When it comes to ERISA and subrogation claims, the subtleties of ERISA may lead to presumptions. That key is to carefully read exactly what the plan/policy says. Presumptions may cause an overlooking of rights.

ERISA plans for long term disability and health insurance notoriously contain subrogation provisions which claw back money for the plan out of other recoveries. This is common, but more than a few clients have been very angered to find out that the “extra money” paid for higher limits of uninsured or underinsured (UIM) coverage results in a recovery that goes to another insurance company instead of covering the insured's damages.  

For example, let's say you have UIM coverage for $100,000, and you are injured in an auto accident incurring $100,000 worth of medical bills.  The tortfeasor only has $25,000 in liability insurance. You will likely make a UIM claim for $100,000. At the same time if you are also receiving long term disability insurance benefits due to a disability arising out of the same accident, the long term disability carrier may seek to be reimbursed if there is plan language giving that right.

In order to have a subrogation right in the 11^th Circuit, the carrier will need to deny the “make whole” rule in the plan document. Further if the insurance carrier wishes to disregard attorney's fees paid to effectuate the recovery it will need to disclaim the common fund rule in the plan document. However, just because both rules are disclaimed, can you presume the fight is over? What if there is also another way to avoid the disappointment and unfairness of subrogation?

A recent case demonstrates that a careful reading of the policy may further protect your client's rights.  See, Gallen v. Liberty Life Assurance Co. of Bos., 8:22-cv-02031-WLH-JDE (C.D. Cal. Nov. 12, 2024). The case arose under California law which required that insurance companies offer policies providing UIM coverage to protect for harm suffered in an accident when an at fault driver doesn't have enough insurance coverage. Alabama law is similar.

Ms. Gallen was seriously injured in an accident and suffered a traumatic brain injury. She was covered by UIM coverage and long term disability (LTD) insurance offered by her employer.  Given she could no longer work, this LTD benefit was paid. During the course of resolving claims for the auto accident Ms. Gallen was to receive compensation for the uninsured motorist claim. The LTD insurer claimed the right to offset and receive long term disability benefits already paid.  The matter could not be worked out and so suit was filed.

The plan however stated that the disability insurer subrogation right only arose as to all amounts paid "on behalf of" the tortfeasor. The court, in applying a common sense and plain language interpretation, found that the language did not demonstrate that UIM funds are paid on behalf of a tortfeasor. While it is true that the funds are only paid when the tortfeasor does not have adequate insurance to cover damages, they are paid on behalf of the insured who wishes to be protected against underinsured motorists. The subrogation interest was denied!  A nice win crafted on careful reading of the plan document!