Opinion
No. CV98 035 28 42
August 13, 2003
MEMORANDUM OF DECISION RE MOTION FOR COLLATERAL SOURCE REDUCTION OF VERDICT
The matter before this court is a post-verdict motion for collateral source reduction. The relevant facts are not in dispute. The plaintiff, Carol Gauntlett, was a tenant at premises owned by the defendants Dean and Helen Webb. On April 3, 1997, the plaintiff fell on the front steps of the defendants' premises. The plaintiff sued the defendants, and the case went to trial. At trial, there was evidence that the plaintiff had medical expenses totaling $4,045. On May 17, 2002, the jury returned a verdict in favor of the plaintiff, awarding her $3,750 in economic damages, and no noneconomic damages.
On May 23, 2002, the defendants filed a motion for a collateral source hearing and a reduction of the verdict. On June 4, 2002, New England Health Care Employees Welfare Fund (Welfare Fund) filed a motion to intervene as a party and a memorandum of law in opposition to the defendants' motion. Welfare Fund is federally regulated as an "employee welfare benefit plan" within the meaning of ERISA. Welfare Fund is a multiemployer, Taft-Hartley, jointly trusteed labor-management health and welfare benefit plan established pursuant to collective bargaining agreements between the sponsoring union and numerous health care employers. Welfare Fund is a self-insured, self-funded, nonprofit entity and benefits are paid out of a trust fund that is endowed solely by the contributions of participating employers. (Welfare Fund's Supplemental Memorandum, p1, n. 1) Welfare Fund paid $2,267.52 on the plaintiff's behalf in connection with this claim.
Practice Book § 16-35 provides in relevant part that a motion "for reduction of the verdict due to collateral source payments must be filed with the clerk within ten days after the day the verdict is accepted . . ." Here, although the defendants filed their motion six days after the verdict was accepted, the matter did not come to the court's attention until nearly a year later. None of the parties to this action have contested the timeliness of the defendants' motion or the timeliness of these proceedings. The court, therefore, treats the defendants' motion as timely.
At a hearing on May 21, 2003, the parties, by stipulation, agreed to vacate the court's judgment entered on May 17, 2002, and agreed to permit Welfare Fund to intervene in this action. The defendants are seeking a collateral source reduction for the amounts paid by Welfare Fund on the plaintiff's behalf. Welfare Fund objects on the grounds that its contributions do not qualify as a collateral source under Connecticut law because it has a right of subrogation under federal law.
General Statutes § 52-225a provides in relevant part: "In any civil action . . . wherein the claimant seeks to recover damages resulting from . . . personal injury . . . and wherein liability is determined by the trier of fact and damages are awarded to compensate the claimant, the court shall reduce the amount of such award which represents economic damages . . . except that there shall be no reduction for . . . a collateral source for which a right of subrogation exists . . ." "`Collateral sources' means any payments made to the claimant, or on his behalf, by or pursuant to: (1) Any health or sickness insurance, automobile accident insurance that provides health benefits, and any other similar insurance benefits, except life insurance benefits available to the claimant, whether purchased by him or provided by others; or (2) any contract or agreement of any group, organization, partnership or corporation to provide, pay for or reimburse the costs of hospital, medical, dental or other health care services." General Statutes § 52-225b.
"Unless otherwise provided by law, no insurer or any other person providing collateral source benefits as defined in section 52-225b shall be entitled to recover the amount of any such benefits from the defendant or any other person or entity as a result of any claim or action for damages for personal injury or wrongful death regardless of whether such claim or action is resolved by settlement or judgment." General Statutes § 52-225c.
The specific provision at issue here is § 52-225a, which provides that there is no collateral source reduction "for which a right of subrogation [exists]." "Subrogation is a concept that has its roots in doctrines of equity, and it is applied by operation of law." Wasko v. Manella, 74 Conn. App. 32, 35, 811 A.2d 727 (2002), cert. granted on other grounds, 262 Conn. 942, 815 A.2d 674 (2003). "In its simplest form, subrogation allows a party who has paid a debt to `step into the shoes' of another (usually the debtee) to assume his or her legal rights against a third party to prevent that party's unjust enrichment." Id. "The law has recognized two types of subrogation: conventional; and legal or equitable . . . Conventional subrogation can take effect only by agreement and has been said to be synonymous with assignment. It occurs where one having no interest or any relation to the matter pays the debt of another, and by agreement is entitled to the rights and securities of the creditor so paid . . . By contrast, [t]he right of [equitable] subrogation is not a matter of contract; it does not arise from any contractual relationship between the parties, but takes place as a matter of equity, with or without an agreement to that effect . . . The object of [equitable] subrogation is the prevention of injustice." (Citations omitted; internal quotation marks omitted.) Westchester Fire Ins. Co. v. Allstate Ins. Co., 236 Conn. 362, 370-71, 672 A.2d 939 (1996).
