The Changing Nature of Ohio's Subrogation Law

Sean: Hello and welcome to Civilly Speaking, OAJ’s monthly podcast on practical and timely legal issues. I am your host Sean Harris. Our guest today is Bob Wagoner, currently the secretary of OAJ. Bob has own firm in Columbus and our topic this morning is Ohio’s changing nature of Subrogation over the last several months and looking forward as well. Bob thanks very much for joining us here today.

Bob: Thanks for having me Sean.

Sean: So we had a subrogation statute enacted. What did it say?

Bob: The new subrogation statue was enacted back and became effective back in September of 2015 and what it did was implemented a pro rata subrogation process and pro rata means in proportion, so what we are doing here is trying to provide a proportional or proportionate distribution of any subrogation rights, a more fair or balanced payment back to a subrogated party than there otherwise would be. The law until the statue, and for some period of years in Ohio has been that if a subrogated party, a health insurer for instance, a private health insurer, pays someone’s medical bills and that person is injured and recovers his part of a settlement in a tort claim, then the health insurance company essentially gets every penny of what it paid.  In some cases that may be reasonable and fair, in many other cases it may not be. So this law that became effective in September 2015 says the amount of money that the subrogated party, private health insurer for example, is entitled to be repaid depends on whether or not the injured individual was fully compensated in their settlement. If they were fully compensated and they received 100% then the subrogated party is entitled to 100% of what they paid. If the injured party receives 50% from a settlement or jury verdict then the subrogated party in fairness consistent with pro rata receives also 50% of what they paid so their recovery will match the percentage of the injured individual’s recovery.

Sean:  Now you mentioned health insurance as an example of a subrogated party, which parties or does this apply to all subrogated liens or are there some liens that are subject to this statute and some that aren’t?

Bob: The latter, so there are some liens that are subject to this statute and there are some that are not. Let’s be clear and cover going over the basic language of the statute, what is covered. What liens are covered under the statute. As a general rule, and we’ll get to the exception or expectations here in a moment, as a general rule private insurance contracts that provide for subrogation rights are covered under this policy. So the statute itself is revised code section 23.23.44. I mention that it was enacted in September of 2015, it is important and worth noting that it was reenacted in March of 2016 under House Bill 259. The only reason I bring that up is if anybody listening to this is to search Ohio’s Pro Rata Subrogation what they’ll find is that it is under House Bill 259 and that it became enacted and effective in March 2016 and it hasn’t gone away since September 2015.

Sean: I notice that you said reenacted.

Bob: That’s right. So what happened was in September 2015, this law became enacted and then without getting too much into the weeds here what happened was to make sure that potential constitutional challenges that may have done away with this law to make sure those constitutional challenges would not threaten the existence of the law the legislators, I think wisely, came back and reenacted the law as part of a different bill in September 2015, so they didn’t change any of the wording, it is the exact same law as it has existed since September 2015, but because it has now been passed twice in effect in a separate new bill and no longer relying upon the state’s annual budget, which is how it originally passed, now it can exist without as much a threat, in my opinion, no threat to a constitutional challenge.  So that’s the background. Getting back to who it applies to, the purpose according to the language of the statute itself, the purpose was to apply to any person or entity that claims a right of subrogation, now that in and of itself, stop there, that in and of itself is pretty broad.  Here is where it narrows down, a right of subrogation by contract or common law against an injured party in a tort action. So it will apply to those pursuing subrogated interest, whose subrogated rights come out of a contract so think of private health insurance, those of you who have health insurance policies or representing people with health insurance policies that would apply.  Also, think of automobile policies, everybody who is driving has automobile insurance has an automobile policy that is a contract. So it would apply to those policies as well.   Who doesn’t it apply to?

Sean: It doesn’t mention a statutory right?

Bob: That is correct. That is the key. There are some important entities that regularly assert subrogated rights who have subrogated interest in claims with people who are injured whose subrogated rights come from a statute, not from a contract, not from a common law, which is a court, and those entities most commonly would be Medicare, that’s federal law by statute, that gives Medicare a subrogation right, Medicaid, that’s state law, again by statute, or the Bureau of Workers’ Compensation so that also is a state statutory law. If you have any of those three, matters involving Medicare, Medicaid or BWC and they have paid any portions of your bills, they have their own statutes which define how their subrogation rates apply. This particular statute that we are talking about, the Pro Rata statue, does not impact those subrogation rights.

Sean: So we have a statute that was in place for about 6 months, then gets reenacted and obviously dates matter here, and part of the reenactment dealt with, as I think you mentioned health insurance companies being able to go back and rate there policies. So we are sitting here today in July 2016 how does the statute apply today?

