June 01, 2011
In an unpublished decision, the Michigan Court of Appeals has reaffirmed the well established principle that a claim for loss of earning capacity, or “loss of potential earnings”, is simply not recoverable under the No-Fault Act. Additionally, the Court reaffirmed that a college student may not recover excess wage loss in a third-party negligence suit when the student has presented no evidence that any employment offer had been extended.
In Soranno v Abbas, unpublished opinion per curiam of the Michigan Court of Appeals, issued May 19, 2011 [Docket No. 296517], the Court held that an unemployed college student must provide specific evidence of wages that “would, rather than could” have been earned but for her injuries in order to recoup excess wage loss.
The Court relied on the holdings in Ouellette v Kenealy, 424 Mich 83; (1985) and Marquis v Hartford Accident and Indemnity, 444 Mich 638; (1994), which were based on the legislature’s intent to construct the “work loss” provisions of the No-Fault Act to calculate loss based on actual earnings, not on future possibilities, as this would be speculative. See also Kennedy v Auto-Owners Ins Co, 87 Mich App 93 (1978).
It is the italicized provision of the Ouellette decision that had seemingly provided the basis for many undergraduate and graduate students to bring claims for excess wage loss in their third-party negligence actions. The Supreme Court in Ouellette explained:
“Work loss”, as are the other components of loss, is restricted to accrued loss, and thus covers only actual loss of earnings as contrasted to loss of earning capacity. Thus, an unemployed person suffers no work loss from injury until the time he would have been employed but for his injury. On the other hand, an employed person who loses time from work he would have performed had he not been injured has suffered work loss. . .Work loss is not restricted to the injured person’s wage level at the time of injury. For example, an unemployed college student who was permanently disabled could claim loss, at an appropriate time after the injury, for work he would then be performing had he not been injured. Ouellette, 424 Mich at 86-87 (emphasis in original).
However, as the Soranno Court noted, without any evidence of how much money the plaintiff would have earned after graduation from college, any jury verdict for excess economic loss would be based purely on speculation and conjecture. Plaintiff’s neurologist did present evidence that, more likely than not, she would have successfully completed college. Additionally, Plaintiff’s expert economist opined that she would have also gone on to earn an average salary for a female college graduate during her lifetime. The Court, however, held that this evidence was too general.
Following the holdings in Swartout v State Farm, 156 Mich App 350; (1986) and Gerardi v Buckeye Union Ins. Co., 89 Mich App 90; (1979), the Court held that the plaintiff must show some specific proof of a potential job. For example, in Swartout, the plaintiff, a nursing student, presented an affidavit from a hospital setting forth a job offer that included a rate of pay. The plaintiff would have begun this employment had the accident not caused her to delay in finishing nursing school. In Soranno, however, the unemployed plaintiff was merely in her first semester of college and could not even provide a graduation date, a potential source of employment following graduation, a date for commencement of employment, or rate of pay or salary. Thus, the Court overruled the trial court’s judgment awarding excess economic damages in the amount of $125,000.00.
This case cites Marquis, 444 Mich at 638 for the following principle:
Lost earning capacity is what an injured person could have earned but for the accident, whereas work loss is what an injured party would have earned but for the accident. In an unpublished decision, the Michigan Court of Appeals has reaffirmed the well established principle that a claim for loss of earning capacity, or “loss of potential earnings”, is simply not recoverable under the No-Fault Act. Additionally, the Court reaffirmed that a college student may not recover excess wage loss in a third-party negligence suit when the student has presented no evidence that any employment offer had been extended.
In Soranno v Abbas, unpublished opinion per curiam of the Michigan Court of Appeals, issued May 19, 2011 [Docket No. 296517], the Court held that an unemployed college student must provide specific evidence of wages that “would, rather than could” have been earned but for her injuries in order to recoup excess wage loss.
The Court relied on the holdings in Ouellette v Kenealy, 424 Mich 83; (1985) and Marquis v Hartford Accident and Indemnity, 444 Mich 638; (1994), which were based on the legislature’s intent to construct the “work loss” provisions of the No-Fault Act to calculate loss based on actual earnings, not on future possibilities, as this would be speculative. See also Kennedy v Auto-Owners Ins Co, 87 Mich App 93 (1978).
