Understanding Indemnity Subrogation And Contribution

By

John G. Breakfield

Coleman, Chambers & Rogers, LLP

The following article is from a continuing education presentation made by attorney John Breakfield of our firm to a paralegal seminar regarding Georgia Personal Injury Law. This article is intended for educational purposes only and is not intended to be, nor should it in any manner be construed to be, the giving of legal advice.

INDEMNITY

Indemnity: When one guarantees against any loss that another might suffer.

For example: When two parties settle a case, the plaintiff usually agrees to pay any claims that arise out of the settlement and hold the insurance company harmless. (i.e. medical providers with liens that sue the insurance company or their insured.)

Bohannon v. S. Ry. Co. , 97 Ga. App. 849 (1958): "indemnity" is defined as "the obligation or duty resting on one person to make good any loss or damage another has incurred or may incur by acting at his request or for his benefit."
Coleman v. B-H Transfer Co. , 290 Ga. App. 503 (2008): Plaintiff truck driver was injured and sued his trucking company. The Court of Appeals upheld the trial court’s granting of summary judgment to the Defendant company based on an unambiguous release and indemnity agreement between the company and the injured driver, which absolved it from any liability and made it impossible for the injured driver to obtain a judgment against the transfer company.

Additionally, the Court of Appeals found that the trial court had erred by not granting summary judgment to the company's insurer on the same grounds.

CONTRIBUTION

Contribution: When multiple parties are jointly liable for injury to a third party and one party pays more than their “fair share”, that party seeks contribution for the others that are also responsible.

For example: Three cars (BWM, Pinto & Yugo) run into Plaintiff. Plaintiff sues the driver of the BWM and not the other two. BMW driver settles with Plaintiff by paying $12,000.00. BWM driver then sues via contribution to get Yugo and Pinto to pay $4,000.00 each to BWM.

§ 51-12-32 Right of contribution among joint trespassers; effect of settlement

(a) contribution among several trespassers may be enforced just as if an action had been brought against them jointly. Without the necessity of being charged by action or judgment

(b) If judgment is entered jointly against several trespassers and is paid off by one of them, the others shall be liable to him for contribution.

(c) right of indemnity shall not be lost or prejudiced by compromise and settlement of a claim

§ 51-12-33. Reduction and apportionment of award or bar of recovery according to percentage of fault of parties and nonparties

(a) action is brought against one or more persons for injury shall determine the percentage of fault of the plaintiff
and the judge shall reduce the amount of damages by percentage of fault.

(b) after a reduction of damages

apportion its award of damages among the persons who are liable according to the percentage of fault of each person

shall be the liability of each person against whom they are awarded

shall not be subject to any right of contribution.

(c) the trier of fact shall consider the fault of all persons or entities who contributed to the alleged injury
whether the person or entity was, or could have been, named as a party to the suit.

(d)(1) Negligence or fault of a nonparty shall be considered if the plaintiff entered into a settlement agreement with the nonparty


(f)(1) percentages of fault of nonparties shall be used only in the determination of the percentage of fault of named parties.

(2) Where fault is assessed shall not subject any nonparty to liability.

SOL: 20 years (See § 9-3-22 and Krasaeath v. Parker, 212 Ga. App. 525 (1994).)

SUBROGATION

Subrogation: When one assumes the legal rights of a person for whom a legal obligation has been paid.

For Example: Plaintiff has $100,000.00 in damages and Defendant has $0.00 in insurance, but Plaintiff has $100,000.00 in UM coverage. UM carrier pays Plaintiff $100,000. Defendant wins the lottery two years later and UM carrier sues Defendant under subrogation for Defendant to pay the UM carrier what it paid to Plaintiff due to Defendant’s negligence.

§ 33-7-11 (f) an insurer paying a claim under the endorsement or provisions required by subsection (a) of this Code section shall be subrogated to the rights of the insured to whom the claim was paid against the person causing such injury

SOL: 20 years (See § 9-3-22 .)

