A tangled web: Subrogation vs. lien
In June 2012, Karen Auers was injured in a car crash. At the time of the crash she was insured by Progressive Direct Insurance Company under a policy that included underinsured motorist benefits of up to $100,000. As a result of the crash, Auers incurred approximately $178,083.44 in medical expenses. Progressive Direct paid $20,000 of those bills by way of no-fault medical benefits. The remaining medical expenses of $158,083.44 were satisfied by Auers’ health insurance carrier, Blue Cross and Blue Shield (BCBS) of Minnesota. BCBS negotiated approximately $85,869.59 in discounts with her medical providers. BCBS paid $72,216.85 to the providers and asserted a lien in that amount.
In March 2013, Auers received a settlement offer from the at-fault party’s insurer for the policy limit of $100,000. Auers settled for that amount after notifying Progressive Direct of its right to substitute its draft for the policy limits offer to preserve its right to recover from the party at fault. Auers died shortly thereafter for reasons unrelated to the crash.
Steven Duane Auers, the surviving husband of Karen Auers, was appointed trustee for her heirs and next of kin in April 2013. In June 2013, Auers obtained a “Release of Subrogation Interest and Claim” from BCBS, after BCBS accepted $5,000 in exchange for an assignment of its right of subrogation to Auers.
Auers then sued Progressive Direct, seeking UIM benefits for damages sustained by Karen Auers that exceeded the at-fault party’s liability limits. Both parties moved for summary judgment, disputing only the legal effect of the BCBS assignment of its right of subrogation. Auers argued that the district court was prevented from reducing his recoverable damages by the negotiated discount because Auers had purchased and asserted BCBS’s subrogation rights and that, because a subrogation right had been asserted, the collateral source statute exempted both the amount paid by BCBS and the negotiated discount from the collateral source reduction.
Progressive Direct argued that Auers’ purchase of BCBS’s subrogation rights allowed him to recover the amount of the subrogation interest of BCBS, but that the amount of the negotiated discount remained a collateral source to be deducted from the award.
The court granted summary judgment for Auers. Because the recoverable damages exceeded the limit of the at-fault party’s liability insurance, the court concluded that the at-fault party was underinsured, that Auers was entitled to UIM benefits from Progressive Direct, and that the proper amount of UIM benefits was $75,294. Progressive Direct appealed.
On appeal, the court noted that the trial court accepted Auers’ argument that his purchase of BCBS’s subrogation right meant that neither the amount paid by BCBS to the medical providers nor the negotiated discount was to be offset against the recoverable damages under the collateral source statute. Because the parties stipulated that Karen Auers incurred $178,083.44 in medical expenses resulting from the crash, the district court calculated her recoverable medical special damages by deducting only the no-fault medical benefits from $178,083.44, and making no other offset under the statute. Because that amount exceeded Progressive Direct’s $100,000 policy limit, the court determined that Steven Auers, as trustee for the heirs and next of kin of Karen Auers, was entitled to recover UIM benefits.
Progressive Direct argued that the discount amount negotiated by BCBS was a collateral source to be offset under the statute because Steven Auers did not have a subrogation right to recover that amount, and he could not have received from BCBS a right to recover or assert a lien for the amount of the discount.
The court stated that Progressive Direct’s argument ignored the important distinction between a subrogation lien and a collateral source. The court pointed to a statute that exempts from collateral source offsets the “amounts of collateral sources that have been paid for the benefit of the plaintiff … except those for which a subrogation right has been asserted.” Negotiated discounts are collateral sources subject to offset under the collateral source statute, and such discounts remain a deductible collateral source under the statute despite the existence of a subrogation lien for amounts actually paid by a health insurance carrier. The negotiated discounts are not amounts for which a subrogation right has been or could be asserted.
The court also noted that, by purchasing the BCBS lien of $72,216.85 for a payment of $5,000, Karen Auers recovered a net of $95,000 from the at-fault party’s $100,000 liability coverage despite BCBS and her own personal injury protection coverage having satisfied nearly $178,000 in medical bills. Steven Auers made no claim, nor could he, that application of the collateral source rule left the heirs and next of kin undercompensated for the damages properly recoverable under the statute. Because the at-fault party was not underinsured, Steven Auers was not entitled to collect underinsured motorist benefits.
Auers vs. Progressive Direct Insurance Company-Court of Appeals of Minnesota-April 25, 2016-WL 1619485 A15-1832.