SUBROGATION. SOUNDS NASTY BUT IT IS ROUGHLY FAIR.

The Wall Street Journal, never known for its beneficence toward the average working chump filing a lawsuit, posted an interesting article on November 20th entitled “Accident Victims Face Grab for Legal Winnings”.

Oh, yeah, and it involves Wal-Mart. Here is the lead:

JACKSON, Mo. -- A collision with a semi-trailer truck seven years ago left 52-year-old Deborah Shank permanently brain-damaged and in a wheelchair. Her husband, Jim, and three sons found a small source of solace: a $700,000 accident settlement from the trucking company involved. After legal fees and other expenses, the remaining $417,000 was put in a special trust. It was to be used for Mrs. Shank's care.
Instead, all of it is now slated to go to Mrs. Shank's former employer, Wal-Mart Stores Inc.

Two years ago, the retail giant's health plan sued the Shanks for the $470,000 it had spent on her medical care. A federal judge ruled last year in Wal-Mart's favor, backed by an appeals-court decision in August.

PREVENTING DOUBLE PAYMENT. AND SAVING MONEY ON BEHALF OF THE OTHER WAL-MART EMPLOYEES.

Wal-Mart is exercising a right that exists in nearly every insurance contract or health benefit plan. It is the right of “subrogation”, the ability to recoup monies it expends on behalf of insureds. Here is the reasoning.

Mrs. Shank was an employee of Wal-Mart and she was covered by the Wal-Mart health benefits plan. When she was injured, the Wal-Mart plan paid $470,000 for her medical expenses.

Wal-Mart’s health benefit plan then demanded the money it paid for her medical expenses be reimbursed from the proceeds of her lawsuit. This happens routinely in the tort system. A health insurer will inform a plaintiff and her lawyer that they have a “subrogation lien” on the proceeds of the lawsuit. Usually, the parties negotiate an equitable division.

And in this case, the Wal-Mart health plan advised Mrs. Shank several times of their subrogation rights. Wal-Mart also requested that Mrs. Shank and her lawyer inform them before settling the lawsuit. But Mrs. Shank apparently settled the lawsuit with the knowledge of, and in derogation of, Wal-Mart’s subrogation lien.

DON’T FORGET ABOUT THE OTHER WAL-MART HEALTH BENEFIT PLAN MEMBERS AND THE PLAN’S DUTY TO OPERATE A PLAN FOR THE BENEFIT OF ALL THE MEMBERS.

Health benefit plans have a duty to manage the plans for the benefit of all benefit plan members. This means, among others, refusing to pay benefits that are not covered by the plan and enforcing subrogation liens.

Sharon Weber, a spokeswoman for Wal-Mart, declined to discuss the details of the Shanks' case, but said the company was obliged to act in the interest of the health benefits of its employees as a whole. "While the case involves a tragic situation, our responsibility is to follow the provisions of the [company health] plan which governs the health benefits of our associates," she said.

"Employers are trying to make sure these plans run as efficiently as possible," says Jay Kirschbaum, a senior vice president at global insurance broker Willis Group Holdings. "They also have a fiduciary duty to the plan and the entire group of employees that are covered by it."

The Author has some sympathy for Mrs. Shank. But Wal-Mart did pay for the care and is entitled to reimbursement. And there is probably something else going on here. Poor lawyering. Typically, lawyers will negotiate with the benefit plan and arrive at a settlement. If no agreement could be reached, an option would be a legal action called an interpleader. Mrs. Shanks, by an interpleader action, would ask a court to determine how much should go to Wal-mart for their claim.

And sometines, heaven forbid, lawyers will agree to reduce their fees to account for large subrogatin liens.

None of these things happened. Instead, the lawyer created a trust to hold the proceeds of the lawsuit, put the proceeds into the trust, and told Wal-Mart that Mrs. Shanks never received any money so there was nothing for Wal-Mart to seek recovery against.

This trust was obviously set aside by the US District Court. The Shanks appealed their caSe to the 8th Circuit Court of Appeals but lost again.

BAD LAWYERING IS VERBOTEN IN THE DESERT OF THE REAL! IN FACT, LAWYERING IS VERBOTEN IN THE DESERT OF THE REAL!