Bob: That is a good question. Here is how it applies today- how it applies is as to health insurance policies there was a freeze after being enacted in September 2015, it didn’t take 3 months for the legislature to place a statuary freeze, they passed another bill, and they put a freeze on the application of this pro rata law, they put a freeze on the bill and the law for one year. For the length of 2016, technically it started in late December of 15, but for the entire length of the calendar year of 2016 the Pro Rata law will not apply to health insurance policies.  The rationale behind that was that health insurance carries raised a real concern about having to deal with two things, having to deal with this new law Ohio Pro Rata statute, which otherwise would have been impacting immediately, and the federal law dealing with the Affordable Care Act, which is also known as Obama Care. The Affordable Care Act mandates that all of the health insurance companies throughout the country have to get their premiums approved a year in advance. So the health insurance carries, as to Ohio and raised concern about this fact, that they should at least have a year pause or freeze on the application of this Pro Rata statute until they can work out their numbers and come back ready to go with Pro Rata law in place. And that’s what happened. So currently today, and since late December of 2015, the Pro Rata law is on hold applying to health insurance policies that will change effectively January 1, 2017 when the Pro Rata law revised code 2323.44 comes back into effect, comes off the so called freeze and no applies to all of these policies.

Sean: Bob, what I hear you saying is right now the law is on hold as to health insurance companies. I didn’t hear you say that the law is on hold as to Medpay carriers.

Bob: You are listening closely and you are right because it doesn’t, there is no freeze or hold on the application of the Pro Rata law as to automobile policies. Automobile contracts will say the same thing, policy is a contract so for everyone out there with automobile insurance, if you need to use what is called medical payments coverage, which many people have, but not everyone has so make sure you are confirming with your own carrier and policies that if you have medical payments coverage, if you’re injured or involved in an accident and the medical payments coverage covers your medical bills up to the extent of your particular coverage amount your automobile insurance maybe or may have been paying some of your medical insurance bills using your medical payments coverage because they would have paid what’s called Medpay, medical payments coverage, your automobile insurance would then have a subrogation right by contract. This pro rata law applies to your automobile carries subrogation right and it’s been applying since September of 2015 and nothing has changed to that effect.  Nothing has affected, again no freeze or hold and that has been the case and continues to be the case.

Sean: As a practical matter, I could see this being extremely to beneficial especially in light of, I don’t know if you have seen this, Medpay policies typically I always thought of them being a thousand dollars, five thousand dollars, something like that. I have seen Medpay policies recently as much as one hundred thousand dollars and certainly in those situations where there might not be sufficient liability coverage, you can see getting the Medpay and essentially treating it as part of the overall settlement and not having to repay that be a huge benefit for your client.

Bob: An enormous benefit, in fact I would argue that as far as injured people in the state of Ohio, people who are injured in motor vehicle crashes, that this Pro Rata law is one of the most positive developments in insurance law in Ohio in decades for the reason you just touched on. The fact that it applies right now, and it has been applying for months, is something everyone needs to be aware of and be familiar with, and needs to make sure that they are acting on when the time comes to deal with a subrogated carrier.

Sean: Bob let me just ask you your experience- Have you had much push back from Medpay carriers when you raise this or do they go along with it? How have they been to deal with?

Bob: Thus far I have not and I am not going to speak for every lawyer. In speaking with some other lawyers they also have not. The push back hast not been does this apply, because again there can be, I expect it frankly and there may be some confusion about that because most insurance carries and even the automobile carries will likely be aware that there has been a hold or a freeze placed on this law and what I am anticipating and have expected is that they would have assumed that would have applied to them. That has not been my experience so far. The feedback I am getting from some other lawyers anecdotally that it has not been there experience. That is good news. That doesn’t mean it won’t come up, but that is good news. The issue will be when it comes to dealing with whether it is your auto carrier or whether it is a health insurer, I expect the issue with this law will always be what is the full value of the claim?

Sean: By definition if you are taking a Pro Rata approach that presumes that parties at least agree or acknowledge what the ultimate value would have otherwise been.

Bob: Exactly. If there is limited available insurance just to use a simple example. If there is only a hundred thousand dollars in coverage that sounds like a lot, but if the injuries are severe or catastrophic it may not be. That may be just a fraction of what someone in an injured persons claim is worth. If all there is from a liability insurer’s coverage to pay you is a hundred thousand dollars, what if the subrogation interest is more than that. What if it’s one hundred fifty to two hundred thousand dollars? What do you do? That is pretty straight forward because you are only recovering a hundred thousand straight forward to the extent that you are not getting in full recovery and there is not going to be dispute, but what about what is the value of that claim? A potential criticism of this Pro Rata law and something everybody needs to be aware of that’s listening is that the statute does not define, doesn’t address or even give any guidance on how to calculate or even what factors you should consider in determining the full value of a person’s claim. So what do we do about that? Well what we do, is to make sure that we as lawyers and individuals are presenting to their insurance companies clear documentation of the basis of their claim and the basis of their evaluation. It is something that may ultimately, if the parties, the insurance company, seeking subrogation rights, and the individual and or their lawyer whose trying to protect their claim and their recovery, if they can’t reach an agreement on what the value is, the full value then it’s likely they won’t reach an agreement on what the Pro Rata share of that value is. Many times I suspect that will be negotiated and that will be worked out, which is the part of the huge benefit of this law, but not always and when the parties can’t reach agreement, the law specifically provides for the parties to take it to the court, in essence.

