ERISA Health Insurance and Coordinated No-Fault Benefits – Don’t Sell Your Clients Short
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 health insurance and coordinated No-Fault benefits co-exist, the ERISA health insurance 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 No-Fault 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 health insurance 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 health insurance 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 No-Fault 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 health insurance plan never had an enforceable subrogation claim.
In any event, with these decisions, the groundwork was laid for Dunn.
Not So Well ‘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 health insurance 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 health insurance benefits, you should always advise them of the risk of purchasing coordinated No-Fault benefits.
An insured with both ERISA health insurance 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.