Employee Benefits-Eighth Circuit Rules That Health Plan Cannot Use Its Subrogation Provision To Recover Benefits From Beneficiary’s Attorney

In Treasurer, Trustees of Drury Industries, Inc. Health Care Plan and Trust v. Goding, No. 11-2885 (8th Cir. 2012), Sean Goding (“Goding”) was a beneficiary of an employer-sponsored health care plan (the “Plan”). The Plan was administered by Treasurer, Trustees of Drury Industries, Inc. Health Care Plan and Trust (“Drury”). Goding sustained injuries in a slip and fall accident and received $11,423.79 in benefits from the Plan. Goding also obtained compensation through the settlement of a civil suit related to those injuries. Pursuant to a subrogation provision in the Plan, Drury attempted to secure reimbursement from Goding for the benefits the Plan had paid, but was unable to do so after Goding declared bankruptcy. Drury then attempted to obtain that reimbursement, under the Plan’s subrogation provision, from the law firm that represented Goding, namely, Casey & Devoti, P.C. (“Casey”).

In analyzing the case, the Eighth Circuit Court of Appeals (the “Court”) found that Drury could not obtain the desired reimbursement from Casey, because Casey had not agreed to the Plan’s subrogation provision-even though it had knowledge of it- and consequently was not contractually bound by it. The Court also found that Drury could not maintain a suit against Casey in equity, since Casey no long held any of the funds in question, having paid them to Goding. Further, the Court ruled that Drury could not bring a state cause of action for conversion against Casey, since ERISA preempts such a claim.