ERISA Subrogation Is Not Always A Slam Dunk For The Health Plan

by MikeRosenbaum on November 30, 2009

If an ERISA based plan is not self-funded, the plan is subject to state insurance regulation.  Statutory limitations on subrogation and lien rights of health plans and auto insurance policies can be considered insurance regulations that are not subject to preemption.  See FMC Corp v. Holliday, 498 U.S. 52 (1990).

Even in the self-funded setting, all is not hopeless.  In the case of Providence Health Plan of Oregon v. Carol Simnitt, The District Court in Oregon ruled in 2009 that even though Providence Health Plan was self-funded in this particular case, it was not entitled to either lien recovery or subrogation recovery for its medical expenses, incurred in a third-party motor vehicle accident, because the plan had not specifically excluded the “Make Whole Doctrine.”  Providence Health Plan had argued that the plan excluded the Make Whole Doctrine with the following language:

“By accepting membership in the Plan, you make an agreement with us – if you receive settlement for an illness or injury, you must pay us back for the cost of your treatment.”  Id page 15.

The court concluded that the above language  was not sufficient to disavow the Make Whole Doctrine and, therefore, applied the Doctrine in this case.

The victim in this case also argued that the Oregon statutory limitations set forth in ORS 742.534, ORS 742.536, and ORS 742.538 limited the recovery of the ERISA based plan as an insurance regulation.  Because the court found that this particular plan was self-funded, it was not subject to those statutes.  In so ruling, however, the court agreed with the victim that:

“Oregon insurance statutes outline three methods by which a plan can seek reimbursement of medical expenses caused by an automobile accident…Each of these methods of recovery is mutually exclusive and sets the upper limit to the amount of reimbursement that health plan can seek.”  Id page 5 & 6.

Finally, the court also addressed the question of whether subrogation in this case was appropriate under ERISA.  See 29 U.S.C. 1132(a)(3).  The victim in this case argued that it would not be equitable or appropriate for the plaintiff to gut the settlement by requiring repayment in full of its medical bills citing Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006).  The court there ordered a pro rata reduction based on equitable principles.  That was a case which arose in the Medicaid setting.  Arguably the same equitable notion should be applied in the ERISA setting.  The court agreed the Ahlborn logic should apply in the ERISA setting, noting:

“If a jury decides that defendant has not been made whole and that plaintiff is not entitled to reimbursement, a ruling on this issue will be unnecessary.  If a jury decides that plaintiff is entitled to a portion of defendant’s recovery, this court will then determine whether the award is ‘appropriate’ given the Supreme Court’s decision in Ahlborn.”  Id at page 21.

See the Opinion and Order on reimbursement.

Subsequent to the decision in this case, the victim’s attorney submitted a cost bill asking the court to award attorney fees.  The court did so.  The court awarded prevailing fees in the amount of $41,595.  You can view the Order Granting Attorney Fees.

Punitive Damages Are Alive And Well In Oregon

by MikeRosenbaum on April 22, 2009

Punitive damages are determined by juries in Oregon.  Despite recent efforts in some states to limit the scope of punitive damages available to litigants in court cases, the Oregon Courts have consistently allowed large punitive damage awards, if the jury has evidence to conclude that the conduct was sufficiently reprehensible.  In this regard, the Oregon Courts give great deference to the jury’s determination of what is appropriate.  They will not independently overrule the jury because they have come to a different conclusion about what is appropriate.  Although the evidence in support of punitive damages must be clear and convincing, the standard of proof “relates how a jury weighs the evidence, not to how a trial court assesses the capability of the evidence to establish facts.”  See Faber v. Asplundh Tree Expert, 106 Or App 601, 606, 810 P2d 384, rev den, 312 Or 80 (1991).  Also see Bolt v. Influence, Inc. 333 Or 572, 578 n 2, 43 P3d 425 (2002).

