Likelihood of Success

Ron Coleman’s pretty good blog

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.

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16 Responses to “Sympathy for the Devil?”

  1. Ara Rubyan said

    And why shouldn’t Wal-Mart exercise those rights?

    They could and did, correctly recognizing that they had the legal right to do so.

    However, the moral right was not there. And, to be blunt, the longer they resisted acknowledging that, the worse it got for them.

    What I can’t figure out is how the public affairs office at Wal-Mart HQ didn’t understand that.

    P.S. I’m a smart guy but I don’t understand subrogation rights. I can only imagine how the phrase made less educated peoples’ skin crawl. Lawyer jokes? That’s the least of it.

  2. This is why employer-provided healthcare is a very bad idea. And self-provided healthcare is even worse– too expensive when you can get it at all. There’s really only one option left…

  3. pennywit said

    Ara:

    Why is it immoral for Wal-Mart to pursue a subrogation claim? When I look at it in terms of Wal-Mart’s obligations, I don’t see how Wal-Mart can not pursue the matter. Regardless of Ms. Shank’s sad circumstances, Wal-Mart has an obligation to ask in the best interests of its shareholders. And in the case of self-insurance, Wal-Mart has an obligation to act in the best interest of its other policyholders.

    –|PW|–

  4. Griffon1x said

    Wal-Mart is a business, not a person. So morals aren’t technically the yardstick to apply here. Although if we were going to bend the use of the word “morals” to apply to the actions of a business entity, then Wal-Mart had a moral imperative to pursue this action. Money received to reimburse for medical expenses belongs to Wal-mart, not this woman. If anyone is to be considered immoral here, it’s this woman for keeping money that she acquired under the claim of “paying my medical expenses.” Mr. Coleman touches on the solution to these situations by pointing out that it should be clarified what part of the settlement will be for health costs (which would reimburse the insurer) and what should be for ‘pain, suffering, etc…’ (which would be kept by the plaintiff.)

  5. pennywit said

    Well, I wouldn’t argue that Ms. Shank is immoral. She’s fairly severely brain damaged, so her ability to be moral or immoral is virtually nonexistent.

    –|PW|–

  6. mary said

    Sympathy for the Devil? When I first read the title, I thought this would be another post in opposition to victim’s rights, or more descriptions of school shooters who ‘lash out at their tormenters’…

    So Wal Mart is the devil? Just wondering, in a hierarchy of evil, given a choice between Wal Mart, a convicted killer on death row and Dylan Klebold/Eric Harris, who would you consider to be the most evil?

  7. pennywit said

    Mary:

    “Sympathy for the Devil?” was intended as a cultural reference with an ironic twist. In particular, note the question mark. I found myself siding with a corporation that is often portrayed negatively AND my sympathy was doubly ironic because that corporation was seeking money from a woman who was brain damaged because of a horrible auto accident. That latter action, of course, being judged conventionally evil.

    As for what I consider MOST evil, that honor goes to Snuggles the fabric softener bear, followed shortly by whoever penned that horrid song “La-Da-Di, La-Da-Do.” Clear evil there. Even more than the IRS.

    –|PW|–

  8. mary said

    “Sympathy for the Devil?” was intended as a cultural reference with an ironic twist.

    It’s not all that ironic when you believe that all the corporations are criminal and all the socialists saints.

    But seeing corporate pop culture as the root of all evil while using the poppiest of it as a reference is kind of ironic

  9. pennywit said

    It’s not all that ironic when you believe that all the corporations are criminal and all the socialists saints.

    Do you allege that I believe this?

    –|PW|–

  10. Griffon1x said

    Pennywit, I correct myself on referring to you as Mr. Coleman. Should have paid closer attention to the byline. And second, good point: I would agree we can’t really judge the morality of someone with this extent of brain damage. I’ll clarify to say “The woman through those who care for her, that were involved in this case” instead of the woman herself…
    But then, having thought about this case some more over the evening, perhaps the duty of Wal-Mart to their stockholders would have been better served by letting this one pass, rather than trying to recover. If business ‘morals’ are defined by the (legally) most good for their owners, I could see that avoiding the PR hit could be argued to be more valuable to Wal-mart than this recovery. So letting this pass in the first place may have been the more ‘moral’ thing to do?
    Loving this blog (and L.O.Confusion)!

  11. pennywit said

    Well … if you think of it as “just this one instance,” that’s one thing. But think about what else Wal-Mart has done here. Generally, health insurers (which Wal-Mart functioned as in this case) don’t exercise this particular subrogation right. But by taking action here (and carrying it to the Supreme Court), Wal-Mart has served notice that it will enforce those subrogation rights in the future.

    –|PW|–

  12. mary said

    Do you allege that I believe this?

    Dude, lighten up. It’s a cultural reference with an ironic twist..

    To say nothing about that eeviil Monsanto and the “Harvest of Fear” you just linked to.

    Thank goodness the money grubbing pop culture capitalists at Vanity Fair are speaking the truth to the powerful money grubbing frankenfood-producing capitalists at Monsanto.

  13. pennywit said

    Just checking, Mary. You wouldn’t believe the number of people who’ve assumed that I hold a host of views based on a single post.

    As for Monsanto — I mainly linked that article because 1) I do think Monsanto’s being heavy-handed, 2) I’m interested in Ron’s thoughts on this, since he’s an IP attorney, and 3) Monsanto’s also allegedly going after farmers who accidnetally receive patented seeds via natural methods — i.e. carried by birds. The last gave me the image of some earnest investigator (probably an intern) sraping bird excrement off my car to check it for infringing IP.

    –|PW|–

  14. Last Word said

    Insurers rights to pursue monies paid out from the wrong doer is contractual in health insurance policies. The Shanks attorney knew this, yet he settled this case too low, did not reduce his fees… or accomodate the Walmart’s lien….and I have not seen any media attention on this “behavior”. Don’t forget that subrogation in our world of insurance, benefits everyone as it makes the wrong-doer responsible….including working with the Consumer Product Safety Commission for product liability,(reember all those Firestone tires), the National Transportation Safety Commission and other agencies to give us a better world. A self-insured retention program by Wal-mart benefits all of their employees when they recoup costs. I have not seen the media talk to anyone from the subrogation industry, only opinions from non-industry people who as a whole do not understand the whole picture and have exploited this story with a negative slant.

  15. pennywit said

    When the story first broke, I was surprised that their attorney hadn’t taking steps to insulate as much of the settlement as possible from subrogation. I also saw a letter to the editor in the WSJ (I don’t have the link, unfortunately) that suggested what I thought was a good remedy — for Wal-Mart to recover a pro rata portion of Ms. Shank’s settlement amount.

    –|PW|–

  16. Ara Rubyan said

    I’m just a guy who shops at Wal-Mart and still doesn’t understand subrogation rights. I do understand that the shareholders of Wal-Mart care more about what they CAN do and not so much about what they SHOULD do. No surprise there: as usual, the shocking thing isn’t what’s illegal; the shocking thing is what is perfectly legal.

    No one will stop shopping at Wal-Mart because of this; but most people will use this to illustrate the idea that our country is seriously off on the wrong track. And in the end, that hurts all of us — least of all Wal-Mart.

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