New York’s anti-subrogation statute is not preempted by federal ERISA law, the Second Circuit has ruled, clearing the way for a class action to proceed against health insurers who had asserted “liens” against their insureds’ personal injury settlements.

The decision in Wurtz v. The Rawlings Company vacates the ruling of the Eastern District of New York, which had dismissed the action on grounds of both complete preemption and conflict preemption of plaintiffs’ claims under ERISA.  Plaintiffs Meghan Wurtz and Mindy Burnovski, as class representatives, had asserted claims of deceptive business practices and unjust enrichment against health plan insurers Oxford Health Plans and UnitedHealth Group, as well as their subrogation collections agent, The Rawlings Company.  The complaint alleges that the insurers and their agent had improperly asserted claims for reimbursement of covered healthcare expenses out of personal injury recoveries obtained by their insureds, in violation of New York’s anti-subrogation statute, General Obligations Law § 5-335.  The state statute, enacted in 2009, barred subrogation and reimbursement actions against parties settling personal injury and wrongful death claims, establishing a presumption that such settlements do not include compensation for healthcare costs that are obligated to be paid by a benefits provider.

Writing for the Second Circuit panel, Circuit Judge John M. Walker, Jr. concluded that the New York Law is saved from conflict preemption under ERISA § 514 because it is a law regulating insurance, as it was specifically directed toward insurers and substantially affects risk pooling between insurers and insureds; for the district court to find otherwise was contrary to Supreme Court precedent.

The Second Circuit opinion further holds that the plaintiffs’ state-law claims could not be re-cast as claims for benefits due under their employer-provided health plans, and therefore escape complete preemption under ERISA § 502.  In this case, “the state right they seek to enforce – to be free from subrogation – is not provided by their plans,” the appellate court ruled.  “Indeed, the terms of plaintiffs’ ERISA plans are irrelevant to their claims,” which are based on state law that regulates insurance and not on the terms of their health plans.

Although the panel determined that ERISA did not provide a basis for federal jurisdiction of the matter, which had been originally filed in state court, it found that the federal Class Action Fairness Act provided an alternative basis for the federal forum, as the case involved a class of more than 100 people and aggregate claims in excess of $5 million.
On the appeal, plaintiffs were represented by Franklin Solomon (Solomon Law Firm), as well as Steven Harfenist (Friedman, Harfenist, Kraut & Perlstein) and Frank Schirripa (Hach Rose Schirripa & Chevrie).