Sympathy for the Devil?
Posted by pennywit on April 4, 2008
I suppose that, like everybody else, I should be glad that Wal-Mart dropped its subrogation suit against Deborah Shank, who was left mentally disabled after a traffic accident. But I’m only half-glad. If Wal-Mart’s executives determined that the negative impact of pursuing the action was greater than the likely gains, then fine, that’s great. But I’m probably one of the few people who sympathized with Wal-Mart from the beginning.
Let’s review. Wal-Mart provides a benefit — health insurance — through a self-insurance mechanism. If a covered employee is sick or sustains injury, Wal-Mart must pay. When Shank was injured in an auto accident, Wal-Mart paid $470,000 for her care. Shank’s husband, acting on her behalf, brought a lawsuit against the person who caused the accident. They settled the suit for $1 million, leaving them with $417,000 after attorney fees. With Shank’s injuries compensated for by the settlement, Wal-Mart naturally chose to exercise its subrogation rights.
And why shouldn’t Wal-Mart exercise those rights?
While what happened to Ms. Shank is certainly tragic, she and people situated similarly benefit twice in situations like this. First, they receive medical care paid for by their insurers. Then, they are compensated for that very same medical care through the proceeds of a lawsuit. It’s double enrichment, and the people paying for this are not just insurers but others who carry health insurance and see their premiums increased because of this double payout.
If Wal-Mart had not pursued its subrogation claim, it would have breached its duty to its shareholders and to other employees covered by its health insurance policy! And that’s why I sympathized more with Wal-Mart from the beginning. Shank’s situation is sad, but the needless inflation of already high health-care costs is ultimately more harmful. Thus, yes, Wal-Mart did the right thing when it sued a mentally disabled woman.
That said, I don’t consider subrogation suits an ideal mechanism to recover an insurer’s costs. And I question whether an insurer should be entitled to recover all of what it expended when a settlement has amounts designated not just to compensate the injured for medical care, but also to offset the costs of long-term disability.
It would be far more ideal if a plaintiff’s lawyer first ascertains whether a health insurer has subrogation rights and, if so, to account for them from the onset of litigation.