Imagine that you are severely injured in an auto accident caused by a young inexperienced driver. As a result of this accident you incur over $66,000 in medical expenses. Fortunately your health insurance covers these bills. You slowly recover after months of therapy and multiple surgeries, but the injuries you suffered in the accident prevent you from ever working again. Now imagine that years later your health insurance company sues you for every dime it paid on your behalf. The reason: you received a small personal injury settlement for the devastating and life-altering injuries you suffered. Not only does the insurance company want every penny you received from the settlement, they also want $25,000 from you personally and they hired a high-powered, national law firm to go after you.
As insane as this sounds, it not only happened but a federal court in western Pennsylvania ruled in the insurance company's favor and ordered the permanently disabled accident victim to write a check to the insurance company for the $25,000. Cooler heads have seemed to prevail, and the U.S. Court of Appeals for the Third Circuit recently reversed this shocking decision. At issue is a complex but often misunderstood federal law known as ERISA. From a victim's advocate viewpoint ERISA stands for "Every-Right-Is-Swept-Away." Although most Americans have never heard of the ERISA law, it shouldn't surprise anyone to learn that it is a comprehensive law created by Congress that applies to just about everyone except those that work for the government. The ERISA law allows an insurer or its fiduciary to seek reimbursement from you for expenses that you incurred as a result of the negligence of another. In the scenario above, the victim incurred over $66,000 in medical bills because he was injured in an auto accident that wasn't his fault. The victim sued the other driver, but only received $10,000 because the other driver only carried minimal coverage. The victim, however, had $100,000 available to him under his own auto insurance policy because he had purchased underinsured motorists coverage. The victim recovered a total of $110,000, but after paying attorneys' fees and litigation costs ended up with a net recovery of less than $66,000. At no time during the course of his personal injury lawsuit did the victim's health insurance company place him on notice that it wanted its money back. Only after agreeing to a settlement did his insurer demand full payment for its medical bills. Since the net recovery was less than the total amount of the bills, the insurer had the audacity to demand repayment of the difference from the victim's own pocket to the tune of $25,000.
The painful irony is that the victim was only obligated to repay the medical bills because he chose to exercise his right to be compensated for the disabling injuries he suffered due to the negligence of another. While the health insurer and its attorneys was no doubt well aware of the limited auto insurance coverage available to the accident victim due to the low minimum coverage requirements in Pennsylvania, it chose to exercise its right to reimbursement under the ERISA law without any regard for the needs of the accident victim. Although the decision of the trial court was reversed, the case is not over. Its been sent back to the same court to try again. Hopefully the court better understands the extreme inequality of its prior decision this time around. Moreover, every person out there should be aware of the dangers of the ERISA law. The innocent accident victim in this case could be anyone. Do you think your insurance company would treat you any differently?
The decision at issue is US Airways, Inc., v. James E. McCutchen, et al., United States Court of Appeals for the Third Circuit, No. 10-3836, decided November 16, 2011.