Important Update for New York Clients

Medicare Set-Aside Blog on May 20, 2009
Posted by


please find and excellent case law summary by HPM&B regarding subrogation
claims in personal injury settlements:




Under the recent decision by the Court of Appeals in Fasso v. Doerr, 12 N.Y.3d
80, 903 N.E.2d 1167, 875 N.Y.S.2d 846 (2009), the defense bar must exercise
greater caution in negotiating settlements of personal injury actions because
the parties do not have an automatic right to extinguish the equitable
subrogation claim of a health insurer who paid all or part of the plaintiff’s
past medical expenses. If a tortfeasor settles with an injured party for less
than its total insurance coverage without obtaining a release from the health
insurer, it could be exposed to additional liability on the subrogation claim.
The New York Legislature is considering a bill that would close the so-called
“subrogation gap.”

In Fasso, plaintiff brought an action in Buffalo County, alleging that
defendant’s malpractice caused plaintiff to undergo two liver transplants. The
surgical and medical expenses, totaling $780,000, were paid by her health
insurance carrier, Independent Health Association Inc. (IHA). IHA made an
unopposed motion to intervene in order to pursue recovery of those expenses
from defendant Dr. Doerr, which was granted. IHA asserted a claim for equitable
subrogation. The equitable subrogation doctrine allows an insurer to stand in
the shoes of the plaintiff and collect from a tortfeasor sums the insurer
expended under its policy.

After the trial began, the injured plaintiff and the defendant physician agreed
to settle the case for a total sum of $900,000. They also agreed that the
defendant physician did not admit wrongdoing and that the subrogation cause of
action by IHA was extinguished under the “made whole” rule because the injured
plaintiff settled for less than her actual damages. The trial court approved
the settlement and dismissed IHA’s subrogation claim.

The Court of Appeals reinstated the subrogation claim and remanded the case for
further proceedings, rejecting the argument that this claim was extinguished by
the settlement. The Court held that it is only when the injured party’s
recovery by settlement or verdict is greater than the wrongdoer’s available
insurance coverage and assets that the insurer is barred from sharing in the
settlement payment or recovery. Because there was $1.1 million in coverage
remaining under the defendant’s $2 million malpractice policy following the
$900,000 settlement, this provided a potential source of recovery for IHA.

Fasso was decided in a unique procedural posture because neither party opposed
IHA’s motion to intervene in the proceedings. Indeed, the Court of Appeals
invited the Legislature to consider whether it is good policy to allow health
insurers to intervene and assert equitable subrogation claims in personal
injury actions. It observed that “participation by insurers in settlement
negotiations creates conflicts of interest with plaintiffs, who may wish to
accept settlements that do not allocate sufficient monies to cover all or part
of the medical expenses, and discourages or prevents settlements since insurers
will be inclined to object to anything less than full recovery of their
expenditures.” Indeed, the New York Legislature is considering a bill that
would amend CPLR 4545 to address this issue, providing that “[e]xcept where
there is a statutory lien or statutory subrogation right, no defendant entering
into such settlement shall be subject to a claim for reimbursement by any
person who supplied the collateral source payments.” S.2393; A.2875 (for full
text, visit

While the ramifications of Fasso and the pending legislation are still unclear,
a settling defendant must be aware of expenses borne by a health insurer. If a
settlement is for less than the defendant’s available insurance coverage and
less than the full value of the injury, the defendant still may need to contend
with a subrogation claim. It should consider opposing the health insurer’s
motion to intervene as a subrogee or be prepared to include the subrogee in
settlement negotiations.



posted with permission of:

Heidell Pittoni Murphy & Bach LLP

99 Park

, NY 10016




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