NYS Highest Court Strikes Down ERISA Lien Rights

New York’s General Obligations Law § 5-335 (hereinafter § 5-335) limits reimbursements and subrogation claims in personal injury and wrongful death actions. This statute was enacted in 2009 to protect plaintiffs from liens, reimbursement, and subrogation claims of insurers.The statute states that

“[n]o person entering into such a settlement shall be subject to a subrogation claim or claim for reimbursement by an insurer and an insurer shall have no lien or right of subrogation or reimbursement against any such settling person or any other party to a settlement, with respect to those losses or expenses that have been or are obligated to be paid or reimbursed by said insurer”.

New York’s General Obligations Law § 5-335.Prior to § 5-335’s enactment, insurance companies were able to place liens on their insured’s settlements, though not their jury verdicts,and obtain reimbursement for the amount they expended. This practice dissuaded plaintiffs from settling their cases and led to § 5-335’s enactment.In 2013 this statute was amended by replacing reference to “a benefit provider” with “an insurer”, the amendment applies retroactively to claims brought on or after November 12, 2009.

The enactment of § 5-335 extinguished a private health insurance company’s right to subrogation, reimbursement, or placing a lien on a settlement. However, § 5-335was not originally held as extinguishing the rights of Employee Retirement Income Security Act (hereinafter ERISA) plans, and did not extinguish statutory rights of reimbursement. The statutory rights of reimbursement include Medicare, Medicaid, and Workers’ Compensation. The statutory rights of reimbursement are still intact and have not been affected by the recent decision passed down by the United States Second CircuitCourt of Appeals in Wurtz v. Rawlings Co.

The rights of ERISA plans to place a lien on settlements has now been extinguished by the United States Second Circuit Court of Appeals in Wurtz v. Rawlings Co. In that case the Court held that § 5-335 was not preempted by ERISA because it was saved from preemption as a law that regulated insurance.

The Court stated that when analyzing ERISA they presume that Congress did not intend to supplant state law. As such, for § 5-335 to be preempted complete preemption is required. Complete preemption requires plaintiffs to satisfy a two pronged test which requires that (1) the plaintiff be an individual who at some point in time, could have brought the claim under ERISA 502(a)(1)(B), and (2) under circumstance in which there is no other independent legal duty that is implicated by a defendant’s actions.

Based on the Court’s decision, the only rights of reimbursement are the statutory rights of reimbursement and the rights under complete preemption.