CONTRACTUAL SUBROGATION IN TEXAS DAMAGE CLAIMS
It seems to some that whenever all the Republican Texas Supreme Court gets to choose between helping insurance companies bottom-line or helping Texans, the choice will be to help the insurance companies bottom line. Nothing illustrates that more clearly than Fortis Benefits v. Cantu, 234 S.W.3d 642, June 29, 2007.
June 29, 2007, all the Republican Texas Supreme Court in Fortis Benefits v. Cantu, 234 S.W.3d 642, took away from Texas victims of negligence, defective products, and negligent healthcare providers a valuable long existing right, and gave the insurance industry a real diamond, and the expense of the victims. One thing we can be sure of about the Texas Supreme Court is this: if it gets an opportunity to protect the insurance industry at the expense of tort victims, it will do so.
What is subrogation and why does what the court did in Fortis Benefits matter?
Subrogation is a term that describes a situation where an entity that has paid a for a tort victims medical bill for medical treatment that was necessitated by the tort (negligence, defective product, healthcare negligence), and the tort victim collects damages from the wrongdoer, the tort victim must repay the entity that paid for the medical bills.
Some subrogation is statutory, meaning the U.S. Congress or the Texas Legislature passed a law providing for subrogation. Examples of this type of subrogation are Medicare, Medicaid, Worker’s Compensation, and Veterans Administration, U.S. Military.
Another subrogation is created by contract. Most private health insurance plans contain language providing for subrogation. Some private insurance plans have the subrogation protected by Federal Statutory law known as ERISA.
The last kind of subrogation is known as common law subrogation, and it existed only in situations where the victim was made whole by the recovery of damages, and only then did the victim have to repay the entity that paid for the medical treatment.
Prior to the Fortis Benefits case, a private insurance company could only be entitled to contractual subrogation if the victim was made whole by the settlement or recovery. Most often the amount of money the victim ultimately recovered did not make the victim whole and the victim did not have to repay the insurance carrier. It has always been the law in Texas that third party tortfeasors (the negligent party or the seller of the defective product) could not benefit itself because the victim had entered into a contract with an insurance company to pay medical expenses. The victim was always held entitled to keep the benefit of his/her contract, and still. Insurance is a form of legal gambling. The insurance carrier is the casino-house, and the insured is a player at the table. The insurance carrier says to the insured: pay me money every month, and if you get injured, then I will pay your medical expenses. In a casino, if you hit a jackpot, or win a bet, you get your money, and no one can come along and claim a piece of it. In subrogation, the insurance company pays your medical expenses, and later finds out you collected money from the wrongdoer, the insurance company wants its money back. The way it used to work was like this: victim’s insurance carrier paid $200,000.00 for medical expenses. Victim sues negligent party and learns the negligent party only has $250,000.00 in insurance. The victim has $200,000 in past medical expense, $50,000.00 in past loss of earnings, and at least $300,000.00 in future damages. The negligent party pays the victim the full $250,000.00 policy limits. The victim was not made whole, and the victim does not have to pay his insurance carrier any of the $200,000.00 that insurance company paid because he/she was not made whole. The victim gets $250,000.00 and the insurance company gets $0.00 out of the recovery.
Here is what would happen now because of the Fortis Benefits case. The victim would have to repay his health insurance carrier $200,000 out of $250,000.00 recovery. The court stated: “We hold that the “made whole” doctrine must yield to Fortis’s right to contractual subrogation under the plain terms of the insurance policy.” The victim gets $50,000.00 and the insurance company gets $200,000.00 out of the recovery.
The Fortis Benefits case is directly affecting most victims because most victims have had their medical expenses paid by private insurance, that they bought and paid by their monthly premiums.
To further illustrate how unfair the Fortis Benefits case is we can look at the situation with Medicare and Medicaid. In the case of Medicare, the agency that administers Medicare has a statutory formula for reducing the subrogation on an equitable basis. In the case of Medicaid, the U.S. Supreme Court n Arkansas Department of Health and Human Services v. Ahlborn, 2006, a unanimous court limited the Medicaid subrogation recovery to a ratio the total subrogation amount was to the victim’s total damages. In that case the Medicaid subrogation amount was $215,645.30. The victim settled her case for $550,000.00. There was a stipulation that the $550,000.00 was just one-sixth of her damages. One-sixth of the $215,645.30 was determined to be $35,581.47. The court limited the Medicaid subrogation to one-sixth of the total subrogation.
The all-republican Texas Supreme Court has given private insurance companies huge money benefits that the unanimous United States Supreme Court refuses to give to governmental agencies. The all-republican Texas Supreme Court has taken away from Texas valuable rights to keep their compensatory damages, whereas the unanimous United States Supreme Court understands that fundamental fairness dictates an equitable sharing between the victim and the payor.
Bear in mind that in contractual subrogation, the victim paid good out-of-pocket money for the insurance. In the Medicaid situation, the medical expenses were paid by tax dollars. Go figure.
This attorney’s opinion, as to why the Fortis Benefits case is very significant, is it illustrates one more time the all Republican Texas Supreme Court putting the bottom line of insurance companies ahead of the longstanding rights of the citizens of Texas.