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Updates on New York Law

July 31, 2014 – The Second Circuit Court of Appeals finds that New York, General Obligations Law, GOL § 5-335, is not preempted by ERISA as the law regulates insurance.

As we have previously written, here, in the last decade health insurers have, more than ever, pursued injured people for money they have recovered in personal injury claims.  This is known as subrogation.  Under New York law, GOL 5-335, a personal injury settlement "does not include any compensation for the cost of health care services" or other losses that "are obligated to be paid or reimbursed by a benefit provider," such as an insurer.  The statute goes on to say that health insurers have no "right of subrogation or reimbursement against any such settling party."

In February 2012, Meghan Wurtz and Mindy Burnovski (Wurtz) filed a class action suit in state court, claiming violations of this statute by the Rawlings Company, LLC; Oxford Health Plans (NY), Inc.; and UnitedHealth Group, Inc. (Rawlings).  These companies, among others, are hired by insurance carriers to attempt to subrogate on personal injury claims.  The case sought a declaration that Rawlings had no right to subrogate medical benefits of tort cases.  Rawlings removed the case to federal court and attempted to have it dismissed under §§ 502(a) and 514, the preemption provisions of ERISA.

The Second Circuit Court of Appeals, Walker, J., held that the district court was wrong in holding that GOL § 5-335 was not "saved" from preemption.  It went on to find that by its very terms the law was specifically directed at insurers and substantially affected risk pooling between insurers and insureds. Therefore, it regulated insurance – a function limited to states.  The appeals court went on to find that the claims at issue were based on a state law that regulated insurance and were not based on the terms of their ERISA plans.  As such, the state law did not expand the exclusive remedies provided by ERISA.  It also held that there was a legal duty arising from the state law which prevented Rawlings from seeking subrogation from settling parties that was not related to whatever Wurtz’s ERISA plan had provided about reimbursement.

The court found that GOL § 5-335, eliminating subrogation of non-self funded ERISA plans, was saved from preemption as a law that "regulates insurance."  The district court’s judgment was vacated and the case was remanded.  Hopefully, this will put to rest, once and for all, the legitimacy of GOL § 5-335 and send the debt collectors packing.  To read the full opinion, please click here.

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2014 Updates on New York Law

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