Title: South Dakota State Medical Holding Company, Inc. V. Hofer: A Deferential Standard of Review Permits ERISA Administrators to Contravene Their Fiduciary Obligations
Abstract: 1. INTRODUCTION In July 2007, the federal district court in the Western Division of South Dakota considered South Dakota State Medical Holding Co. v. Hofer, (1) in which an ERISA plan sought to enforce a subrogation provision against a plan beneficiary. (2) The beneficiary, Janet Hofer, survived a terrible motorcycle accident with her husband, Terry Hofer, and suffered serious injuries. (3) Her medical bills, which DakotaCare initially paid, totaled over $400,000. (4) After Mrs. Hofer recovered $250,000 from her husband's motorcycle insurance policy, however, DakotaCare pursued the subrogation rights it had written into the plan documents and ultimately recovered the entire settlement. (5) The Employee Retirement Income Security Act (ERISA) governs employee benefit plans across the nation, with nearly 50 million employees enrolled in such plans. (6) Congress enacted the statute in 1974, after a decade long study of pension plan abuses. (7) ERISA seeks to protect the interests of workers by imposing minimum standards ... assuring the equitable character of such plans and their financial soundness. (8) Recently, reimbursement provisions in ERISA plans have been in the news because of the decision in Administrative Committee of Wal-Mart v. Shank. (9) The Shank case illustrates the terrible outcomes common in subrogation actions. (10) Deborah Shank was a Wal-Mart employee who survived a car accident that rendered her permanently disabled. (11) Her health insurance policy through Wal-Mart paid nearly $500,000 in medical expenses. (12) Shank eventually recovered $700,000 in a lawsuit against the tortfeasor, though $417,477 was all that remained after paying attorneys' fees and court costs. (13) Wal-Mart asserted its right to recoup the award based on a subrogation provision in the policy and subsequently recovered all the remaining money, leaving Shank destitute. (14) The United States Supreme Court denied the Shanks' petition for certiorari on March 17, 2008. (15) However, due to public outcry, Wal-Mart eventually reversed itself and returned the balance to the Shanks. (16) Sadly, for the Hofers, there was no public outcry against DakotaCare to compel it to abandon its claim for reimbursement. (17) The district court awarded DakotaCare the $250,000 settlement Janet Hofer received after being injured in the motorcycle accident. (18) Relying on Eighth Circuit case law, the district court upheld DakotaCare's right of subrogation without considering the protective purposes of ERISA or the fiduciary duty it imposes. (19) The court reviewed the plan fiduciary's decision to seek subrogation under a deferential abuse of discretion standard. (20) Because Congress enacted ERISA to protect workers, it is ironic that courts allow the enforcement of subrogation/reimbursement provisions without considering the effects enforcement will have on the plan beneficiary. (21) In these situations, the beneficiary likely believes his insurance premiums were all he owed his insurer, and will be blindsided when he discovers that the settlement he fought for in court, which he invested thousands of dollars to pursue, will go entirely to his insurance company. (22) ERISA's regulatory and protective purposes should be foremost in the reasoning of federal courts. (23) The United States Supreme Court recently confirmed that the dual roles insurance companies often occupy as ERISA fiduciaries and profit-seeking entities create a conflict of interest, which courts should consider. (24) In Hofer, Dakota Care's dual obligations as a fiduciary and a for-profit entity created precisely the same kind of conflict of interest. (25) ERISA requires that a plan administrator act solely in the interest of plan beneficiaries. (26) When a powerful insurance company, like DakotaCare, attempts to recover huge sums of money from catastrophically injured beneficiaries, the company flouts its fiduciary obligation. …
Publication Year: 2009
Publication Date: 2009-06-22
Language: en
Type: article
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