REIMBURSEMENT

Reimbursement:
(Subrogation Against the Defendant, which is Actually Against the Plaintiff)

29 U.S.C. § 1001-1461-ERISA

29 U.S.C. § 1132-enforcement provision

Two Types of Healthcare Reimbursement-State and Federal (ERISA)

Health insurance generally falls into two general categories: those regulated by state law and those regulated by federal law. The injured party that is covered by a healthcare policy regulated by the State of Georgia, will generally have more rights regarding reimbursement than a person covered by a federal (ERISA) plan.

Georgia Law

If Plaintiff’s health insurance is through an insurance company that is regulated by Georgia state law (as opposed to federal law) then reimbursement is regulated by Georgia Statute § 33-24-56.1:

the benefit provider for the person injured may require reimbursement from the injured party of benefits it has paid on account of the injury, up to the amount allocated to those categories of damages in the settlement documents or judgment, if:

The amount of the recovery exceeds the sum of all economic and noneconomic losses incurred as a result of the injury, exclusive of losses for which reimbursement may be sought under this Code section; and The amount of the reimbursement claim is reduced by the pro rata amount of the attorney's fees and expenses of litigation incurred by the injured party in bringing the claim.

In is extremely important to note that Georgia law establishes the public policy that an insurance company can only be reimbursed if the injured party is "made whole" or is “completely compensated”. Therefore, under Georgia law if Plaintiff is not 'made whole' (as determined by a judge), then the insurance company cannot take away any portion of your jury award or settlement. (See Davis v. Kaiser Found. Health Plan of Ga., Inc., 271 Ga. 508 (1999).)

For example: If Plaintiff is injured to the tune of $50,000.00 total damages as determined by a judge, and there is only $25,000.00 that could be recovered from the Defendant, Plaintiff has not been 'made whole' since his actual damages exceed the money he received as a settlement or award. Therefore, in this example, the health insurance company would not be entitled to receive any reimbursement from the injured party.

§ 33-24-56.1 (e) -Benefit provider cannot go after tortfeasor

§ 33-24-56.1 (f) -Benefit provider not to be included on a settlement check

-No setoff or withholding of other insurance in an attempt
to get reimbursement

§ 33-24-56.1 (g) -Notice of claim to benefit provider before settlement
-No less than 10 days prior to settlement notify benefit provider

§ 33-24-56.1 (h) -Benefit provider on clock to provide actual notice of claim back to plaintiff.

§ 33-24-56.1 (i) -If no response back within those 10 days, then no valid claim against plaintiff for reimbursement.

*Does not apply to Medicare, Medicaid, various federal liens, workers’ comp or ERISA*

Federal Law (ERISA)

Federal Law controls insurance policies that are created by and regulated under the Employee Retirement Income Security Act of 1974 (ERISA). Generally, an ERISA plan is an employer or group of employers that have a common fund to pay for medical expenses of their employees. The employers can actually run the fund, but usually hire insurance companies to run it for them. The ERISA plan for most purposes (except the notable reimbursement issue) acts very similar to traditional insurance.

Under federal law, recently upheld by the United States Supreme Court in Sereboff v. Mid Atl. Med. Servs., 126 S. Ct. 1869 (U.S. 2006), an ERISA insurance plan, if it has the proper language in its plan, is entitled to first priority over an injured party in regards to a settlement or award.

Unfortunately, if the plan's policy language is written pursuant to ERISA law, then ERISA law does not recognize that an injured party should be 'made whole' or ‘completely compensated’ before the insurance company is allowed to take money from an injured party's settlement or jury award. Regardless of the hardship or the inequity, the ERISA plan is the first to be paid. (See Cagle v. Bruner, 112 F.3d 1510 (11th Cir. 1997).)

For example: An injured party is involved in a tragic collision that paralyzes her, the Defendant has $500,000.00 in insurance and assets and the medical expenses are $500,000.00. Under ERISA, how much does the injured party get for being paralyzed and how much does the ERISA plan get? Well, if the ERISA plan has followed the law's requirements for the plan's language, they could take $500,000.00 and leave the injured party with nothing.

What to do?