It is the italicized provision of the Ouellette decision that had seemingly provided the basis for many undergraduate and graduate students to bring claims for excess wage loss in their third-party negligence actions. The Supreme Court in Ouellette explained:
“Work loss”, as are the other components of loss, is restricted to accrued loss, and thus covers only actual loss of earnings as contrasted to loss of earning capacity. Thus, an unemployed person suffers no work loss from injury until the time he would have been employed but for his injury. On the other hand, an employed person who loses time from work he would have performed had he not been injured has suffered work loss. . .Work loss is not restricted to the injured person’s wage level at the time of injury. For example, an unemployed college student who was permanently disabled could claim loss, at an appropriate time after the injury, for work he would then be performing had he not been injured. Ouellette, 424 Mich at 86-87 (emphasis in original).
However, as the Soranno Court noted, without any evidence of how much money the plaintiff would have earned after graduation from college, any jury verdict for excess economic loss would be based purely on speculation and conjecture. Plaintiff’s neurologist did present evidence that, more likely than not, she would have successfully completed college. Additionally, Plaintiff’s expert economist opined that she would have also gone on to earn an average salary for a female college graduate during her lifetime. The Court, however, held that this evidence was too general.
Following the holdings in Swartout v State Farm, 156 Mich App 350; (1986) and Gerardi v Buckeye Union Ins. Co., 89 Mich App 90; (1979), the Court held that the plaintiff must show some specific proof of a potential job. For example, in Swartout, the plaintiff, a nursing student, presented an affidavit from a hospital setting forth a job offer that included a rate of pay. The plaintiff would have begun this employment had the accident not caused her to delay in finishing nursing school. In Soranno, however, the unemployed plaintiff was merely in her first semester of college and could not even provide a graduation date, a potential source of employment following graduation, a date for commencement of employment, or rate of pay or salary. Thus, the Court overruled the trial court’s judgment awarding excess economic damages in the amount of $125,000.00.
This case cites Marquis, 444 Mich at 638 for the following principle:
Lost earning capacity is what an injured person could have earned but for the accident, whereas work loss is what an injured party would have earned but for the accident.
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FEDERAL COURT INVALIDATES CMS MEDICARE REIMBURSEMENT PRACTICES IN LIABILITY CASES
CONTRIBUTOR – M. SEAN FOSMIRE
An order was entered in favor of plaintiffs on May 11, 2011, in the case of Haro v Sebelius, pending in the U.S. District Court in Arizona. The plaintiffs, a group of personal injury plaintiffs and their attorneys in several underlying liability lawsuits, are challenging regulations adopted by the Centers for Medicare and Medicaid Services (CMS) under the Medicare Secondary Payer (MSP) Act and the practices of the MSP Recovery Contractor (MSPRC) in enforcing the government’s MSP recovery rights.
The particular practices that were challenged were:
1. Requiring that the plaintiff and his attorney pay the entirety of the asserted reimbursement claim before making an administrative challenge to the propriety of the claim or the amount that was being claimed as reimbursement.
2. The use of “scare tactics” to enforce the reimbursement demands.
3. The imposition of an “exorbitant interest rate”.
4. Threats to cut off the beneficiaries’ Social Security benefits.
In each of the cases, the MSPRC had, following the settlement or trial of the underlying personal injury claims, submitted to the plaintiffs and their attorneys a demand that the entire amount of the Medicare reimbursement claim be paid within 60 days, failing which interest at the rate of 11.375% would begin to accrue and the cases would be referred to the Department of Treasury for collection action. The plaintiffs’ attorneys were further notified that they were not permitted to release any funds to their clients until the Medicare reimbursement had been paid.
The Court noted that the MSP program, as initially created, was designed to ensure recovery under the MSP program from insurance companies, such as workers’ compensation carriers or automobile no-fault carriers. Amendments that were made in 2003 to expand the program added language that would permit CMS to recover directly from tortfeasors and their insurers.
The Court commented that the 60-day repayment requirement is justified when the obligation is that of a primary plan, an insurer, or a self-insured entity. Once a judgment or settlement establishes a payment obligation, the reimbursement payment is due and owing to CMS. From that point, if it is not made within 60 days, the government may bring an action against the insurer for recovery, including the statutory award of double damages.
