MAKE WHOLE DOCTRINE & ERISA

If you have an injured client, and you are negotiating down their ERISA protected health plan, you may run into a few obstacles. Namely whether or not the ERISA plan has a conspicuously placed reimbursement provision. Even if the reimbursement provision were conspicuously placed and separately indexed in the policy as required by the above authorities, there is still a very good chance that it would not be enforceable because of the make whole doctrine. Reimbursement provisions are treated in the same fashion as subrogation provisions and both are therefore subject to the insured being made whole before the insurance company can recoup its benefits. This is a universal principle of equity. The Ninth Circuit in Barnes, supra, has adopted the make whole rule as the default rule in ERISA cases, as follows:

It is a general equitable principle of insurance law that, absent an agreement to the contrary, an insurance company may not enforce a right to subrogation until the insured has been fully compensated for her injuries, that is, has been made whole. The make-whole principle is a rule of interpretation. No one doubts that the beneficiary of an insurance policy or (as here) an employee welfare or benefits plan can if he wants sign away his make-whole right. The right exists only when the parties are silent. It is a gap filler.

That rule is supported by substantial authority in existing insurance law, and it is consistent with ERISA's purpose of protecting participants in employee benefit plans.

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We adopt as federal common law this generally accepted rule that, in the absence of a clear contract provision to the contrary, an insured must be made whole before an insurer can enforce its right to subrogation. Id at 1394-1395 (citations omitted; emphasis supplied)

You could use the following example language when negotiating down your injured client's ERISA protected health lien:
 
"The only language in the instant reimbursement provision that could remotely be interpreted as waiving make whole is in the second paragraph where it claims the “right to first reimbursement.” However, this language also is subject to multiple interpretations and is therefore ambiguous. The most likely interpretation of this is an attempt to prioritize competing liens. A personal injury recovery is often subject to multiple liens such as hospital liens, government liens, attorneys fee liens, and medical provider liens. Since the provision does not reference “make whole” nor reference “first reimbursement” vis-à-vis the insured, this is an equally reasonable interpretation. It is well established that if there are two or more reasonable interpretations of a policy provision, the court must adopt the one favoring the insured. See Barnes, supra. The case law establishes that the preferred and proper method for waiving the make whole rule is to expressly reference the rule. See Progressive West Ins. Co. v Yolo County Sup. Ct (2005) 135 Cal.App.4th 263, 274-275, where the court described the degree of specificity required:

The more recent cases, however, require that the contractual provision that intends to vitiate this rule must “clearly and specifically [give] the insurer a priority out of proceeds from the tortfeasor regardless whether the insured was first made whole.” (Sapiano v. Williamsburg Nat. Ins. Co., supra, 28 Cal.App.4th at pp. 538–539.) Thus, in Sapiano, the relevant provision of the insurance policy stated, “[i]f any person or organization to or for whom we make payment under this Coverage Form has rights to recover damages from another, those rights are transferred to us.” (Id. at pp. 535–536.) That provision was not sufficient to overcome the made-whole rule. (Id. at pp. 538–539.) The Sapiano court concluded the language of the insurance contract at issue in Samura v. Kaiser Foundation Health Plan, Inc. (1993) 17 Cal.App.4th 1284, 1289–1290 [22 Cal. Rptr. 2d 20], however, provided a good example of the language necessary to abrogate the made-whole rule. (Sapiano v. Williamsburg Nat. Ins. Co., supra, 28 Cal.App.4th at p. 538.) The language in the Kaiser agreement provided, “‘Health Plan (or its designee) shall be entitled to the payment, reimbursement, and subrogation as provided in this Section C(1) regardless of whether the total amount of the recovery of the Member (or his or her estate, parent or legal guardian) on account of the injury or illness is less than the actual loss suffered by the Member (or his or her estate, parent or legal guardian).’” (Samura v. Kaiser Foundation Health Plan, Inc., supra, 17 Cal.App.4th at pp. 1289–1290.)(emphasis supplied)"

Mark C. Blane is a San Diego Personal Injury Attorney, and the managing lawyer of the Law Offices of Mark C. Blane, a San Diego, California Personal Injury Law Firm dedicated to representing families of people injured in personal injury accidents including car accidents, slip and falls, dog bites, product defects, and the like. If you or a loved one has been killed or injured in an accident in San Diego, or Southern California, due to the negligence of another, please order your free copy of Mr. Blane's book, The 10 Secrets You Need To Know About Your Injury Case, BEFORE You Call A Lawyer. It is full of helpful information that will help you protect your legal rights and it normally sells for $16.95.  However, it is free to all California residents, or those injured in an California accident.