An insurer won recovery of health expenses paid from a member’s $255,000 settlement after said member refused to reimburse the insurer for medical payments it made. It did so in spite of an affidavit from the company plan administrator saying the insurer was not authorized to collect the funds from the member’s settlement proceeds. It marks a rare instance in which a plan administrator diverges from its third-party administrator.
In Humana Health Plan, v. Nguyen, 2014 WL 1775551 (S.D. Texas, May 2, 2014), a federal court enforced the subrogation claim after determining that the insurer was a plan fiduciary with standing to sue, and that plan language authorized the insurer to assert a lien over the proceeds, again, in spite of a plan administrator testifying to the contrary.
The Facts
In April 2012, plan participant Patrick Nguyen was injured in an auto accident and between April 2012 and April 2013, his insurer paid $274,608 on his medical expenses. He was covered by his employer’s (API) employee benefits plan, which was insured and administered by Humana.
He recovered $255,000 in damages from a third party in damages from his accident. Humana asked Nguyen to reimburse the insurer for the benefits paid on his behalf. Nguyen refused, and Humana sued to enforce the terms of an ERISA employee benefit plan, seeking to recover funds Nguyen had secured as damages.
The Parties’ Arguments
Humana said it was entitled to recovery because its 2009 and 2012 summary plan descriptions both clearly asserted its reimbursement rights. It also argued that Nguyen’s fiduciary breach claim must fail because he never argued that the insurer failed to pay a claim for benefits. Finally, he never proved that Humana would be unjustly enriched or that he was harmed by Humana.
It said Nguyen violated plan terms by refusing to pay back the plan.
Nguyen argued that Humana was pursuing a recovery that the plan administrator did not wish to pursue, and in so doing it was interfering with the plan administrator’s duties of acting exclusively in the interests of plan participants. He contended that Humana was not a fiduciary under the plan and lacked standing. He said the insurer needed permission from the plan administrator to pursue recovery. And he said Humana was enforcing the wrong plan document.
The SPDs were not valid, Nguyen contended, instead the insurer should have been following the reimbursement provision contained in the 2009 and 2011 “New Case Document.”
Fiduciary with Standing
Nguyen had argued that the management agreement between the plan administrator and Humana did not list Humana as a fiduciary but only as the plan manager. Relying on an affidavit by Plan Administrator Amy Manuel, Nguyen said Humana was not allowed to make a final determination about whether to pay, or to pursue reimbursement; it could only help research and investigate payments and recoveries once the plan administrator made that decision. Manuel also erroneously said Humana, the insurer, could not act in a way that was different from what she wanted, including initiating a lawsuit against a plan participant on behalf of the plan.
But its management agreement listed among Humana’s recovery duties:
Filing and prosecution of legal proceedings against any appropriate party for determination of liability and collection of any payments from which such appropriate party may be liable.
The court said where Manuel’s affidavit was at odds with the unambiguous terms of the management agreement, it would enforce the management agreement. Nguyen failed to find anything ambiguous in the agreement, and Manuel’s interpretations of the management agreement were legally incorrect and an abuse of discretion.
As a result, the court decided that Humana was a plan fiduciary with standing to claim reimbursement.
Unambiguous Recovery Right
The 2009 SPD (on which Humana relied – and which was identical to the 2012 SPD) asserted the plan’s rights of recovery of benefits paid from participant settlements and awards. The SPD language (in part) reads as follows:
This Plan shall be repaid the full amount of the covered expenses it pays from any amount received from others for the bodily injuries or losses which necessitated such covered expenses. Without limitation, “amounts received from others” specifically includes, but is not limited to, liability insurance, worker’s compensation, uninsured motorists, underinsured motorists, “no-fault” and automobile med-pay payments or recovery from any identifiable fund regardless of whether the beneficiary was made whole.
This Plan’s right to repayment is, and shall be, prior and superior to the right of any other person or entity, including the beneficiary.
The right to recover amounts from others for the injuries or losses which necessitate covered expenses is jointly owned by this Plan and the beneficiary. This Plan is subrogated to the beneficiary’s rights to that extent.
Objection Was Immaterial
Nguyen said the SPDs were not the operating document, but instead that the “2011 New Case Document” was in fact the valid plan document. The court agreed. However, that document had identical language on subrogation and reimbursement, allowing the plan to “stand in the shoes of the covered person and collect money from the responsible appropriate party.” The case document, like the SPD, established that the plan’s right to the settlement funds was superior to the beneficiary’s.
The sole difference between the two documents was that the new case document prohibited recoveries that would have come from a separate insurance policy in the plan participant’s own name. But that was not the case; the recovery was from a third party who was responsible, and the new case document allows recoveries from that kind of settlement.
The term “responsible appropriate party” was not defined in the plan, but the court gave it a meaning that accorded with the SPD, which did define the term as including “amounts received from others” including,” liability insurance, worker’s compensation, uninsured motorists, underinsured motorists, “no-fault” and automobile med-pay payments or recovery from any identifiable fund.”
Nguyen was under an agreement before he received any settlement, establishing the plan’s superior entitlement to the settlement funds. Therefore, plan terms established a valid lien for Humana on the settlement proceeds.
No Fiduciary Breach
Nguyen contended that Humana violated its fiduciary duty by ignoring the plan administrator and working in Humana’s sole interest to recover his $255,000 settlement fund for itself, calling that “unjust enrichment.”
Ngyuen demanded a remedy beyond just plan benefits (which would not be authorized under Section 1132(a)(1), given the facts), but something to correct the unjust enrichment (which could be sought under Section 1132(a)(3)).
The court rejected this, holding that relief under Section 1132(a)(3) would have required Humana to have engaged in some form of misrepresentation, and Nguyen produced no evidence that the plan or Humana misrepresented plan terms to him. Nor did Humana misapply or misinterpret plan terms, because, the court held, Humana had authority to interpret and apply the plan.
Therefore, the court rejected arguments that Humana breached its fiduciary duty. It also denied Nguyen’s request for extended discovery in an effort to build that case. Instead, it ordered Nguyen to remit to Humana all funds recovered in connection with his accident, up to $274,608.