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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 they honor the fine print in his policy and give it the litigation winnings. The Carillo family refused, and on Tuesday, 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 other federal appeals courts: 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. sounded skeptical of the arguments made by those challenging the insurance companies — and exasperated by the federal law at issue, the Employee Retirement Income Security Act. Birch asked why a person in an accident should be paid twice — once by an insurance company and once by a personal injury suit. “She gets a double windfall,” Birch said of Deborah Parrott, who faces a similar claim from her health insurance plan. “What’s fair about that? What’s right about that?” Parrott’s attorney, Charles M. Cork III of Gambrell & Stolz in Macon, argued that ERISA was not intended to help health insurance plans obtain reimbursement, a tactic Congress didn’t anticipate when it passed the law. “Congress didn’t anticipate much in terms of ERISA,” Birch replied. “I think it’s lost any cognizable — ” he stopped himself. “ Never mind.” The cases drew amicus briefs from the State Bar of Georgia, the Georgia Trial Lawyers Association and the U.S. Department of Labor. The State Bar and GTLA opposed the reimbursement requirement, while the Department of Labor supported it. WHEN TO REIMBURSE 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, which regulates private companies’ health plans. Tuesday’s cases are part of the latest round of ERISA litigation that followed a 2002 U.S. Supreme Court ruling, Great-West Life v. Knudson, 534 U.S. 204. In Great-West, the court held 5-4 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. Circuit courts have split over 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. Other circuits, including the 4th, 7th and 10th, have approved the strategy. The State Bar’s amicus brief said its members were concerned that insurance companies would try to freeze attorneys’ financial accounts if a plaintiff’s settlement is deposited. Freezing accounts could prevent an attorney from paying clients — or shut down an attorney’s practice, according to the brief filed by the bar. The GTLA brief said that allowing subrogation in these cases would compromise the “principle of full compensation for those injured by the wrongdoing of others.” EXPECTED TO PAY At Tuesday’s oral arguments, 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 what would happen if a plaintiff’s spouse incurred $100,000 in medical expenses, then died. If a plaintiff received money from a suit for wrongful death and loss of consortium, he asked, could a health insurance company request reimbursement? 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. “They pay for this insurance,” Wilson said, “and the plan is responsible for satisfying the medical expenses, notwithstanding the expenses they obtain from [a lawsuit].” Lawrence said that reimbursement helps other people in the health plan to afford insurance. Losing reimbursement means lost cost savings in the health plan, he added, and lost cost savings forces thousands of people onto the rolls of the uninsured. The arguments led to hypothetical questions about what should happen to insurers’ reimbursement rights 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. Money spent in a casino slot machine, Lawrence suggested, probably could not be recovered. Birch had some fun with the casino example. With a straight face, he asked the Department of Labor’s lawyer, Elizabeth Hopkins, what should happen if a plaintiff spent the money in a casino slot machine — and won. “I imagine that those winnings,” she said, “would be lost, somewhat later.” Unanimously, the panel decided that was reason for a laugh.

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