Disputed Denied Claims and Missed Subrogation Opportunities

By: Lisa Hill, Esq.

Denied claims discussions often focus on those things that should be examined, evaluated, and documented during that process. This is not another claim denial review but rather a look at how disputed denied claims might affect a given plan’s subrogation opportunities.

During the course of any file, which may involve the possibility of a subrogation recovery, while the plan may still be receiving new claims for payment, reviewing disputed denied claims, or adjusting existing claims, etc., the underlying liability case is proceeding. It would be nice if one ended before the other began, but unfortunately that is rarely the case. These separate actions occurring simultaneously can have an effect on a plan’s subrogation opportunities for not just the disputed denied claims but even those claims already paid by the plan.

Disputed denied claims can complicate or create time-sensitive situations during the settlement stages of the underlying liability claim. We will look at two common scenarios where disputed denied claims create obstacles in the plan realizing its recovery rights; one occurs when the plaintiff’s attorney is fielding offers from the third-party liability fund source but has not yet agreed upon a settlement amount and the other is when the plaintiff’s attorney has already agreed to a settlement or limits tender and is now trying to negotiate the plan’s asserted interest.

In those instances when the third-party liability claim is in the process of settling and claims remain unpaid which the plan member and/or their attorney believe should have been paid or are unsure if they will be paid by the plan, the plan member will sometimes walk away from a settlement. After all, it is better for them if the plan pays using their network discounts, leaving more funds available for the member from the settlement amount. But if the disputed denied claim will take most or all the settlement funds available, there is no incentive to settle and most liable parties will not settle unless they can obtain a release of liability from the injured party. This precludes a settlement with just the plan without the member, also, signing the release which the member will not likely do. So there will be no settlement.

The second most common scenario occurs when the third-party liability has already settled, and the funds are in the possession of the member and/or their attorney. The sometimes long process of trying to resolve/finalize a disputed denied claim can result in settlement funds being disbursed to the member before final resolution and without the plan being reimbursed from those proceeds. This could be for a variety of reasons, including but not limited to, the member being in dire financial straits, frustration over the length of time to finalize these issues, etc. At that point, if the member subsequently spends the settlement funds on non-traceable items (such as paying credit card bills, rent or even a vacation, etc.) the chances of any recovery to the plan drop significantly and can even become non-existent. The United State Supreme Court in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 577 U.S. 136 (2016) found that in order to enforce an equitable lien by agreement, the Plan must show that the settlement funds can be traced to an identifiable asset. The Plan may not recover from a member’s general assets. At that point, if the member subsequently spends the settlement funds on non-traceable items (such as paying credit card bills, student loans or even a vacation, etc.) the chances of any recovery to the plan drop significantly. It becomes a race against the clock that involves increased costs and added hurdles as the process plays out in a courtroom setting, often resulting in the settlement funds no longer being available.

Thus, in order to maximize potential subrogation recoveries, it is important for disputed denied claims to be reviewed in a timely fashion. There will be times when a denied claim will be reversed and paid and the timing of that change in decision might affect whether or not the plan is able to be reimbursed from any third-party settlement.