Insured Pockets Money Rightfully Owed to Insurance Plan

Subrogation clauses require an insured to reimburse a group health insurance plan for paid medical expenses if the insured later sues and recovers money in a lawsuit. These clauses often end up in court, and those court decisions are frequently topics of discussion at MSEC’s benefits update conferences.

The Supreme Court recently heard a subrogation clause case, Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan (U.S. 2016). 

As a result of injuries suffered in a car accident, group health insurance paid Robert Montanile $120,000 for his medical expenses. Montanile then sued the driver who caused his injuries and obtained a $500,000 settlement. The Board of Trustees (the Board) for Montanile’s group health plan asked Montanile to reimburse the plan the $120,000 it had already paid him out of the $500,000 settlement. Montanile’s attorney refused to pay and informed the Board he would give Mr. Montanile his settlement money unless the Board objected. The Board did not object.

Montanile received the settlement money and promptly spent it.

About six months later, the Board sued Montanile for the $120,000. Montanile argued he did not have to pay the $120,000, because that sum could only come out of the settlement dollars, which he had already spent. The Supreme Court agreed!

The Supreme Court explained that subrogation clauses are part of a legal doctrine called “equitable relief.” Equitable relief can only be obtained from the specific dollars one claims are his. In other words, the Board could only obtain the $120,000 from Montanile’s insurance settlement (that Montanile had spent) and not Montanile’s own money.

Per the Court’s explanation, the Board should have objected to Montanile’s attorney paying the settlement to Montanile. The settlement would then have been placed on hold until the Board received its due from the settlement in accordance with equitable relief. The rest of the settlement money would then be paid to Montanile, who could spend it any way he wanted to.