Federal Plans – Subrogation

Insurance lawyers understand subrogation policies.  Courthouse News Service published an article on April 18, 2017, that should be read.  It is titled, Justices Back Insurance Subrogation Policies.

Reinforcing insurance subrogation provisions, the U.S. Supreme Court was unanimous Tuesday that federal regulations clearly put state laws second to such policies.

The case stems from efforts by Missouri postal worker Jodie Nevils to keep the proceeds of his car-crash settlement out of the hands of the insurance company that already paid him $6,000.00.

Under the Federal Employees Health Benefits Act, which governs the insurance policies of federal employees like Nevils, insurance companies can pursue subrogation to recover money their policyholder might win against third parties.

But courts in Missouri, where Nevils lives, do not allow subrogation.

Though a trial judge rejected Nevils’ ensuing class action against Coventry Health Care of Missouri, the Missouri Supreme Court reversed, saying its anti-subrogation statute should supersede the federal law.

That court stood by this finding last year despite an order by the U.S. Supreme Court, which cited a new Office of Personnel Management rule that says subrogation provisions in insurance contracts should overrule state laws against them.

After hearing oral arguments this past March, the justices reversed for Coventry on Tuesday.

“We hold, contrary to the decision of the Missouri Supreme Court, that contractual subrogation and reimbursement prescriptions plainly ‘relate to … payments with respect to benefits,’” according to the lead opinion by Justice Ruth Bader Ginsburg.

“Therefore, by statutory instruction, they override state law barring subrogation and reimbursement,” she added.  “We further hold, again contrary to the Missouri Supreme Court, that the regime Congress enacted is compatible with the Supremacy Clause.  Section 8902(m)(1) itself, not the contracts OPM negotiates, triggers the federal preemption.  As Congress directed, where FEHBA contract terms ‘relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits),’ §8902(m)(1) ensures that those terms will be uniformly enforceable nationwide, free from state interference.”

Though the decision was unanimous, Justice Clarence Thomas also supplied a concurring opinion.

“A statute that confers on an executive agency the power to enter into contracts that pre-empt state law, such as the Federal Employee Health Benefits Act of 1959, 5 U.S.C. section 8902, might unlawfully delegate legislative power to the president insofar as the statute fails sufficiently to constrain the president’s contracting discretion,” Thomas wrote.

Since Nevils failed to make that argument, however, Thomas noted that the issue is best “decided, if at all, on remand.”

The court’s newest member, Justice Neil Gorsuch, did not participate in the consideration or decision of the case.

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