Auto agents who sell coordinated no-fault benefits to clients
who already have ERISA health insurance may be putting those
clients at great risk.
The risk is that a client who is injured in an auto accident
could be left without compensation for pain and suffering.
The reason is that, under current law, when ERISA and coordinated
no-fault benefits co-exist, the ERISA provider can
recover the money it paid toward an insured’s medical bills from
the insured’s tort recovery and the no-fault provider will not
reimburse the insured.
For example, if an auto worker with ERISA health insurance
and coordinated no-fault benefits is badly injured in a car accident
and gets a significant pain and suffering verdict or settlement,
his ERISA provider can recoup money it paid toward medical
bills, but the insured can’t recover the money from the nofault
provider.
Not only will people be left without compensation, but many
more may be without legal representation at all as attorneys
realize there may be nothing left to recover.
The case that made this possible is Dunn v. DAIIE, issued by
the Michigan Court of Appeals in December 2002.
Dunn has shattered law that has existed in Michigan for the
past 15 years.
In Great Lakes American Life v. Citizens, for example, the
Court of Appeals indicated that, not only does the no-fault act prevent a no-fault insurer from pursuing reimbursement
from an insured’s tort recovery, but it
also generally prevents a primary insurer from
doing the same when the insured has elected to
coordinate no-fault coverage. Although the ruling
did not address the issue in the context of
ERISA, it did lay out the general rule regarding
recovery from a tort claim.
However, in FMC Corp. v. Holliday, the U.S.
Supreme Court did reach the ERISA issue, finding
that state law cannot prevent a self-funded
ERISA plan from seeking subrogation from an
insured’s tort recovery for benefits it provided
on behalf of the insured. In other words, Michigan’s
no-fault act will not apply where the primary
coverage is provided by an ERISA plan.
Also significant is the Michigan Supreme
Court’s ruling in Sibley v. DAIIE. There, the high
court explained that, where a federally regulated
plan, like ERISA, does obtain subrogation from
the insured, the insured’s no-fault provider must
indemnify the insured.
Ten years later, the Michigan Court of Appeals
applied the reasoning from Sibley in Yerkovich
v. AAA. In that case, the court said that, where
an ERISA plan has an enforceable subrogation
claim against the insured’s tort recovery, the nofault
provider is still required to indemnify the
insured. However, the dissenting judge in the
case, Judge Stephen Markman who is now a sitting
justice on the Michigan Supreme Court, laid
the groundwork for the subsequent Dunn decision.
According to Markman’s dissent, Sibley
should not be extended where the insured has
elected coordinated no-fault coverage. The
Michigan Supreme Court eventually reversed
Yerkovich, but did not address Markman’s dissent,
simply ruling that the ERISA plan never
had an enforceable subrogation claim.
In any event, with these decisions, the groundwork was laid for Dunn.
In Dunn, an insured was injured in an
auto accident. His health insurance
provider paid his medical expenses, which
totaled almost $100,000.
At the time, the insured also had a no-fault
policy with a coordination of benefits clause.
The policy provided that “‘If the Declaration
Certificate shows “COORDINATED MEDICAL
BENEFITS,” it is agreed that all other medical
insurance or health care benefit plans available
to you or a resident relative are your
primary source of protection. We will pay
benefits for all reasonable charges incurred
for reasonably necessary products, services
(including chiropractic services) and accommodations
for the care, recovery or rehabilitation
of you or a resident relative, except to
the extent that (1) benefits are paid or
payable under your primary protection... .’”
The insured subsequently sued the other
driver, and the parties settled the matter.
The insured’s ERISA plan provider then
sought reimbursement of the medical benefits
it had paid on the insured’s behalf. The insured eventually repaid his health
insurance provider, then sued his no-fault
provider for reimbursement.
The Michigan Court of Appeals ruled in
favor of the no-fault provider, finding that
the insured was not entitled to recover the
funds under a “coordinated” no-fault policy.
Judge Hilda R. Gage explained that the
insured was not entitled to reimbursement
because he “elected to purchase coordinated
no-fault benefits in exchange for a
reduced premium.” Consumer advocates
and plaintiffs' attorneys responded that this
is an absurd result that leaves insureds
without recourse. The problem, they say, is
that many clients make no such voluntary
choice. In addition, many agents fail to
explain the difference between coordinated
and uncoordinated policies and the impact
that existing health insurance, especially
ERISA plans, will have on them. And moreover,
many insurance companies in certain
areas of Michigan won't even offer uncoordinated
benefits. Nevertheless, the legal
landscape has now changed and thousands
of people may now be unable to recover
money damages for pain and suffering, no
matter how catastrophic their injuries.
Agents must be aware of the Dunn decision
in order to protect their clients.
To reiterate, if your client has ERISA
benefits, you should always advise them
of the risk of purchasing coordinated nofault
benefits.
An insured with both ERISA and coordinated
no-fault may end up recovering
nothing for their pain and suffering in the
event of an auto accident. They may also
be unable to secure legal assistance
because there may be nothing available to
recover.
Instead, uncoordinated or “full” coverage
is the safe move — a move that will
keep your client protected. Until then,
lawyers, ERISA carriers and no-fault
insurance companies all await final word
from the Michigan Supreme Court.
Stay tuned for additional developments
in the law that will help you continue to
offer the best possible service to those who
come to you for advice.
A quick review of the applicable law
every now and then will help those in the
insurance industry better serve their
clients and themselves.
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