The Office of General Counsel issued the following opinion on April 3, 2003, representing the position of the New York State Insurance Department.
Re: Tort Recovery, Recoupment of Payment by Health Maintenance Organization
1. What is the source of New Yorks "anti-subrogation" rule?
2. May a Health Maintenance Organization (HMO) recoup from a tort recovery or settlement received by its subscriber amounts it has paid on behalf of the subscriber?
1. New Yorks "anti-subrogation" rule is found in common law and is not statutorily based.
2. The right of an HMO to recoup payments it has made to insureds from tort recoveries, either by way of verdict or settlements, depends upon the contract it has made with its subscriber and is not governed by the New York Insurance Law (McKinney 2000).
A Subscriber, who is covered under a contract issued by an HMO, is involved in an accident and sustains a physical injury. Subscriber commences a tort action against the individual who is responsible for her injuries. During the pendency of the action, the HMO makes payment of medical bills incurred by Subscriber. After either a judgment in favor of Subscriber or settlement of the action, the HMO seeks to recoup amounts it has expended on Subscribers behalf.
Subrogation is based on the equitable notion that a wrongdoer should be held accountable for all damages it has caused, including those covered by insurance. Thus, where subrogation is invoked, an insurer having paid the losses of its insured, is placed in the position of its insured, so that it may recover from the third party responsible for the loss. Winkelmann v. Excelsior Insurance Company, 85 N.Y. 2d 577, 626 N.Y.S. 2d 994 (1995). Courts have further held that it would be inequitable to allow the insurer to proceed against its own insured. ELRAC v. Ward, 96 N.Y. 2d 58, 724 N.Y.S. 2d 692 (2001).
In order to prevent double recoveries, New York Civil Practice Law and Rules 4545(c) (McKinney 1992) provides, in pertinent part:
Actions for personal injury, injury to property or wrongful death. In any action brought to recover damages for personal injury, . . . where the plaintiff seeks to recover for the cost of medical care . . . or other economic loss, evidence shall be admissible for consideration by the court to establish that any such past or future cost or expense was or will, with reasonable certainty, be replaced or indemnified, in whole or in part, from any collateral source such as insurance (except for life insurance) . . . . If the court finds that any such cost or expense was or will, with reasonable certainty, be replaced or indemnified from any collateral source, it shall reduce the amount of the award by such finding, minus an amount equal to the premiums paid by the plaintiff for such benefits for the two-year period immediately preceding the accrual of such action and minus an amount equal to the projected future cost to the plaintiff of maintaining such benefits. In order to find that any future cost or expense will, with reasonable certainty, be replaced or indemnified by the collateral source, the court must find that the plaintiff is legally entitled to the continued receipt of such collateral source, pursuant to a contract or otherwise enforceable agreement, subject only to the continued payment of a premium and such other financial obligations as may be required by such agreement
It is possible either that the jury will not find the existence of a collateral source or that the court where the action is tried will not be able to make the requisite finding, so that there would be no deduction of benefits paid or to be paid from the tort recovery. In addition, CPLR § 4545(c) does not affect settlements.
Because a tort settlement may not allocate amounts to past medical care, or plaintiffs may have a minimal amount allocated to past medical care, health insurers, in order to protect their interest, may desire to intervene in the underlying tort action. In Teichman v. Community Hospital of Western Suffolk, 87 N.Y. 2d 514, 640 N.Y.S. 2d 472 (1996), the State Court of Appeals held that a health insurer had, by the terms of its policy, neither a lien nor a right of subrogation, but allowed the health insurer to intervene:
Allowing [[the health insurer] to seek a refund of any medical expense payments included in the settlement both prevents a potential double recovery by plaintiffs and assures that tortfeasors, not ratepayers, will ultimately bear the expense
87 N.Y. 2d at 523, 640 N.Y.S. 2d at 476-77.
Contracts between HMOs and subscribers are subject to approval by this Department as if they were contracts of Health Service Corporations licensed pursuant to New York Insurance Law Article 43 (McKinney 2000 and 2003 Supplement). New York Public Health Law § 4406(1) (McKinney 2002).
This Department has permitted provisions in group health insurance policies and certificates which provide that the insurer succeeds to the insureds right of recovery against a third party tortfeasor to the extent of benefits paid by the insurer. Such language must also provide that the insurers right to proceed against the third party tortfeasor is independent of any right of action by the insured.
Further, this Department has allowed provisions in group health insurance policies and certificates whereby the insurer may recover from the insured amounts that were specifically identified in the judgment or settlement as those paid for health care services. This Department further permits provisions in group health insurance policies and certificates that obligate the insured to cooperate with an insurer which proceeds against the third part tortfeasor and penalizes the insured (by requiring him or her to repay benefits to the insurer) for failure to cooperate with the health insurer.
The Department has not allowed such provisions in individual health insurance policies and contracts.
Accordingly, whether an HMO may recover from tort awards and settlements amounts it has paid to an injured party is a matter of contract and common law and is not directly governed by the New York Insurance Law.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.