an act or omission, or insurance coverage of such third party, the Fund will have an automatic lien upon any recovery against the third party for benefits paid by the Fund as a result of such illness, injury, disease or other condition. All Eligible Individuals, as a condition precedent to entitlement to benefits from the Fund, must agree in writing to reimburse the Fund for any payments made by the Fund on account of hospital, medical or other expenses in connection with, or arising out of, that injury, illness, disease or other condition. The reimbursement will be made out of any proceeds received by way of judgment, arbitration award, settlement or otherwise in connection with, or arising out of, any claim for a right to damages by the Eligible Individual against the third party, his insurance carrier, guarantor or other indemnitor, or by reason of uninsured or under-insured motorist coverage of the Eligible Individual, or any other source of third party recovery. The agreement will require all Eligible Individuals to prosecute the claim for damages diligently; to give priority to the reimbursement of the Fund in the allocation of the proceeds of any recovery, to cooperate and assist the fund [sic] in obtaining reimbursement for the payments, to execute any documents necessary to secure reimbursement; and to refrain from any act or omission that might hinder such reimbursement, and may contain any other provision as the Fund may reasonably require.  (emphasis added).

In ruling that this language was sufficient to overcome the make whole rule under Barnes v. Independent Automobile Dealers, the seminal case on this issue in the Ninth Circuit, the Court held that “the provision, taken as a whole, plainly communicates [the Plan] intended its right to settlement proceeds … to be given first priority….  Accordingly, there is no need to resort the gap-filling make-whole doctrine to determine the priority that should be given to the lien.”

This case is important because it is the first decision within the Ninth Circuit – post-Barnes — to hold that priority language, without specifically disclaiming the make whole rule by name, is enough to warrant 100% recovery even where the plan language doesn’t include the language that many have always thought was required by Barnes.