Op/Ed on the problem of health insurance subrogation

Judy Kostura, an Austin lawyer with a wealth of expertise in insurance subrogation matters, has a good op/ed in today’s Austin American-Statesman:

Why you should always read the fine print

Judy Kostura, LOCAL CONTRIBUTOR, Thursday, April 17, 2008

Wal-Mart’s recent efforts to deprive an employee of her injury settlement highlight an unfair advantage insurance companies enjoy in the legal arena. Unfortunately, the Wal-Mart example is not an isolated incident. The legal tactic Wal-Mart used against the policyholder has recently been endorsed by the Texas Supreme Court and is being used daily against injured Texans.

Deborah Shank, an employee who was covered under Wal-Mart’s group health plan, was catastrophically injured in a wreck caused by an 18-wheeler. Wal-Mart’s employee health policy paid the medical expenses and the Shank family looked to the justice system to hold the trucking company accountable. A settlement from the trucking company was put in a trust account to help fund the round-the-clock care that Shank’s severe brain injury requires.

Wal-Mart attempted to raid the trust account to recover the money it spent, relying on a subrogation clause in the health policy fine print. Wal-Mart backed off on its demand only after being vilified in the court of public opinion.

You never heard of subrogation? Look closely at your health insurance policy. After the pages promising benefits in exchange for your premiums, you’ll find a section demanding reimbursement from you if you are hurt because of someone else’s negligence.

Texas has allowed insurance companies to include subrogation clauses for years, but the insurers were reimbursed only after the injured policyholder was paid for lost wages, scarring, future medical expenses, pain and other damages. Putting the policyholder first is known as the “made whole” doctrine and required courts to interpret the fine print fairly. Allow me to use a real Austin example.

For privacy, let’s call this client “Mary.” One morning, Mary kissed her toddler son goodbye as she dropped him off at day care on her way to work. Minutes later, a car crossed the center stripe and smashed into Mary head-on, breaking her neck and trapping her inside a burning vehicle. Brave bystanders pulled her from the flames. Rendered a quadriplegic by the wreck and burned on her arms and legs, Mary lost her job, was divorced by her husband and spent months in a hospital.

The other driver’s insurance company paid Mary $100,000, which was all of the coverage available. It was not much for a 34-year-old divorced mother who would never walk or work again, but it would help. Mary’s health insurer, armed with a subrogation clause, demanded that Mary hand over the entire proceeds of the settlement. Because of the “made whole” doctrine, the legal system required Mary’s health insurer to waive its subrogation interest, allowing her to keep the recovery.

Vanessa Cantu, like “Mary,” was rendered a quadriplegic in a collision and was able to secure a settlement from the insurance company of those responsible for her injuries. Her settlement didn’t compensate her fully for her terrible injury, but it helped. Cantu’s insurer, Fortis, sued her to recover the money it had paid under the policy. The case found its way to the Texas Supreme Court. The court sided with the insurance company and wrote an opinion that eviscerated the 92-year-old “made whole” doctrine in Texas law. Cantu was the first person hurt by this wrong-headed decision, but she won’t be the last. The Fortis v. Cantu case gives insurance companies a free rein to write deceptive and onerous health insurance policies, promising benefits on one page and taking them away in the fine print on another.

Insurance companies should be treated fairly, but they shouldn’t be able to jump to the front of the line when settlements are paid for serious injuries. Public outcry saved Shank in the Wal-Mart case. The Texas “made whole” doctrine saved Mary, but the Texas Supreme Court has taken that away.

We need a legislative solution. Congress and the Texas Legislature should enact a strong and unambiguous “made whole” doctrine that puts Texas families first.