Insured and Tortfeasor Can’t Extinguish Health Insurer’s Subro Rights

Plaintiff (“P”) received medical services from doctor (“D”). She subsequently developed complications which required two liver transplants. Her medical bills totaled approximately $780,000 and were paid by her health insurer (“H”). P sued D for medical malpractice. H filed a motion to intervene in P’s lawsuit against D.[1] P and D did not oppose the motion, so the judge allowed H to take part in P’s litigation with D. On the second day of trial, P and D reached an agreement whereby D agreed to pay P $900,000 and P and D agreed that H’s claim was to be dismissed. P and D argued that, even though D had a $2 million policy limit, since P was not being paid the full amount of her damages and therefore had not been “made whole,” H’s claim had to be dismissed. The judge agreed, approved the settlement and dismissed H’s claim (over his objection).

Now, New York’s Court of Appeal reverses and revives H’s claim.[2] The Court’s decision begins by noting New York is indeed a “made whole” state: “If the sources of recovery ultimately available are inadequate to fully compensate the insured for its losses, then the insurer – who has been paid by the insured to assume the risk of loss – has no right to share in the proceeds of the insured’s recovery from the tortfeasor.” [3]

However, this doctrine shouldn’t have been used to terminate H’s right of subrogation. Here, P voluntarily settled for $900,000, leaving $1.1 million in D’s liability coverage. H’s claim cannot be extinguished merely because P allegedly accepted less than 100% recovery from D. Further, the Court noted, where a tortfeasor such as D knows that a subrogation claim exists, D and P cannot conspire to cut off H’s subrogation claim. The Court also urged the state legislature to consider amending New York’s collateral source rule to address the issue of whether health insurers should have the right to intervene in personal injury or wrongful death cases.

Bottom Line: Legislation is pending in New York’s Assembly which would extinguish certain health insurer’s subrogation rights. As a member of the National Association of Subrogation Professional’s (“NASP”) amicus committee, I am helping to monitor and oppose this legislation.

[1]  Intervention is “the procedure by which a third person, not originally a party to the suit, but claiming an interest in the subject matter, comes into the case, in order to protect his right or interpose his claim.” (Black’s Law Dictionary.) Under New York statute (CPLR 1013), a party may intervene when that party’s claim has a “common question of law or fact” as the claim in the pending action. The court may allow the intervention if it will not “unduly delay the determination of the action or prejudice the substantial rights of any party.”
[2] Fasso v. Doerr, et al., NY Court of Appeals No. 21, 4/24/09
[3]  Fasso at page 6, citing Winkelman v. Excelsior Ins. Co., 85 NY2d 577, 581 (1995).