The Welfare Fund attached to its memorandum a copy of a document titled "Summary Plan Description" (summary plan), which evidences the agreement between the plaintiff and Welfare Fund. (Welfare Fund's Supplemental Memorandum, Exh. 1.) The summary plan includes a section titled "Reimbursement to The Fund (Subrogation Policy)." Under that heading, the summary plan provides in relevant part: "To the extent that benefits are provided or paid by the Fund, the Fund shall be automatically assigned the right of action against third parties in any situation in which benefits are paid on behalf of members or their dependents . . . If you bring a claim against any third party . . . benefits payable under this Plan must be included in the claim, and when the claim is settled you must reimburse the Fund for the benefits provided." (Emphasis added.) Id. Under these facts, Welfare Fund has conventional and/or equitable subrogation rights.
Welfare Fund's subrogation rights are thwarted, however, by Connecticut's anti-subrogation statute, § 52-225c, which provides that "no insurer or any other person providing collateral source benefits as defined in section 52-225b shall be entitled to recover the amount of any such benefits from the defendant . . ." According to § 52-225b, collateral source includes "any contract or agreement of any group, organization, partnership or corporation to provide, pay for or reimburse the costs of hospital, medical, dental or other health care services." Under §§ 52-225b and 52-225c, Welfare Fund does not qualify for a right of subrogation.
There is, however, an important exception to Connecticut's anti-subrogation statute: ERISA's "deemer clause," 29 U.S.C. § 1144 (b)(2)(B). The clause preempts state law, and provides that employee benefit plans covered by ERISA are not "deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies."
The defendants contend in their Memorandum of Law in Support of Collateral Source Hearing that the recent Supreme Court decision in Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 122 S.Ct. 2151, 153 L.Ed.2d 375 (2002), rev'd on other grounds, Kentucky Assn. of Health Plans v. Miller, 123 S.Ct. 1471, 155 L.Ed.2d 468 (2003) results in the conclusion that Welfare Fund has no right of subrogation or reimbursement under ERISA. Rush Prudential specifically held, however, that "ERISA's `deemer' clause provides an exception to its saving clause that prohibits States from regulating self-funded plans as insurers. See 29 U.S.C. § 1144 (b)(2)(B); FMC Corp. v. Holiday, 498 U.S. 52, 61 (1990). Therefore, [the Act in question] would not be `saved' as an insurance law to the extent it applied to self-funded plans." Id., 371 n. 6. In Rush Prudential, the Court specifically recognized that self-funded plans such as Welfare Fund fall under ERISA's deemer clause. Rush Prudential does not, therefore, support the defendants' contention.
In FMC Corp. v. Holliday, 498 U.S. 52, 65, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990), the United State Supreme Court held that Congress clearly intended "to exempt from direct state insurance regulation, ERISA employee benefit plans." In fact, according to Holliday, "Congress intended by ERISA to establish pension plan regulation as exclusively a federal concern . . . Our interpretation of the deemer clause makes clear that, if a plan is insured, a State may regulate it indirectly through regulation of its insurer and its insurer's insurance contracts; if the plan is uninsured, the State may not regulate it. As a result, employers will not face conflicting or inconsistent State and local regulation of employee benefit plans . . . A construction of the deemer clause that exempts employee benefit plans from only those state regulations that encroach upon core ERISA concerns or that apply to insurance as a business would be fraught with administrative difficulties, necessitating definition of core ERISA concerns and of what constitutes business activity. It would therefore undermine Congress' desire to avoid endless litigation over the validity of State action . . . and instead lead to employee benefit plans' expenditure of funds in such litigation." (Citations omitted; internal quotation marks omitted.) Id., 64-65.