Sean: And I am trying to envision what that would be. I think the statue counts as a dec action.

Bob: Yes, so a dec action is a declaratory relief action and the dec action is something that can be filed by either party, by either the insurance company or by the individual and their lawyer and the dec action, again the declaratory judgment action, is essentially a complaint for declaratory relief notifying the court, the proper court where the lawsuit, any lawsuit would be filed, notifying the court that you can’t reach an agreement on the fair value on what this subrogated party is owed and so the judge that is assigned to the case, the trial judge will have to decide it for you. In that complaint it starts a litigation process that is likely to be determined by motion practice, although it’s open to any judge to solicit testimony in person if they choose.

Sean: I mean I was wondering if this leads to a damages hearing.

Bob: I suspect, and because it is so early in the laws existence and because health insurance the application as to health insurance policies won’t be until January 1, 2017, I suspect that is where we will really see the activity and the evolution of this law how it is handled, not just by the parties involved, but by the court. Again, one could criticize the law for saying there is not enough direction or insight, and I don’t know if that is all bad frankly because I think between the parties and lawyers involved and between the legal process and the judges, there are a lot of bright people in this process, a lot of times that lack of specificity allows for both creativity and a lot of honest work toward getting to a proper result.

Sean: It’s an opportunity.

Bob: It’s an opportunity that again the key of our conversation here is that people need to be aware of it and they need to be familiar and educated on it so they can utilize that opportunity.

Sean: Now you mentioned health insurance as a subrogation arising out of contract, but of course not all health insurance policies are created equal, certainly some are subject to ERISA, which is a federal statute; do we have sense of how ERISA policies are handled under this statute?

Bob: Yes and no. So what we are fairly confident of, now again ERISA is to, be clear for all our listeners, ERISA is a federal statute passed in the 1970s that specifically governs benefit policies, examples include health insurance policies, life insurance policies, disability policies, these are benefit insurance policies, benefit policies. ERISA is a federal law, that when passed was meant to govern these benefit policies issued by employers to employees, to be clear not every policy issued by an employer to an employee is governed by ERISA. The policy specifically has to state so and it is easy enough to find out. So you just look into it. Lawyers can find that out very simply on the behalf of their clients. For those listening who may not be a lawyer that wants to find out what their policy says just request a copy from their insurer or through the employer and you can get that information. If the plan is governed by ERISA, because it is federally governed, federal law preempts state law. So the general rule of thumb is that any ERISA policy, even if it is a health insurance policy, would not be affected by this Ohio Pro Rata law.

Sean: And certainly most of them these days have written in language to opt out of the make whole doctrine.

Bob: Correct, that is exactly right. The insurance companies have been trued enough over the years because of other laws that have been passed to make sure they get first rights and complete rights in being reimbursed, alluding to one hundred percent recovery as we talked about earlier. That is correct. Now there is a possible expectation that I am going to raise here and I used the word necessarily possible because it is unclear, and again this will likely not be decided until sometime later by courts as the issue evolves before the courts. Although the general rule is safe to say that ERISA plans will not be governed by the Ohio Pro Rata law, there is some legal authority from federal courts, specifically from a court of appeals decision from 2014 from the U.S. United States Second Circuit court of appeals, case called Wurtz v. the Rawlings Company and what the Federal Court in Wurtz said was that if an ERISA plan is fully funded by insurance rather than self-funded, you have two options, you can either be a self-funded plan or a plan fully funded by insurance. If the ERISA plan is fully funded by insurance and not a self-funded plan, then that plan is governed by state law. Now following that logic, if you’ve got an ERISA policy issued by your employer that is fully funded by insurance according to the Wurtz case, then that should be governed by state law and therefore the logic would be that this Pro Rata law in Ohio would apply. And likewise, it is very clear from this decision that if it is a self-funded plan, an ERISA self-funded plan, then you have in my opinion no argument that this Pro Rata law applies, the federal law applies and therefore preempts our state law. I will caution, because I bring up that Wurtz case, it’s important anytime someone brings that case up, that there are other decisions from other circuit courts throughout the country that rule differently, that say differently.

