For some plaintiffs, healthcare coverage is an I.O.U.

This week, the United States Supreme Court in Sereboff v. Mid Atlantic Medical Services, Inc., 2006 WL 1310754, ruled that an ERISA health insurance plan, may sue an injured party for reimbursement of medical expenses. This decision has sent shock waves through the legal community because it may have a chilling effect on plaintiffs’ cases. Sereboff allows an insurance company to recoup the amount of medical expenses they covered on behalf of the injured party. Consequently, an innocent individual who is the victim of an accident and successfully sues the party responsible for the accident may have to pay the insurance company for the treatment they received.

Under ERISA health plans, if a beneficiary sues and recovers from a third party, the insurance company is entitled to reimbursement. The ERISA Act allows an insurance company to sue for “appropriate equitable relief,” namely, the amount they extended to pay for the insured’s medical expenses. The significance of this decision is that it will greatly reduce a plaintiff’s ability to collect damages for their injury because the insurance company will hold a constructive lien on the judgment. For instance, if a plaintiff suffers catastrophic injuries at the hands of a doctor, and collects $500,000 through a medical malpractice suit, she will not be entitled to the whole amount. Under Sereboff, if the plaintiff received $490,000 in medical treatment, she would be left with a paltry $10,000. After legal fees and expenses, the plaintiff would likely collect $0.00. Interestingly, the cases cited by the Supreme Court involved judgment amounts that dwarf the amount of medical treatment expended by the insurance company so they have not encountered such cases.

Although cases like the one described above have not been reviewed by the courts, it is likely that such a scenario will occur. Hopefully, when the Supreme Court is presented with such facts, they will revisit the Sereboff decision and craft a more equitable rule that provides plaintiffs protection from their insurers.