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When a 2002 car crash killed Vicente Carillo’s wife and injured his son, the family’s health insurance paid the $126,000 medical bill. But after the Carillos obtained $125,000 in a personal injury suit, the insurer demanded that they honor the fine print in his policy and give it the litigation winnings. The Carillo family refused, and last week the 11th U.S. Circuit Court of Appeals wrestled with who should get the $125,000. In doing so, the three-judge panel confronted an issue that has divided the circuits: whether federal law permits health benefit plans to require reimbursement for medical bills paid to beneficiaries who collected money from related personal injury suits. The court heard two cases on the reimbursement issue, called subrogation: BlueCross v. Carillo, No. 05-13344, and Popowski v. Parrott, No. 05-10235. Judge Stanley F. Birch Jr. asked why a person in an accident should be paid twice-once by an insurer and once by a personal injury suit. “She gets a double windfall,” Birch said of Deborah Parrott, who faces a claim from her health insurance plan. Her attorney, Charles M. Cork III of Gambrell & Stolz in Macon, Ga., argued that the Employee Retirement Income Security Act (ERISA) was not intended to help health insurance plans obtain reimbursement. Many health plans contain clauses that require customers to repay medical bills with money from a personal injury suit. Courts have disagreed about whether, or how, health insurance companies can enforce these reimbursement clauses under ERISA. The 11th Circuit cases were triggered by a 2002 U.S. Supreme Court ruling, Great-West Life v. Knudson, 534 U.S. 204. In Great-West, the court held that ERISA does not allow an insurance company to collect reimbursement by seeking damages in a breach of contract suit against a customer who receives a personal injury settlement from a third party. However, Justice Antonin Scalia, writing for the majority, said that other legal devices may enable insurers to be reimbursed. Scalia said, “A plaintiff could seek restitution in equity, ordinarily in the form of a constructive trust or an equitable lien.” Benefit plans heeded Scalia’s suggestion and set off a new round of ERISA litigation. The circuits are split on the legality of the new strategy. By imposing constructive trusts or equitable liens, insurance companies don’t seek damages from customers. Instead, companies ask customers to return something to its rightful owner-in this case, a medical-bill payment to a health plan. The 6th and 9th circuits have ruled against collective trusts and equitable liens for reimbursement, saying they offer a new version of the same problem: seeking damages from customers for breach of contract. The 4th, 7th and 10th circuits have approved the strategy. During oral arguments last week, the attorney for BlueCross BlueShield, Thomas H. Lawrence of Lawrence & Russell in Memphis, Tenn., faced tough questioning from U.S. District Judge C. Ashley Royal, who was sitting with the 11th Circuit by designation. Royal asked if a health insurance company could request reimbursement from a plaintiff’s spouse who received money from a wrongful death suit. Yes, Lawrence said, as long as “the terms of the plan focused on the entire pot of money.” Judge Charles R. Wilson asked Lawrence why insurance customers shouldn’t expect health plans to pay their bills. Lawrence said that reimbursement helps other people in the health plan to afford insurance. The arguments led to hypothetical questions about insurers’ options if plaintiffs spent their settlement money. Lawrence said that health plans should recover money if it can be traced to a specific purchase, such as a car or house. However, money spent in a casino slot machine probably could not be recovered.

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