Sean: Bob, what advice or thoughts on a practical level would you give to practitioners who would want to implement and use this statue in their practice to help their clients?

Bob: The advice would be very simple, one make sure you are using it in any case where you believe reasonably that your client did not experience a full recovery, use the statute, it’s the law of Ohio. Use it, first and for most. Secondly, as we have also talked about already because the law does not define what full value is, it emphasizes, it highlights the need for any lawyer practicing with subrogation to make sure they are documenting from the beginning of the case, as thoroughly and completely as they can, the basis for their evaluation of the case. So at some point in time, sooner or later in the case, the lawyer and the client, the injured client, will be reaching a conclusion on what they believe will be the reasonable value of what that claim is. Again, that may or may not be agreed to by the subrogated carrier. If it is agreed to, end of discussion. You know you reach the agreement and you apply the statute and the Pro Rata Law. If it’s not agreed to, they can’t reach an agreement on the numbers there are some suggestions on things we should be thinking about as lawyers to make sure we are protecting our clients for this potential dispute and those things would be documenting well the treatment bills, the economic damages, lost wages, out of pocket expenses and you do that by maintaining accurate treatment medical bills of the injured client, but also receipts, invoices, these sorts of things. Make sure that you have these documented. Other suggestions would be, where in other cases you may not need to, or if it wasn’t for this Pro Rata issue, and determining full value in some cases you need opinion reports from the treating doctors, other cases you don’t. I think the need for those opinion reports may be increased if it gets to a point where there is a dispute over the value. It is best that it is not just the lawyer or the injured client telling the court what the value is. That it’s others out there that are maybe perceived by the court in a more objective position to talk about the extent of the injury, potential permanency, prognosis and ongoing problems in the future and even if you don’t have future problems what kind of issues that person experienced and how severe that injury was over time. Those things are more important than ever, but also testimony. We talked about a damages hearing. The judge may want live testimony. Be prepared to have family members, friends, coworkers, employers, be prepared to have these people testify and if the judge isn’t looking for testimony be prepared to have these people sign affidavits that they are prepared to testify and the affidavit would be immiscible. Another thing I think is an interesting consideration as far as strategy goes is the idea of retaining a lawyer, who’s experienced in this kind of work, obviously not involved in your case, who may testify as an expert based upon their experience in determining the value of that particular case. I could foresee very easily a damages hearing or an affidavit submitted by both sides in a dispute over the value and what is the right pro rata repayment. I could foresee both sides, certainly one side, hiring a practicing lawyer that says I have nothing to do with this case, I have reviewed everything involved in the case, all the materials, the documents, the evidence and I believe the fair value is X and to use that as a basis and potentially have that lawyer testify to support that argument. Those are all things that we should be thinking about, things that certainly weren’t necessary before and maybe are less orthodox, but I think now we need to be thinking about those kinds of things because again the bottom line is protecting your client’s recovery and substantiating what is full value.

Sean: And I would imagine along with some of the typical points we would make about why we were not able to achieve full value whether that be insurance limits, comparable fault, etc.

Bob: That is exactly right. That’ll be critical- those things you just mentioned are absolutely spelled out clearly in this law. The reasons that someone would experience less than full value where Pro Rata applies in Ohio would include just what you said, comparative negligence, where the plaintiff injured person may have some share in fault, also insufficient insurance, not enough insurance available, we talked about that. Another example laid out in the law is if you have multiple defendants, joint and separate liability, but if you have multiple defendants and if there is any issue whether the person will truly experience a full recovery as a result of that, one of the big debates and issues for expected litigation on this law is language within the law that raises question about whether the Pro Rata law in Ohio can be applied to situations beyond the examples we just described. Whether it can be applied to situations where because things that happen commonly, say you have a lay witness, there is a liability dispute and you have a lay witness whose very strong and you are counting on that lay witness and you’re evaluating the case based upon that lay or independent witnesses testimony saying that your client didn’t do anything wrong and that lay witness either changes their story or disappears, now the value not just the strength of your case, but ultimately the value of that case has to change, can an example like that be used as the basis to apply to the Pro Rata law? The honest answer is we don’t know for sure, that is probably going to have to be decided by judges. I would certainly make the argument it should be, but those are things that we would have to consider all of those examples and many others the day to day aspect of a case and in many ways why a case and how a case can go from strong to very strong, to maybe less strong, those are all examples of reasons why a person would be accepting less than the full value of the claim.

Sean: Bob Wagoner, it’s good to see you, I don’t run into you often enough and we should do this again sometime. Thanks very much for joining us.

Bob: Thanks a lot, Sean. It has been a lot of fun.