Our Supreme Court has recognized that "[t]he preemption provision of ERISA . . . preempts any state law that may now or hereafter relate to any employee benefit plan." (Internal quotation marks omitted.) Napoletano v. ClGNA Healthcare of Connecticut, Inc., 238 Conn. 216, 233, 680 A.2d 127 (1996), cert. denied, 520 U.S. 1103, 117 S.Ct. 1106, 137 L.Ed.2d 308 (1997). Several Connecticut trial court opinions have also recognized ERISA preemption. See Sharron v. USAA Casualty Ins. Co., Superior Court, judicial district of Hartford/New Britain at New Britain, Docket No. CV 970478881 (August 18, 1998, Gaffney, J.) ( 22 Conn.L.Rptr. 586, 586) (reasoning that prohibition against subrogation under § 52-225c "may be preempted by" ERISA); Byron v. Safeco Ins. Co., Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 92 300082 (December 15, 1997, Thim, J.) ( 21 Conn.L.Rptr. 134, 135) (reasoning that prohibition in § 52-225c against subrogation may be preempted and nullified in some cases by ERISA); Connecticut Steel Corp. v. Weber, Superior Court, judicial district of New Haven at Meriden, Docket No. CV 95 0248595 (January 23, 1996, Gaffney, J.) ( 16 Conn.L.Rptr. 145, 146) (holding that plaintiff's reimbursement rights are exempt under ERISA from the bar that § 52-225c creates); Connecticut Steel Corp. v. Cordova, Superior Court, judicial district of New Haven at Meriden, Docket No. CV 95 0248271 (July 5, 1995, Gaffney, J.) (granting prejudgment remedy on grounds that ERISA preempts § 52-225c); Fuller v. First National Supermarkets, Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 02 79444 (March 24, 1994, Belinkie, J.) ( 11 Conn.L.Rptr. 285, 9 C.S.C.R. 397, 397) (holding that the Connecticut anti-subrogation law, § 52-225c, is preempted by ERISA).
Under ERISA's deemer clause, Welfare Fund has not provided "collateral source" assistance as defined by 52-225b. Consequently, Welfare Fund's contributions cannot be excluded from subrogation per § 52-225c. For the foregoing reasons, this court holds that Welfare Fund is not subject to Connecticut's anti-subrogation laws.
The defendants contend, nevertheless, that even if Welfare Fund's right of subrogation is not lost by operation of §§ 52-225b and 52-225c, it has no right of subrogation under federal law pursuant to the recent United State Supreme Court holding in Great-West Life Annuity Ins. Co. v. Knudson, 534 U.S. 204, 151 L.Ed.2d 635, 122 S.Ct. 708 (2002), because Welfare Fund's claim against the plaintiff lies in law only, not in equity, and is therefore prohibited under ERISA. In Great-West, the Health and Welfare Plan for Employees and Dependents of Earth Systems, Inc. (Plan) provided $411,157.11 in medical assistance on behalf of Janette Knudson, of which all but $75,000 was paid by the petitioner, Great West Life Annuity Insurance Co. (Great-West) pursuant to a "stop-loss" insurance agreement with the Plan. The terms of the agreement included a reimbursement provision, which provided that the Plan had the right to recover from Knudson any benefits it paid to her that she was entitled to recover from a third party. Id., 207. "Specifically, the Plan [had] `a first lien upon any recovery, whether by settlement, judgment or otherwise,' that the beneficiary receives from the third party, not to exceed `the amount of benefits paid [by the Plan] . . . [or] the amount received by the [beneficiary] for such medical treatment' . . . If the beneficiary recovers from a third party and fails to reimburse the Plan, `then he will be personally liable to [the Plan] . . . up to the amount of the first lien.' " Id. Knudson negotiated a $650,000 settlement related to her claim, and allotted $13,828.70 to satisfy Great-West's claim under the reimbursement provision of the plan. Great-West never cashed the check, but instead filed an action in federal court seeking reimbursement for the full $411,157.11.
The issue before the Court was whether 29 U.S.C. § 1132 (a)(3) authorized Great-West's action to enforce the reimbursement provision of the ERISA plan. In its opinion, the Court discussed the distinction between suits in law and suits in equity, holding that unlike suits in equity, suits in law are not authorized under 29 U.S.C. § 1132 (a)(3). Id., 221. In the majority opinion, Justice Scalia reasoned that Great-West essentially sought "to impose personal liability on [the Knudsons] for a contractual obligation to pay money — relief that was not typically available in equity." Id., 210. The Court concluded that because Great-West sought only legal remedies, its suit was not authorized by 29 U.S.C. § 1132 (a)(3).
29 U.S.C. § 1132 (a) provides in relevant part: "A civil action maybe brought —
(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan . . .
