The Made Whole Argument Revisited

Even in these post Sereboff days of "equitable liens" and "constructive trusts," the most common lien-defeating argument we face is that members are not made whole by their recovery. Plaintiff attorneys argue that if their client is not made whole, or fully compensated by their recovery, then the Plan should waive or significantly reduce their lien. Suggesting that Plans simply waive their liens is like asking us to join Osama Bin Laden on a camping trip. It's simply not done.

The made whole doctrine developed from the property and casualty industry and says that until an injured party is put back into the position he or she was before the injury, then there is no subrogation right. For most Non-ERISA plans, there are state laws which apply this rule to medical liens and even require a waiver. However, because of federal preemption, self funded plans with well written language can trump state laws. Indeed, Federal case law has said as much.

Before we get into a legal battle of plan language, preemption, and the law, how do we even know if a member's recovery makes him or her whole? Plaintiff attorneys of course argue that their client's case is worth significantly more than was recovered. But there are general rules that provide guidance. Jury verdict research indicates that if a person recovers at least 4 – 6 times the medical bills amount then he or she may have been made whole. Another general rule is that if a person recovers policy limits then he has not been made whole because a liability carrier determined that the member's injuries out-valued the available coverage. And in cases where a person voluntarily accepts (settles for) less than policy limits, the logical argument follows that the settlement amount must have been enough.

In the end, only a judge or jury can determine the amount that makes a person whole. Since most cases do not reach that point, there is always sufficient gray area to argue around a waiver, regardless of a Plan's subrogation provision or applicable law.