Following closely on the heels of an unfavorable decision, state legislators in Albany wasted no time embarking on a rescue mission to save New York’s anti-subrogation statute from ERISA preemption. McKinney’s G.O.L. §§ 5-101 and 5-335. The statute, originally enacted in 2009, was purportedly an attempt to protect parties to settlements of tort claims from “certain unwarranted lien, reimbursement, and subrogation claims.” See 2009 Sess. Laws of N.Y. Ch. 494. Based on the language of the original Act, “unwarranted” seems to have meant “any medical or disability subrogation of any kind whatsoever that the State has not personally created and can legally prohibit.” Faced with the breadth of New York’s restrictions on subrogation and reimbursement in Wurtz v. Rawlings Co., LLC, 933 F.Supp.2d 480 (2013), the Eastern District of New York held that the statutory ban was preempted by ERISA and not “saved” by the savings clause. Thus, the law is preempted for self-funded and insured ERISA plans alike.
The 2009 version of § 5-335, in effect until just weeks ago, provided generally that when a plaintiff settles a personal injury claim, it is “conclusively presumed” that the settlement does not include any compensation for medical or wage losses paid or payable by his “benefit provider,” except where there is a statutory right to reimbursement. Further, the plaintiff is deemed not to have acted in derogation of any “non-statutory” right of the benefit provider, nor violated the terms of any contract. The statute also protects third-party tortfeasors and their insurers from any subrogation claims that might otherwise survive the settlement. “Benefit provider,” as defined in § 5-101(4), included “any insurer, health maintenance organization, health benefit plan, preferred provider organization, employee benefit plan or other entity which provides for payment or reimbursement of health care expenses, health care services, disability payments, lost wage payments or any other benefits under a policy of insurance or contract with an individual or group.”
In February 2012, Meghan Wurtz and a number of other plan beneficiaries filed a class action against several insurers and subrogation agents alleging that the defendants had improperly enforced subrogation liens and reimbursement claims for benefits paid pursuant to various insured ERISA plans. Namely, the plaintiffs argued that § 5-335 precluded the plans’ subrogation claims and that the statute was not preempted by ERISA because it is a state law that “regulates insurance” under the savings clause. The Wurtz Court disagreed. First, the Court noted that § 5-335 is not specifically directed at entities engaged in insurance, explaining that the statute’s “restriction on an entity’s subrogation and reimbursement rights as to a beneficiary’s settlement with a third party will apply, regardless of whether the entity asserting such rights is an insurer, and regardless of whether the benefits at issue constitute insurance.” Id, 933 F.Supp.2d at 503 (E.D.N.Y. 2013). Ironically, even if the statute were not preempted, the Court reasoned that it would not bar insured plans’ reimbursement claims anyway, since they are statutorily authorized by ERISA § 1132(a)(3). Id. In further support of ERISA preemption, the Court reasoned that the statute did not substantially affect the risk pooling arrangement between the insurer and insured because the law “only applie[d] to a subset of benefit providers, specifically, those without a statutory right of reimbursement and who do not intervene in underlying third party actions in which the third party settle.” Id at 505; see also Kohl’s Dept. Stores v. Castelli, 2013 WL 4038723 (E.D.N.Y. Aug. 8, 2013) (following Wurtz).
Just over two months after publication of the Wurtz decision, New York legislators introduced bills in both the Assembly and Senate to revise §§ 5-101 and 5-335. The bills were expressly designed to circumvent Wurtz and make sure that the new law would fall under ERISA’s savings clause so that it could better serve its original purpose of undercutting the subrogation rights of insured benefit plans. See 2013 NY A.B. 7828 and 2013 NY S.B. 5715. The final version was enacted and took effect on November 13, 2013 and applies retroactively to settlements entered on or after November 12, 2009. 2013 Sess. Law News of N.Y. Ch. 516 (A. 7828-A).
The term “benefit provider” has been artfully replaced with “insurer,” with the former definition being passed on to its successor with limited redaction. The new legislative target is defined as “any insurance company or other entity which provides for payment or reimbursement of health care expenses, health care services, disability payments, lost wage payments or any other benefits under a policy of insurance or an insurance contract with an individual or group.” Section 5-101(4) (2013).
Additionally, the new § 5-103 refers to “persons” as opposed to “plaintiffs” or “parties,” presumably to establish that New York means to destroy otherwise legitimate subrogation claims on settlements entered prior to litigation, not just during.
The somewhat clunky references to “statutory” and “non-statutory” rights have also been removed, and a new subsection (c) has been added to bar application of the statute to Medicare, Medicaid, certain automobile, and workers’ compensation subrogation and reimbursement claims. Reimbursement claims brought under ERISA are notably absent.
By and large, the amendments to §§ 5-101 and 5-335 make up a forceful counteroffensive against the subrogation rights of insured ERISA plans. Whether the changes are adequate to “save” the statute, though, has yet to be seen. From a logical standpoint, the vast majority of amendments may be more superficial than material. Substituting terms to place “insurers” at center stage is certainly attention-grabbing, but it may not amount to much more than a semantic shell game. The new § 5-101(4) is exactly the same except that now, instead of a laundry list of conceivable subrogees, the term includes only “any insurance company or other entity.” Logically, that does little, if anything, to limit the scope of the previous law. Consolidating “statutory right” exceptions into a single, clearer subsection does little to overcome ERISA preemption because both Wurtz and Kohl’s clearly held that, even though a claim under ERISA was likely a “statutory right” under the old § 5-335, the question was moot because the statute was preempted anyway.
The figurative ink is still wet on New York’s amended anti-subrogation law so only time will tell what its effect on the subrogation industry will be. The new statute undoubtedly poses a major obstacle to subrogation and reimbursement professionals. This is a clear legislative effort to specifically save a statute from ERISA preemption and the courts may throw them the lifeline they are looking for. Or, they may not. Simply put, legislators often get it wrong. Unless and until the courts hold otherwise, the subrogation world has an opportunity to send New York lawmakers back to the drawing board.
If you should have any questions regarding this article or subrogation in general, please contact Tim Mentkowski at [email protected].