The defendants' theory that Great-West controls the outcome of this case is incorrect, because it neglects the fundamental principal of justiciability. "Because courts are established to resolve actual controversies, before a claimed controversy is entitled to a resolution on the merits it must be justiciable. Justiciability requires (1) that there be an actual controversy between or among the parties to the dispute . . . (2) that the interests of the parties be adverse . . . (3) that the matter in controversy be capable of being adjudicated by judicial power . . . and (4) that the determination of the controversy will result in practical relief to the complainant." (Internal quotation marks omitted.) Wallingford v. Dept. of Public Health, 262 Conn. 758, 766-67, 817 A.2d 644 (2003). "Justiciability and ripeness have been referred to by our Appellate Court as related doctrines . . . Although this court has not defined expressly the precise relationship between ripeness and justiciability, it is well settled in the federal courts that ripeness is one of several justiciability doctrines, including standing and mootness." (Citations omitted.) Milford Power Co. v. Alstom Power, Inc., 263 Conn. 616, 623, 822 A.2d 196 (2003). The rationale behind the ripeness requirement is "to prevent courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements." (Internal quotation marks omitted.) Id., 626. Moreover, a court "must be satisfied that the case before [it] does not present a hypothetical injury or a claim contingent upon some event that has not and indeed may never transpire." Id.
In this case, it is undisputed that Welfare Fund provided assistance to the plaintiff in the amount of $2,267.52. Under the summary plan, the plaintiff agreed to reimburse Welfare Fund from any award or settlement she received. (Welfare Fund's Supplemental Memorandum, Exh. 1.) There are two important facets of the summary plan. First, it provides that "[i]f you bring a claim against any third party . . . and . . . the claim is settled you must reimburse the fund for the benefits provided." The summary plan also provides that if a member or beneficiary fails to repay the fund, that member or beneficiary will be liable to Welfare Fund for all costs of collection including reasonable attorneys fees. Id. The terms of the summary plan put the onus on the member, here the plaintiff, to repay the fund from her judgment or settlement; and any future action by Welfare Fund will lie against the member for her failure to repay, not against the tortfeasor. Second, it is evident from the summary plan that Welfare Fund's rights against the plaintiff are contingent on the plaintiff first receiving her award before she is required to repay Welfare Fund.
In this case, on May 17, 2002, the plaintiff won a jury verdict in the amount of $3,750. That money has not been paid the plaintiff, however, because six days later, the defendants filed a motion for collateral source reduction, which stayed payment of the plaintiff's award pending a resolution of the motion. Under the terms of the summary plan, as they apply to these facts, it is evident that the plaintiff must first receive her award, and second use that money to reimburse Welfare Fund. Welfare Fund has not made a claim against the plaintiff for its contributions because the plaintiff has not yet become obligated to reimburse it. If the plaintiff were to ultimately fail to reimburse Welfare Fund after having received her award, Welfare Fund would have to pursue a cause of action against her. Welfare Fund would not, however, have a claim against the defendants.
The defendants claim that under Great-West, Welfare Fund has no right of subrogation because it has no legal remedy against the plaintiff. Great-West's legal/equitable remedy discussion, however, is premature and irrelevant under the facts of this case. In Great-West, unlike this case, Great-West was moving to enforce its reimbursement provision under 29 U.S.C. § 1132 (a)(3). Great-West was doing so because it thought that the beneficiary had failed to comply with the terms of the plan's reimbursement provision. Great-West Life Annuity Ins. Co. v. Knudson, supra, 534 U.S. 208. In this case, Welfare Fund has not made a claim against the plaintiff for reimbursement, and more importantly, it may never have to do so. Unlike Great-West, the issue of what legal or equitable recourse is available to Welfare Fund is unknown at this point. The defendants' theory that Welfare Fund only has a legal remedy is erroneously premised on the conclusion that the plaintiff will necessarily fail to reimburse Welfare Fund when she receives her award. If, however, the plaintiff reimburses Welfare Fund without issue, Welfare Fund would not have to make a claim against the plaintiff, and the issue of whether Welfare Fund can pursue its action in law or equity would be moot. As such, the plaintiff's theoretical claims against Welfare Fund, contingent on an event that has not yet transpired, and indeed might never transpire, is not justiciable. Milford Power Co. v. Alstom Power, Inc., supra, 263 Conn. 627.
According to Great-West,
a plaintiff could seek restitution in equity, ordinarily in the form of a constructive trust or an equitable lien, where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant's possession . . . But where the property [sought to be recovered] or its proceeds have been dissipated so that no product remains, [the plaintiff's] claim is only that of a general creditor, and the plaintiff cannot enforce a constructive trust of or an equitable lien upon other property of the [defendant] . . . Thus, for restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession.
