To repay or not to repay?  A health insurer’s subrogation rights under the microscope To repay or not to repay?  A health insurer’s subrogation rights under the microscope

To repay or not to repay? A health insurer’s subrogation rights under the microscope

6 November 2013 | Health Sector

For personal injury lawyers, whatever side of the plaintiff/defendant divide they practise on, making statutory and other repayments from settlement monies is an everyday occurrence. Settlement terms generally provide that the settlement sum is inclusive of any repayments - whether to statutory bodies (such as Medicare, Centrelink or WorkCover) or otherwise.

When a plaintiff has private health insurance it is (almost) standard practice for that party’s solicitors to obtain a notice from the insurer outlining what repayments would be required upon settlement of the claim.

Recently in Bupa Australia Pty Ltd v Gloria Shaw and James Walker (as executors of the estate of Norman Shaw) [2013] VSC 507 the estate of a gentleman who was the alleged victim of his surgeon’s negligence, challenged his health insurer’s right to recover $338,953.56 in payments it had made to the deceased for treatment he required as a result of the alleged negligence.
The facts
The alleged negligence occurred in September 2005. The deceased passed away on 2 May 2010 before his claim against the surgeon had settled. The claim was continued by the joint executors of his estate.

In December 2011 the estate eventually settled the negligence proceedings against the surgeon for $400,000 plus costs. Pursuant to a Deed of Release the estate released the surgeon from any and all claims arising out of the negligence. The Deed of Release specifically required the defendant to indemnify the estate against any potential claim by Bupa.
Equitable recovery against the estate
Bupa argued that in the absence of the Deed of Release it would have been entitled to recover the monies it had paid from the surgeon pursuant to the doctrine of subrogation. It submitted, and the Court agreed, that the estate’s actions in executing the release had extinguished those rights. Bupa therefore claimed equitable relief against the estate.

The estate argued that the terms of the policy and the fund rules had extinguished Bupa’s right of subrogation, and therefore the claim against the estate could not be sustained.

Noting that an insurer’s right to subrogation can be ‘expanded, modified or excluded either expressly or impliedly by the terms of the contract’ the Court held that the rules actually expanded Bupa’s rights pursuant to the common law doctrine of subrogation. Under the rules Bupa could compel an insured to make a claim for compensation before making payment on a claim. Bupa could therefore prosecute its claim against the estate.

Could Bupa recover monies it wasn’t strictly required to pay?
The estate then argued that the payments under the policy had been made in error, which meant that Bupa was not entitled to recover them.

Bupa relied upon the House of Lords decision in King v Victoria Insurance Company Ltd (1896) AC 250 to argue that even if the payments were not strictly required under the terms of the policy, it was still entitled to recovery. The Court accepted this, citing Meagher, Gummow & Lehane Equity: Doctrines and Remedies:

"A payment by an insurer reasonably and in good faith and accepted by the insured, but not in truth within the four corners of the policy, will still be regarded as a payment on the policy and as giving rise to the doctrine of subrogation...This is consistent with the view that subrogation arises to give effect to the equities between the parties upon payment rather than in working out strict contractual rights...What is required on any basis is the contract of indemnity plus a payment which if not called for is at least bona fide and reasonable."

In the ‘dire circumstances’ of the insured, the court held that it was reasonable for Bupa to continue to accept and pay claims made by the insured for health services, even though the insured could not have compelled Bupa to do so under the terms of the policy.
Was Bupa prevented from exercising its right of subrogation by its own conduct?
The estate’s final submission was that Bupa had either waived or elected not to exercise its right of subrogation based on its conduct during the course of the claim.

The court referred to numerous letters from Bupa to the claimant’s solicitors in which it had clearly expressed its right to recovery under the policy and requested that the estate’s solicitors provide it with updates with respect to the progress of the claim at all times.

During the course of the claim, the estate’s solicitors advised Bupa that both the estate and the defendant surgeon considered that it had no right to recovery or subrogation under the policy, Bupa responded that the insured “should treat Bupa as it would [Medicare] in respect of medical expenses paid by [it] for the treatment of compensable injuries.’

Despite asking to be consulted prior to mediation, Bupa was not told of the mediation or settlement until it made its own enquiries some months later. The court held that in the circumstances Bupa did not have knowledge of the mediation or proposed settlement and it was only with the benefit of hindsight that it could be argued it should have acted to prevent the executors settling without taking its interests into account. Further, Bupa had no legal right to assume conduct of the proceedings.
This case highlights the need for defendants to obtain a fulsome release from a claimant and to ensure that settlement sums are expressed as being inclusive of any repayments that a claimant may be required to make to his or her private health insurer.