The first thing is to determine whether the client has state or ERISA regulated insurance. Next, find out whether the client wants to fight the insurance company on reimbursement or not. (This is always the client's decision.) If the client wants to try to maximize the percentage of recovery and has an ERISA plan, then look at the language of the ERISA plan. When looking at the plan, the attorney should make sure that the written language of the plan is actually in compliance with ERISA law.

Important ERISA Cases

Cagle v. Bruner , 112 F.3d 1510 (11th Cir. 1997): ERISA plan can seek reimbursement only if appropriate language is in the plan. (Ex. First priority in right of recovery,
regardless of complete compensation, attorneys fees or anything else.)

Great-West Life & Annuity v. Knudson , 534 U.S. 204 (2002): The Supreme Court outlined that an ERISA plan’s right of reimbursement was in equity not in law and therefore, the plan must sue for restitution and not contract damages. Seeking money from the injured party was contract damages and a legal remedy, whereas an equitable action against specifically identifiable funds in the injured party’s possession was one in equity. Important to note that the funds in Knudson were in a special needs trust (i.e. arguably not in Knudson’s possession.)

As a result of Knudson, when an injured parties received a settlement they simply took the money and moved it around in bank accounts and investments so that it was no longer ‘specifically identifiable’ and tried to distance themselves so that it was no longer in their possession. (This case has been strongly limited by Sereboff below.)

***Sereboff v. Mid. Atlanta Medical*** , 547 U.S. 356 (2006): Settlement for $750,000.00 and the injured party gave zero to ERISA plan. During litigation, the injured party set aside and stipulated that if the ERISA plan won the litigation, $75,000.00 the money was theirs.

The Court found that the ERISA issue was an equitable lien by agreement (i.e. the agreement between the ERISA plan and the injured party) and not an equitable lien via restitution as in Knudson. Therefore, the ERISA plan could still go after funds not immediately in the possession of the injured party. The U.S. Supreme Court eliminated the strict ‘tracing’ requirements that had been used post- Knudson.

Popowski v. Parrott , 461 F.3d 1367 (11th Cir. 2006): basically applying Sereboff and outlining the test for the funds sought by the ERISA plan being in equity if:

  1. specifically identifiable,
  2. belong in good conscious to the plan and
  3. within the possession and control of the injured party.

Popowski v. Parrott , 2008 U.S. Dist. Lexis 71615 (2008) (Remand to the trial court from the 11th Circuit): Defendant (who was Plaintiff in the initial tort litigation) was sued by her ERISA plan. Defendant received $500,000.00 settlement, $150,000.00 in medical expenses paid by the plan. Part of the settlement, $125,000.00, was placed in an annuity.

The Court ruled the ERISA plan could go after the funds in the annuity and could bring in the annuity company and the injured party’s husband as a beneficiary of that annuity (and may go after the funds put in their joint account[?]). A constructive trust could be imposed on the assets of the funds that have been dissipated (i.e. home and cars if payments were made with the ERISA plan’s money[?]).

Diamond Crystal Brand, Inc. v. Wallace , 563 F. Supp. 2d 1349 (2008): An injured party’s estate and related finance defendants were sued by the injured party’s ERISA plan. Injured party’s estate reached a $900,000.00 settlement where $63,000.00 was allocated towards approximately $260,000.00 in medical expenses paid by the ERISA plan. The remaining was funds were allocated to the wrongful death claim compensation and held in trust by a trustee. The Court ruled that the Plan was entitled to its money, because the funds belonged to the plan in ‘good conscious’, were specifically identifiable and within the possession and control of Defendants.

The Court ruled that the settlement had ‘prejudiced the rights of the Plan’ and therefore, the settlement structure violated ERISA law.

Admin. Comm v. Merritt , 2003 U.S. Dist. LEXIS 24533 (2003): claim for restitution was not properly in equity because the plan fiduciary filed suit prior to settlement with the tortfeasor.

ERISA SOL: Probably Georgia’s SOL on written contracts, which is 6 years.

Treatment Waivers: So long as the plan does not unreasonably expand rights on the plan, an injured party can likely be made to sign an understanding that the ERISA plan gets reimbursed as a condition precedent to the ERISA plan paying for treatment. (See above: Cagle v. Bruner.)