The Medicare beneficiary is “positioned differently”, according to the Court. The beneficiary may seek waiver of the recovery by the department, and the regulations provide for an appeal of the amount of the reimbursement claim being sought. The regulations give the secretary of HHS the authority to suspend collection activities on a debt when a waiver or review of the debt has been requested.
After some consideration of the extent of CMS’s authority under the regulations, the Court found:
1. The imposition of the 60-day reimbursement requirement is neither rational nor consistent with the statutory scheme.
2. The requirement unnecessarily chills the right of a beneficiary to seek a waiver or to dispute the reimbursement claim.
3. The regulations and practices exceed the fiscal objectives and policies of the reimbursement provision.
The Court next turned its attention to the efforts to collect reimbursement amounts from counsel. Those efforts are based on the position that plaintiffs’ attorneys are included in the statutory definition of a person or entity “that has received a primary payment” on behalf of their clients.
The Court observed that attorneys have never been specifically identified under that section. It found that an attorney who is paid the total amount of a settlement or a judgment has a property interest only in the amount of his fees and expenses. The remainder of the funds belong solely to the client. The Court ruled that it was improper to attempt to impose an obligation on the attorney with respect to property that belongs to the client.
The Court could find no statutory support, either in the language of the statute or in its legislative history, to support the CMS’s position as reflected in the regulations that it may assert a direct cause of action to recover the reimbursement claim from the attorney who has received the funds and then remitted them to his client.
The request for an injunction against the activities found to be improper was granted. Further, the Court certified the case as a nationwide class action on behalf of similarly situated Medicare beneficiaries.
Risks for defendants
The following language from the order is of crucial importance for liability insurers and self-insureds in connection with the allocation of their responsibilities and those of plaintiffs when settling a case. CMS argued that a right of action against a plaintiff’s attorney is necessary to ensure that the money is not paid over to the client, and then spent, before the MSPRC can get its hands on it:
“Importantly, the regulation expressly provides the appropriate course of action for the Secretary: if the beneficiary or other party receives a third-party payment and does not reimburse Medicare, the third-party payor must reimburse Medicare even though it has already reimbursed the beneficiary. . . Congress expressly allocated this burden to the third-party liability payor that makes the payment to a party other than Medicare when it is, or should be, aware that Medicare has made a conditional payment . . .”
In other words, if CMS is concerned that the plaintiff will spend the money, the statute provides it can always go after the liability insurer for a second payment.
Under the Court’s analysis, the calculation of risk is higher for the insurer or self-insured defending the claim. There will be a greater need on the part of a settling defendant to ensure that there is an agreement on the distribution of the funds, before the settlement is finalized, rather than leaving it to the Medicare regulations to govern the actions of the plaintiff and his attorney.
We have long advocated the use of a hold-back when it is known that there are Medicare conditional payments at issue. Under a hold-back agreement, the defendant and the insurer require that the claimant and his attorney agree, as a condition of the settlement agreement, to hold a specified amount of money in the attorney’s trust account to satisfy the Medicare reimbursement claim. We typically recommend a requirement that the plaintiff’s attorney provide documentation to the attorney for the defendant of the satisfaction of the Medicare reimbursement claims before the remainder of the funds may be released. In many cases, it is useful to incorporate this agreement in an order of the court, particularly in cases involving wrongful death claims or claims brought on behalf of minors.
Although the Medicare regulations may not require that a plaintiff’s attorney hold funds beyond the attorney’s fees and reimbursed expenses, this can be made a condition of settlement and essentially become a contractual undertaking by the plaintiff and his attorney. Requiring a holdback as a condition of settlement may well mean that some settlements will not occur and that more cases will need to be tried. But this may be necessary in order to ensure that the defendant will not have to pay the reimbursement amounts a second time.
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SAVE THE DATE
EVENT: Garan Lucow Miller’s Annual Golf Outing
DATE: Tuesday, August 23, 2011
VENUE: Forest Akers West Golf course on the campus of MSU
Banquet dinner to be on campus at the University Club
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UPCOMING SEMINARS
The Troy Breakfast Seminar will be held on Thursday October 27, 2011 at the Troy Marriott.
Please watch Law Fax for further information.