(Citations omitted; emphasis added; internal quotation marks omitted.) Great-West Life Annuity Ins. Co. v. Knudson, supra, 534 U.S. 213-14. According to the defendants, Welfare Fund only has a cause of action in law, because it seeks to impose personal liability on the plaintiff for a contractual obligation to pay money. Moreover, they argue that Welfare Fund cannot enforce its right of subrogation because the plaintiff holds no funds belonging to Welfare Fund. Welfare Fund counters that it has an equitable right of recovery against the plaintiff by way of constructive trust or equitable lien. For reasons discussed herein, this court need not decide the issue of whether Welfare Fund has a cause of action available in equity, as that issue is not ripe for adjudication at this time.
In FMC Corp. v. Holliday, supra, 498 U.S. 65, the Supreme Court made it clear that Congress intended for ERISA welfare plans, such as the one at issue in this case, to preempt state anti-subrogation laws. Welfare Fund correctly points out that nowhere in Great-West does the Court hold, or even imply, that it is overruling FMC Corp. v. Holliday. In fact, Great-West does not even so much as mention Holliday. The issue before this court is whether the defendants' claim for collateral source reduction is preempted by state law. Great-West did not discuss this issue. In fact, the Court specifically noted that it was expressing "no opinion" as to whether an action asserting state-law claims would be pre-empted by ERISA. Great-West v. Knudson, supra, 534 U.S. 220. Great-West did not eradicate ERISA subrogation provisions, rather, it clarified the requirements for making a claim under 29 U.S.C § 1132(a)(3). Contrary to the defendants' claim, therefore, Great-West does not control the outcome of this case.
Recently, a Connecticut trial court was faced with a similar issue under similar facts. Brodzik v. Szpakowicz, Superior Court, judicial district of New Britain, Docket No. CV 00 0500564 (October 22, 2002, Quinn, J.). In Brodzik, a self-funded ERISA plan administrator sought a lien for payments the plan made on the plaintiff's behalf for medical care. The plaintiff claimed that he was entitled to the full amount of his medical benefits because Great-West precluded insurers from collecting funds and enforcing liens under ERISA. Judge Quinn rejected this argument, reasoning that Great-West did not hold that a lien on medical benefits pursuant to ERISA was unenforceable by an insurer. Rather, Great-West "turned upon a careful analysis of what was recoverable at equity and at law, with the court concluding that the expenses in question were not equitable in nature." In Brodzik, Judge Quinn approved the ERISA lien and ordered that it be paid from the judgment. Id. Similar to Brodzik, this court holds that Great-West does not speak to the issue of collateral source preemption, and is not therefore, determinative of the outcome of this case.
In conclusion, there are two important policies that underlie this court's holding. First, the purpose for allowing a collateral source reduction is "to prevent plaintiffs from obtaining double recoveries, i.e., collecting economic damages from a defendant and also receiving collateral source payments." Jones v. Riley, 263 Conn. 93, 103, 818 A.2d 749 (2003). Welfare Fund, however, much like most ERISA benefit plans, pays benefits to its members in strict reliance on a written promise of both the Welfare Fund participant and the participant's attorney to reimburse the Welfare Fund from any subsequent recovery. (Welfare Fund's Supplemental Memorandum, p. 2-3.) When dealing with ERISA plans of this nature, therefore, there is no threat that the plaintiff will enjoy a double recovery. Second, ERISA is a special Act designed to promote "a unified national system to safeguard retirement benefits." Napoletano v. CIGNA Healthcare of Connecticut, Inc., supra, 238 Conn. 242. ERISA sets minimum standards to assure the equitable character and financial soundness of employee benefit plans by protecting the establishment, operation and administration of such plans. Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 364, 122 S.Ct. 2151, 153 L.Ed.2d 375 (2002), rev'd on other grounds, Kentucky Assn. of Health Plans v. Miller, 123 S.Ct. 1471, 155 L.Ed.2d 468 (2003). The policy of protecting retirement funds affords ERISA plans a valid basis for seeking reimbursement from beneficiaries. The alternative is to award tortfeasors a collateral source reduction for the contributions of ERISA plans, which would ultimately preclude ERISA plan donors from seeking reimbursement from their beneficiaries. Certainly, Congress did not intend for such a result. In this case, both the law and public policy supports ERISA's preemptive subrogation rights.
For the foregoing reasons, the court holds that Welfare Fund, as a self-funded welfare benefit plan under ERISA, does not qualify as a collateral source under Connecticut law pursuant to 29 U.S.C. § 1144 (b)(2)(B). The defendants' motion for a collateral source reduction is, therefore, denied.
BALLEN, J. JUDGE TRIAL REFEREE