Insurer’s Lien of Subrogation is Limited to the Funds Received by the Insured

The Supreme Court decided the case of Montanile v. Bd. Of Trustees of the Nation’ Elevator Industry Health Benefit Plan, 135 S. Ct. 1700, 191 L.Ed.2d 675 (2016) earlier this year. In Montanile, the victim was severely injured by a drunk driver. Initial medical bills were paid by an employer health plan. When Montanile filed suit against the other driver, the Plan notified him of their intent to pursue subrogation against his recovery.

The motor vehicle case settled and the Plan proceeded with efforts to recover the amounts they had paid amounting to almost one-half of the total recovery. Montanile’s attorney rejected their request, telling them they had 14 days to object, or the funds would be disbursed to Montanile. No objection was received in those two weeks and the funds were disbursed to Montanile who promptly spent a great part of the money on non-traceable expenses. The Plan was met with resistance by Montanile when they asserted their equitable lien against other assets of Montanile, in order to allow them to recover the full amount expended on his behalf. The Supreme Court disagreed holding held that once the money was gone, the Plan’s lien was extinguished.

The Supreme Court was unpersuaded by the Board’s argument that by strictly limiting their equitable rights to the actual funds received from the settlement, they were placed in the difficult position of having to monitor pending lawsuits closely in order to preserve their rights and that such a requirement would be “hard and costly.” The truth of the matter is that the plaintiffs’ personal injury cases provide a substantial benefit to the plans and that many plaintiffs are generally unaware of the fact that their recovery may be consumed by these subrogation claims. Under this latest Supreme Court’s latest decision, plans must pay better attention to that source of funds.

One subrogation attorney in Wisconsin recognized the value of these plaintiffs’ suits to the industry as their newsletter recounted the seldom-noted facts of the notorious McDonald’s hot coffee case. The article noted that the 79-year old victim required eight days in the hospital and needed skin grafts for third-degree burns on her groin and genitals. During her hospital stay, slender woman lost nearly 20% of her body weight, reducing her to a mere 83 pounds. Insurance Subrogation: The Facts Behind the McDonalds’ Hot Coffee Case, Matthiesen Wickers Lehrer, S.C., Electronic Newsletter (October 2010). After remittitur and further negotiated reductions to her award, that plaintiff was no doubt also required to forward a substantial portion of her recovery to Medicare and/or her private insurance company. As one practicing attorney put it, insurance companies, rather bashing of attorneys for their role in these cases, should begin to think more like them.

Frivolous lawsuits continue to be a drain on the insurance industry and the American economy as a whole, and reasonable tort reform has been a welcome addition to our system of civil justice on many fronts. However, it is important to remember that as subrogation professionals within the insurance industry, we must remove our liability-limiting insurance liability hats and don the hat of a plaintiff’s trial lawyer when evaluating and pursuing subrogation potential among all lines of insurance. Rather than being the poster child for frivolous and baseless lawsuits, the McDonalds’ hot coffee case should serve as a clarion call to all subrogation professionals that aggressive investigation and pursuit of legitimate third-party liability subrogation cases in civil court is not only wise from a business standpoint, it’s our job.


Given the valuable income stream these plaintiffs’ suits present for the insurance industry, it is likely they are already at work redrafting their plan provisions to work around this impediment to their recovery. Of course, we will have to wait and see.


For other information about subrogation, we invite you to review the links below to Legal Issues from Litigation Pathfinder.