Second Circuit Overturns District Court in Wurtz v. Rawlings

August 13th, 2014

A recent decision handed down by the U.S. Court of Appeals for the Second Circuit court has overturned the Federal Court for the Eastern District of New York’s opinion and affirmed the application of NY General Obligations Law §5-335 as a law that regulates insurance.

 Although §5-335 was recently amended to specifically apply to insurance, the Second Circuit confirms what we knew all along: insured ERISA plans do not get the benefit of federal preemption, and therefore §5-335 applies to negate any subrogation and/or reimbursement claims by insured plans.

Please take a moment to review Professor Roger Baron’s comments on the decision, provided below.

In Wurtz v. The Rawlings Company, — F.3d—, 2014 WL 3746801, the U.S. Court of Appeals for the 2nd Circuit rendered a major decision yesterday, 7/31/14, holding that New York’s anti-subrogation law is “saved” by ERISA’s “saving clause” and applicable to health insurers providing coverage through ERISA plans. This is a significant victory for ERISA participants and beneficiaries.  The underlying action was filed as a class action in New York state court against The Rawlings Company, LLC; Oxford Health Plans (NY), Inc.; and UnitedHealth Group, Inc. alleging violations of New York law relating to efforts to secure reimbursement of medical benefits from plaintiffs’ tort settlements.  The defendants removed the case to federal court and the federal trial judge dismissed it on the basis of ERISA preemption.  The 2nd Circuit reversed and remanded, holding that neither “complete preemption” nor “conflict preemption” were applicable to the plaintiff’s claims seeking enforcement of state law which is saved by ERISA’s “saving clause.”  The Court relied upon the 1990 Supreme Court decision in FMC v. Holliday and noted that its ruling “is in some tension with holdings of the Third, Fourth, and Fifth Circuits in similar anti-subrogation cases.”

In responding to the assertion that subrogation/reimbursement was required to uphold national uniformity under ERISA, the Court stated,

“Allowing plaintiffs’ state-law claims under [New York statute] section 5-335 to proceed will not disturb ERISA’s goal of providing national uniformity. ERISA has strong preemptive provisions, the purpose of which are “to provide a uniform regulatory regime over employee benefit plans.” Davila, 542 U.S. at 208. But “ERISA says nothing about subrogation provisions. ERISA neither requires a welfare plan to contain a subrogation clause nor does it bar such clauses or otherwise regulate their content.” Member Servs. Life Ins. Co., 130 F.3d at 958 (internal quotation marks omitted). Because ERISA is silent on subrogation, our decision does nothing to disturb ERISA’s goal of national uniformity in employee benefit plan regulation.”

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