Eighth Circuit Upholds Insurer’s Right to Reimbursement of Medical Expenses Despite Its Failure to Pursue Its Claims in Subrogation

In Vercellino v. Optum Insight, Inc., No. 20-3524, __F.4th__, 2022 WL 433036 (8th Cir. Feb. 14, 2022), the Eighth Circuit Court of Appeals considered whether an ERISA health plan’s insurer is entitled to seek reimbursement for medical expenses it paid for an insured’s injury from the insured, where the insured sought relief against the person who caused the injury. The Eighth Circuit found in favor of the health plan on its right to reimbursement because courts must enforce the terms of ERISA plans as they are written.

The insured in this case was Plaintiff-Appellant Nathan Vercellino. While he was a minor and insured as a dependent on his mother’s health plan, the Ameritas Holding Company Health Plan, he was injured in an ATV accident driven by his friend, another minor, Connor Kenney. The Plan was insured by Optum Insight, Inc. and United HealthCare Services, Inc. (“collectively, the Insurer”). The Insurer paid nearly $600,000 in medical expenses on Vercellino’s behalf. It did not exercise its right to seek recovery in subrogation from Kenney or Kenney’s parents during the applicable statutory period and Vercellino’s mother did not file a lawsuit to recover medical expenses from the Kenneys. But after Vercellino became an adult, he filed suit against the Kenneys in Nebraska state court seeking general damages. He also filed a separate suit seeking a declaratory judgment that the Insurer would have no right to reimbursement from any proceeds he might recover against the Kenneys. The Insurer removed to federal court and sought a declaratory judgment that it would be entitled to recover the full amount paid for Vercellino’s injuries. Kenney filed an intervenor complaint against the Insurer in support of Vercellino’s claims. The district court granted summary judgment to the Insurer. Vercellino appealed and Kenney did not appeal but filed an appellee brief.

First, the court granted the Insurer’s motion to strike Kenney’s brief and dismiss Kenney from the appeal because Kenney did not file a timely notice or appeal or join Vercellino’s appeal pursuant to Fed. R. App. P. 3 or 4.

Next, the court considered Vercellino’s arguments regarding the right to reimbursement under the plan. The plan’s subrogation and reimbursement terms applied to “covered persons, including all dependents.” It also provides for a right of subrogation, which requires that beneficiaries transfer to the Plan their rights to make a claim and sue and recover damages when the injury or illness giving rise to the benefits occurred through the act or omission of another person. In addition to subrogation rights, the plan provides for reimbursement rights as follows:

• If a covered person receives any full or partial recovery, by way of judgment, settlement or otherwise, from another person or business entity, the covered person agrees to reimburse the Plan, in first priority, for any medical, disability or any other benefits paid by it (i.e., the Plan shall be first reimbursed fully, to the extent of any and all benefits paid by it, from any monies received, with the balance, if any, retained by the covered person). The obligation to reimburse the Plan, in full, in first priority, exists regardless of whether the judgment or settlement, etc. specifically designates the recovery, or a portion thereof, as including medical, disability or other expenses.

Vercellino argued that he was never a real party in interest with a legal right to recover medical expenses paid by the Insurer since he was a minor and it was his mother who received the benefit. The court rejected this argument because the plan language expressly includes “all dependents” as “covered persons.” The argument also conflates the rights of subrogation and reimbursement. The right to reimbursement is much broader than the right of subrogation and includes any recovery obtained by Vercellino. This right exists regardless of whether the recovery comes after the statute of limitations that has run on any claim the Insurer could have pursued itself or whether the recovery is identified as medical expense damages. The court also rejected the argument that the Insurer waived its right to seek reimbursement by failing to exercise its subrogation rights during the statutory period. The court found no equitable basis to shield Vercellino’s recovery from the Insurer because the Insurer has not committed any wrongdoing. The plan does not require the Insurer to pursue subrogation to preserve its right to reimbursement.

Lastly, the court rejected the argument that the Insurer breached its fiduciary duty by failing to warn Vercellino that it would seek reimbursement from his recovery even though it did not pursue its own claims in subrogation. The Insurer’s right to reimbursement was laid out in the plan documents and the Insurer did not make any false or misleading statements. The Insurer had no duty to warn him of the plain language of a contract that was available to him. The court concluded that “[t]he plain language of the plan at issue here is unambiguous: the Insurer is entitled to seek reimbursement for medical expenses arising out of the ATV accident paid on Vercellino’s behalf from any judgment or settlement he receives in his litigation with Kenney. The judgment of the district court is affirmed.”