By: Chris Aguiar, Esq.
A few years ago, the 2nd Circuit threw the subrogation industry a bit of a curveball when it ruled that, effectively, a benefit plan could not preempt application of a state law anti subrogation provision because enforcement of the provision did not “relate to” the provision of employee benefits. This made the 2nd Circuit a bit of a difficult Federal Jurisdiction for a bit, if for no other reason than that reading how the Court somehow used “logic” to find its way to a completely illogical decision; that a provision that allows a plan participant to keep plan assets, thereby accessing benefits to which it isn’t entitled because of Its obligation to reimburse the plan, doesn’t “relate to” benefits and therefore is not subject to preemption. Given how the Court was able to justify that decision, how would they rule in the future on issues of subrogation and third party recovery?
The silver lining of that decision is that it was a fully insured benefit plan, so it really shouldn’t have adversely impacted the rights of private, self-funded benefit plans. That reality, however, didn’t stop every single lawyer in New York and the 2nd Circuit to argue that our private self-funded clients no longer had recovery rights in that area of the County. Thankfully, a recent decision in the Eastern District of New York, COGNETTA v. Bonavita, though not binding on all Federal Trial Courts in the 2nd Circuit, present the first step towards correcting this problem in the 2nd Circuit. Perhaps the 2nd Circuit won’t be so difficult moving forward.