In the case of Williams v. Philip Morris, 340 Or 35, 127 P3d 1165 (2006).  This was a case in which the plaintiff was a smoker who died of lung cancer.  His widow sued the defendants for wrongful death.  In following the directions of the United States Supreme Court, and in applying the Oregon standard on punitive damages, the Court concluded that the punitive damage award was consistent with Oregon law and due process under the 14th Amendment to the United States Constitution.  The Court reviewed evidence of the decedents’ reliance upon the representations of the defendant regarding the safety of cigarette use and evidence of similar conduct directed against other parties throughout the country, in examining the award of punitive damages.  Given the reprehensible nature of the conduct, the Court felt that the jury had sufficient evidence to award the full measure of punitive damages set forth in the verdict.  Philip Morris asked the United States Supreme Court to reduce the Oregon jury award for punitive damages.  In April, 2009 the United States Supreme Court let stand a $79.5 million punitive damage award.  The underlying damages were $800,000 in non-economic damages, and $21,485 in economic damages.  In this case, punitive damages were 79 times non-economic damages and economic damages combined.

In Groth v. Hyundai Precision, 209 Or App 781, 149 P3d 333 (2006), the Oregon Court allowed a jury award of $8.3 million dollars in the face of an underlying economic damage award of $1.9 million and $500,000 non-economic damages.  In this case, a machinist was killed operating a Hyundai V5 vertical industrial lathe.  There was evidence from which the jury could conclude that the defendant’s knew it was foreseeable that pieces of metal could come loose from inside the lathe, during the machining process, and with enough force to penetrate a retaining door.  The jury further concluded that the defendants also knew that operators were expected to stand in front of the window on the retaining door.

In the case of Schwarz v. Philip Morris, Inc, 206 Or App 20, 135 P3d 409 (2006), an Oregon jury awarded $150 million in punitive damages in the face of a compensatory damage award of $168,000.  Plaintiff argued that the manufacture and sale of low tar cigarettes did not meet the consumer expectation test in Oregon.  In other words, the allegation was that the product was defective and dangerous to an extent beyond that which an ordinary consumer would have expected.  The jury agreed and awarded punitive damages.  The case was remanded by the Oregon Supreme Court on the issue of punitive damages only, because the jury may have been confused about whether it could to punish the defendant for its acts in other states.  The Court was careful to note that, while an Oregon jury is not entitled to punish the defendant for harm caused out of state, the jury is allowed to consider defendant’s out of state conduct on the issue of reprehensibility and deliberateness.  See Estate of Michelle Schwarz v. Phillip Morris, Inc., 348 Or 442, 235 P3d 668 (2010).

Finally, two recent cases illustrate further the willingness of Oregon courts to uphold punitive damage awards by the jury, even in the face of constitutional challenges.  On the issues of the amount of punitive damages that may be allowed in Oregon, the Court in Hamlin v. Hampton Lumbar Mills, Inc., 349 Or 526, _____P2d_____ (2011) held that the single digit ratio between punitive damages and compensatory damages may be exceeded when the compensatory damages are small or insubstantial.  In this case, the Court found constitutional an award of $175,000 in punitive damages when the compensatory damage was merely $6,000 (a ratio of almost 30:1).

Similarly, the Oregon Supreme Court in the case of Strawn v. Farmers, 350 Or 336, ____ P3d ____(2011), and upon reconsideration 350 Or 521, ____P3d____(2011), allowed a $8,000,000 punitive damage award in the face of a $900,000 compensatory damage award, in connection with Farmers Insurance system wide reduction of medical expenses (PIP) in the auto setting (a ratio of almost 9:1 in a larger case).

Updates To The Site

by Aaron on April 4, 2009

We have recently updated all pages on our website.  Please be sure to read the updated bios and information about our practice.

New Website

by MikeRosenbaum on November 18, 2008

This is the new website for Michael Rosenbaum’s litigation practice in Portland, Oregon. If a viewer has any question or a topic that they would like to see addressed, please contact the office.