Second Circuit Upholds New York Anti-Subrogation Law Preventing Insurers from “Double-Dipping”

Hach Rose Schirripa & Cheverie, LLP and Harfenist Kraut & Perlstein LLP have obtained a victory in an appeal filed for their plaintiff class, who had their claim dismissed by the trial court judge. The plaintiff class sought an injunction against health insurance company defendants who, in contravention of New York’s General Obligations Law §5-335 (“NY GOL § 5-335”), continued to assert liens against their health plan members’ litigation settlement proceeds. NY GOL § 5-335, enacted in 2009, prohibits “benefit providers,” such as health benefit plans and insurers, from contractually obtaining reimbursement from plan members’ personal injury, medical, or podiatric malpractice, and wrongful death claims’ settlement proceeds, for services provided through the health plan. The defendant health plans and collection agencies blatantly disregarded NY GOL § 5-335, asserting liens against plan members’ settlement proceeds even nearly two years after enactment of the statute.

The Second Circuit Court of Appeals agreed that plaintiffs’ claims under New York law were not preempted by the federal Employee Income and Retirement Security Act (“ERISA”); the district court’s decision was vacated and remanded Wurtz v. Rawlings Co., No. 13-1695-cv, for further proceedings consistent with the appellate court’s ruling.

The Second Circuit’s decision is significant because it upholds NY GOL § 5-335, thus preventing benefit providers from collecting twice for services provided to members under the applicable plan: (1) through collecting premiums from members or their employers, and (2) through subrogation or reimbursement clauses in the plan contract which have allowed insurers to also recover, up to the entire amount, the cost of services provided from the settlement proceeds obtained through litigation pursued by plan members regarding the underlying injury. The New York statute protects settlement proceeds from collection, save for statutory reimbursement rights, in order to promote the expedition of litigation through settlements, a cost-efficient and time-saving mechanism, in order to allow members timely compensation for their injuries and to relieve the burden on the court system. The decision is retroactive, dating back to the statute’s enactment in 2009.

In addition, the Plaintiff Class also seeks monetary damages from the Defendants for violation of New York’s deceptive acts and practices law – General Business Law Section 349 – and for unjust enrichment for all liens collected to date.

Hach Rose Schirripa & Cheverie, LLP and Harfenist Kraut & Perlstein LLP both specialize in complex class action and civil litigation. Our firms are committed to assisting plan members fight against unlawful medical liens and recovering liens already paid due to unlawful and fraudulent statements by benefit providers which misstate the law and intimidate their plan members.