The Daily Sandwich

"We have to learn the lesson that intellectual honesty is fundamental for everything we cherish." -Sir Karl Popper

Location: Boston, Massachusetts, United States


Monday, January 23, 2006

Will your insurance company pay you-- or sue you?

This comes from Randy Cassingham's True Stella Awards, Vol. 69, dated December 21, 2005. While reading it, consider the Bush administration's insistence on the need for 'tort reform' so that corporations won't have to keep shelling out big bucks for small-time hucksters who try to game the system.

This strikes especially close to home because the most common defense of Wal-Mart I hear from conservatives I know is that 'they're just doing what any company does in a free market.' Of course, one of the first things you learn in business courses is that corporations are, in effect, people. And people can't get away with this sort of con game. Unless they're really, really rich people. In any case, it amounts to an argument for 'social Darwinism.' Something that most conservatives profess to hate, what with their devotion to moral values and all.

It's a long piece, but highly recommended reading.

After a collision between her minivan and a tractor-trailer
five years ago, Debbie Shank now spends her days in a
wheelchair in a nursing home, able to move only one arm and
two fingers. Brain damage and memory loss has drained most
meaningful content from her conversations with her husband
of 30 years.

"She'll ask about the boys, she'll ask about the cat," says
Jim Shank. "Whenever I'm there, she thinks it must be a
mealtime. We don't really hold a conversation."

Her 17-year-old son is in the Army, which she knows, but he's
scheduled for deployment to Iraq next year, which she
doesn't know. She also doesn't know that there is a war
in Iraq.

To help compensate for the terrible injuries she received
in the accident, Shank and her husband sued G.E.M. Trucking
and James David Shivers, the driver who hit her, in U.S.
District Court in 2000. According to that lawsuit, Shank
suffered damage to her brain stem and other injuries, and
was in a coma after Shivers' tractor-trailer struck her
near Cape Girardeau, Mo.

The lawsuit was settled for $900,000; after attorneys' fees
and other costs, Shank's share was less than half -- just
$417,477. The court set up an irrevocable trust for the
money so it could only be used to pay for her long term
care, and the money was sent directly there. Her husband
received just over $119,000, presumably for his loss of

Before the accident, Shank had worked the night shift
stocking shelves at a Missouri Wal-Mart so she could spend
her days with her sons so she could be a "better mother".
"It's all she ever wanted to be," her husband says. Luckily,
she had gotten health insurance through her employer. It
paid for her huge medical bills after the accident.

But because she later got a settlement from her lawsuit,
Wal-Mart's health plan administrators demanded she repay the
money her health insurance paid toward her care. To press the
case, the retail giant's health plan is suing the Shanks in
U.S. District Court in St. Louis. The lawsuit, filed by the
Administrative Committee of the Wal-Mart Stores Inc.
Associates' Health and Welfare Plan, claims that her total
medical expenses exceed $469,216, and it demands that amount
in return. Plus court costs to get it. Plus interest.

But wait; while Shank's settlement was $900,000, she only
actually got $417,477. Shouldn't that be the limit? No, the
company says: it wants all $469,216, as spelled out in its
policy. So if the company wins, the amount in Shank's trust
will not be enough; the family could conceivably have to come
up with nearly $52,000 more than what they won in court.

Jim Shank had anticipated and feared just such an outcome.
He received a letter two weeks after the accident that, he
recalls, said the insurance would not cover his wife's care
unless he signed over their right to lawsuit proceeds. Not
surprisingly, he signed it so his wife could get the care
she desperately needed to survive.

Lawyers familiar with this type of suit says it's not
really uncommon. In fact, according to the insurer's
lawsuit, the terms are explicit in Wal-Mart's health plan,
which is to be reimbursed first from lawsuit proceeds up
to 100 percent of the medical costs.

According to the lawsuit, the health plan also places the
burden of attorney's fees and court costs on the employee.
So the health plan also wants the Shanks to pay for the
costs the health plan is incurring to sue them.

Maurice Graham, one of the lawyers for Debbie Shank, says
only part of the money she received was used to pay
medical bills. Since the settlement money was placed in a
trust created by the federal court, he says, it never came
into the couple's hands and is supposed to be used only
for her ongoing support.

Marty Hires, a spokesman for Wal-Mart, says filing the
lawsuit was just a way for the company to preserve its
legal options and that the health plan has not decided
whether to pursue the case.

Regardless, the lawsuit left Shank's lawyer, Graham,
incredulous. "I can't believe that they've done this,"
he said. "The cost to care for her in the future is
going to be literally millions. She is confined to a
nursing home, has a normal life expectancy, and requires
full-time care."

If the insurance company does pursue the case and
succeeds, Debbie Shank's already dire circumstances likely
would turn even more bleak. Jim Shank says she'd probably
lose her caretaker and the wheelchair-accessible van they
bought for her. Wal-Mart spokesman Marty Hires said the
company isn't sure whether it will actually pursue the
lawsuit now that it's been filed; it was filed before the
statute of limitations expired to "preserve our options,"
he said. "This is kind of a standard procedure." He refused
further comment, citing federal health privacy laws.

How comforting that must be for Jim Shank to know Wal-Mart
is only "preserving its options." He also fears the
prediction made years earlier by a lawyer who specializes
in elder care might come true: that if the money runs out,
Shank might have to divorce his wife so that she can become
eligible for Medicaid.

Lawyers familiar with insurance law say such measures are
not unusual for health plans that, like Wal-Mart's, are
self-financed -- that is, funded by employers and/or
employee unions -- to recoup medical expenses. "Wal-Mart
has certainly been one of the more aggressive and assertive
in doing this," says Sheldon Weinhaus, a St. Louis lawyer.
In his opinion, courts are starting to "recognize the
unfairness of this, and they're looking for reasons to stop
Wal-Mart and others from doing this."

On the other side of the coin is attorney Jim Singer, who
has faced Weinhaus in court over such issues. He says such
lawsuits helps employers from having to cut benefits or ask
workers to contribute more. "You need to put the money back
in the trust so it will be available for other people," he
said. But that generally only works for self-financed
insurers; in most cases state law prohibits regular insurance
companies from attacking such settlements.

But don't make your mind up yet: this is far from a cut and
dried issue. The question becomes, was Mrs. Shank's lawsuit
settlement in compensation for her past medical bills, or
for her future care? It's an important question, since if it
was for her medical bills, she shouldn't be able to collect
twice -- first from the insurance company, and again from the
lawsuit -- for that loss. And if that's the case, Wal-Mart's
health insurance subsidiary is well within its rights to
recover after it paid out for its client, even when a third
party was apparently at fault for her injuries.

Yet it was the court that set up her trust fund-- in an
irrevocable trust at that-- for her long-term care. That is
a strong indication that the settlement money was for future,
not past, expenses. And if so, the insurance company simply
needs to swallow its losses, just like regular insurance
companies would have to do.

The issue of long-term care for critically injured people--
insured or not-- is a big one that needs to be worked on.
Meanwhile, insurance companies suing their clients who paid
their premiums in good faith to protect themselves and their
families from catastrophic losses is not a reasonable
solution to the problem, nor is making someone sign away
their rights when they're in the most stressful situations possible.

So if you think you're covered, you might want to think again.
And think about pulling out your policy and actually reading
the fine print to see if you've agreed to let them sue YOU
after a catastrophic loss.