1 OVERVIEW OF: N. Buckeye Edn. Council Grp. Hlth. Bene. Plan v. Lawson, 103 Ohio St.3d 188, 2004-Ohio-4886 Robert W. Kerpsack, Esq. ROBERT W. KERPSACK CO., L.P.A. 21 East State Street, Suite 300 Columbus, OH Telephone: (614) Facsimile: (614) October 19, 2004

2 LAWSON TOPICS: REVIEW OF LAWSON SYLLABUS LAW –NO MAKE-WHOLE RULE IN OHIO RE: SUBRO REVIEW OF OH SUBRO LAW AFTER LAWSON REVIEW OF CURRENT FEDERAL SUBRO LAW SUBRO MANAGEMENT AFTER LAWSON –ERISA v. NON-ERISA PLANS

3 LAWSON FACTS NON-ERISA PLAN (SELF-INSURED GOV’T EMPLOYER): –PLAN MUST BE “REIMBURSED” (FIRST PRIORITY) –PLAN IS “SUBROGATED” (STANDS IN SHOES) –NO PLAN PAYMENT UNTIL SUBRO/REIMBURS AGREEMENT SIGNED CERTIFIED QUESTION : IS A SUBROGATION AND REIMBURSEMENT CLAUSE WHICH ATTEMPTS TO GIVE AN INSURER CLAIM PRIORITY OVER THE INSURED’S CLAIM AGAINST A THIRD PARTY OR OTHER INSURER, REGARDLESS OF WHETHER THE INSURED HAS RECEIVED FULL COMPENSATION FOR HER INJURIES, AGAINST PUBLIC POLICY AND UNENFORCEABLE? ANSWER: NO

4 LAWSON SYLLABUS 1. A provider of health-insurance benefits and an insured who has been injured by an act of a third party may agree prior to payment of medical benefits that the insured will reimburse the insurer for any amounts later recovered from that third party, third party’s insurer, or any other person through settlement or satisfaction of judgment upon any claims arising from the third party’s act. A clear and unambiguous agreement so providing is not unenforceable as against public policy, irrespective of whether the settlement or judgment provides full compensation for the insured’s total damages. 2. A reimbursement agreement between an insured and a health- benefits provider clearly and unambiguously avoids the make-whole doctrine if the agreement establishes both (1) that the insurer has a right to a full or partial recovery of amounts paid by it on the insured’s behalf and (2) that the insurer will be accorded priority over the insured as to any funds recovered.

5 LAWSON DICTA AFFIRMANCE OF JAMES V. MICHIGAN MUT. INS. CO. (1985), 18 Ohio St.3d 386, 481 N.E.2d 272: The make-whole doctrine applies by default where an insurer’s subrogation/reimbursement is by contract, but the contract does not specify whether the insurer or the insured has priority to the recovered funds. ADOPTION OF STANDARD APPLIED IN COPELAND OAKS V. HAUPT (C.A.6, 2000), 209 F.3d 811: The make-whole doctrine is not applicable to a reimbursement agreement between an insured and a health-benefits provider that establishes both 1) that the insurer has a right to a full or partial recovery of amounts paid by it on the insured’s behalf and 2) that the insurer will be accorded priority over the insured as to any funds recovered.

6 LAWSON DICTA (con’t) LIMITATION OF SYLLABUS OF BLUE CROSS & BLUE SHIELD V. HRENKO (1995), 72 Ohio St.3d 120, 647 N.E.2d 1358: “Pursuant to the terms of an insurance contract, a health insurer that has paid medical benefits to its insured and has been subrogated to the rights of its insured may recover from the insured after the insured receives full compensation by way of settlement with the insured’s uninsured motorist carrier.” LAWSON HOLDING : “We reject the proposition that this [ Hrenko ] syllabus language should be construed as modifying our prior holdings.” Lawson, at ¶19

7 FEDERAL SUBROGATION LAW Great West Life & Annuity v. Knudson (2002),122 S.Ct.708: Employee Retirement Income Security Act (" ERISA ") of 1974 permits a self-funded health benefits plan to seek only equitable relief (i.e. constructive trust or equitable restitution), not legal relief (i.e. enforcement of contractual subrogation/reimbursement). Federal courts maintain exclusive jurisdiction over actions by self-insured ERISA Plan’s to recover money. See, also, Boerger v. Davis, Franklin App. No. 03AP- 805, 2004-Ohio-3882

8 NON-ERISA POLICY SUBRO MGT. IS IT AN ERISA PLAN OR NON-ERISA PLAN? –WHO IS PAYING THE BILLS? INSURANCE COMPANY = NON-ERISA, STATE LAW APPLIES SELF-FUNDED PLAN = ERISA, FEDERAL LAW APPLIES READ THE POLICY! (NOT JUST SUBRO SUMMARY) –DOES INSURER HAVE PRIORITY TO RECOVERED FUNDS SIGN REIMBURSEMENT AGREEMENT ONLY IF : –1) REQUIRED BY POLICY AND/OR 2) SUBJECT TO EXPRESS RESTRICTION THAT POLICY PROVISIONS AND/OR OH LAW PREVAIL OVER ANY CONFLICTS OR ADDITIONAL RIGHTS AND RESPONSIBILITIES ESTABLISHED BY REIMBURSEMENT AGREEMENT

9 NON-ERISA POLICY SUBRO MGT. (con’t) OFFER TO SETTLE NON-ERISA SUBROGATION CLAIM FOR PRO-RATA SHARE OF RECOVERY –NATIONAL SUBROGATION COLLECTORS ARE FREQUENTLY UNAWARE OF OHIO SUBRO LAW JOIN SUBROGATED INTEREST-HOLDER IN ACTION AGAINST TORTFEASOR/UM CARRIER AS PARTY-DEFENDANT, PER CIV. R. 19(A)(3) –FORCE SUBROGATED INTEREST-HOLDER (REAL PARTY IN INTEREST) TO PROVE ITS PRIMA FACIE CASE OF DAMAGES

10 ERISA SUBRO MANAGEMENT IS IT REALLY AN ERISA PLAN? –SELF-FUNDED EMPLOYER BENE. PLAN PAYING BILLS –SELF-FUNDED GOV’T/CHURCH PLANS NOT ERISA OFFER TO SETTLE ERISA SUBROGATED INTEREST FOR PENNIES ON THE DOLLAR –NATIONAL ERISA SUBROGATION COLLECTORS ARE TERRIFIED OF KNUDSON JOIN SUBROGATED INTEREST-HOLDER IN ACTION AGAINST TORTFEASOR/UM CARRIER AS PARTY- DEFENDANT, PER CIV. R. 19(A)(3) – MOVE TO DISMISS COUNTERCLAIM FOR SUBRO/REIMB, ARGUING STATE COURT HAS NO JURISDICTION

11 LIFE AFTER LAWSON MORE OF THE SAME! MOST HEALTH INSURANCE POLICIES/PLANS ALREADY INCLUDE CONTRACTUAL RIGHTS OF REIMBURSEMENT GIVING THE INSURER/PLAN FIRST PRIORITY TO RECOVERED FUNDS WE NEED TO CREATE A DIALOGUE WITH SUBROGATED INTEREST HOLDERS –DON’T JUST “LET THE SLEEPING DOGS LIE!”

12 LIFE AFTER LAWSON (con’t) UPCOMING OATL SEMINARS RE: LAWSON –Friday, November 12, 2004 (half-day) Holiday Inn Select, Strongsville (near Cleveland - at I-71 & Route 82) –Friday, November 19, 2004 (half-day) Holiday Inn West, Columbus (near Hilliard - at I-270 and Roberts Road)