United States District Court, D. Hawaii
ORDER (1) GRANTING IN PART PETITIONER'S MOTION
FOR DETERMINATION OF VALIDITY OF LIEN, ECF NO. 38; AND (2)
DENYING RESPONDENT'S MOTION FOR PARTIAL SUMMARY JUDGMENT,
ECF NO. 40
MICHAEL SEABRIGHT CHIEF UNITED STATES DISTRICT JUDGE.
December 29, 2014, Petitioner Randy Rudel ("Rudel")
crashed his motorcycle into a vehicle allegedly making an
illegal left turn in front of him. ECF No. 1-2 at 7. He
suffered catastrophic injuries, resulting in multiple
surgeries and partial amputations of his left leg and
forearm. Id. Because of the accident, Respondent
Hawaii Management Alliance Association ("HMAA")
paid $400, 779.70 in health-insurance benefits under
Rudel's HMAA benefit plan ("the Plan"). ECF No.
49-6 at 1-5. Rudel also received a $1.5 million third-party
tort settlement from the vehicle-driver's liability
insurance carrier. ECF No. 1-2 at 14. HMAA then claimed a
lien against Rudel, seeking reimbursement of the $400, 779.70
from his $1.5 million settlement, based on a reimbursement
provision in the Plan. ECF No. 49-6 at 1. Rudel filed this
action to determine the validity of HMAA's claim of lien.
court faces two Motions. Rudel filed a "Motion for
Determination of Validity of Claim of Lien of [HMAA], "
ECF No. 38, ultimately arguing that HMAA is not entitled to
any reimbursement. HMAA responded with a Motion for
Partial Summary Judgment, ECF No. 40, contending that
Rudel's action is preempted by the Employee Retirement
Income Security Act of 1974 ("ERISA"), 29 U.S.C.
§§1001 et seq., and that its lien is valid
under the Plan. The Motions raise complex and important
questions involving two distinct ERISA-preemption doctrines
as applied to two interrelated Hawaii statutory provisions,
Hawaii Revised Statutes ("HRS") §§
431:13-103(a)(10) and 663-10.
on the following, Rudel's Motion is GRANTED in part, and
HMAA's Motion is DENIED.
circumstances of the December 29, 2014 accident, as well as
the severe nature of Rudel's injuries, are not at issue
in these Motions. For present purposes, it is undisputed that
Rudel was a member of an ERISA plan - an HMAA
employee-sponsored health benefits plan that provided him
certain insurance benefits, including medical care,
treatment, and services for injuries resulting from the
accident. ECF No. 49-3 at 2. Nor is it disputed that HMAA
eventually paid $400, 779.70 in accident-related expenses (at
least as of November 16, 2015) out of total charges of $634,
839.03. ECF No. 49-6. The Petition also
establishes that, on August 17, 2015, Allstate Insurance
Company (which covered the driver of the other vehicle) paid
Rudel $1.5 million under a settlement that Allstate
represented was "the total applicable available policy
limits." ECF No. 1- 2 at 54. The settlement agreement
includes a clause stating:
The consideration paid herein constitutes general damages
incurred on the account of personal injury or sickness and/or
emotional distress resulting therefrom, as defined by IRS
Code Section 104(a)(2) and does not duplicate medical
payments, no-fault payments, wage loss, temporary disability
benefits or other special damages previously received by
Id. at 52. The Petition contends that the value of
Rudel's claim against the driver/tortfeasor exceeded $5.9
million, including $4 million in general damages.
Id. at 11. Finally, the record establishes that on
November 16, 2015, HMAA claimed (and still claims) a lien of
$400, 779.70 against Rudel's $1.5 million settlement. ECF
HRS §§ 431:13-103(a)(10) and 663-10
Hawaii Insurance Code, subject to certain exceptions, defines
"unfair methods of competition and unfair or deceptive
acts or practices in the business of insurance" as
including the following:
(10) Refusing to provide or limiting coverage available to an
individual because the individual may have a third-party
claim for recovery of damages; provided that:
(A) Where damages are recovered by judgment or
settlement of a third-party claim, reimbursement of past
benefits paid shall be allowed pursuant to section
663-10; HRS § 431:13-103(a) (emphasis
turn, HRS § 663-10, entitled "Collateral sources;
protection for liens and rights of subrogation, "
(a) In any civil action in tort, the court, before any
judgment or stipulation to dismiss the action is approved,
shall determine the validity of any claim of a lien against
the amount of the judgment or settlement by any person who
files timely notice of the claim to the court or to the
parties in the action. The judgment entered, or the order
subsequent to settlement, shall include a statement of the
amounts, if any, due and owing to any person determined by
the court to be a holder of a valid lien and to be paid to
the lienholder out of the amount of the corresponding special
damages recovered by the judgment or settlement. In
determining the payment due the lienholder, the court shall
deduct from the payment a reasonable sum for the costs and
fees incurred by the party who brought the civil action in
tort. As used in this section, lien means a lien arising out
of a claim for payments made or indemnified from collateral
sources, including health insurance or benefits, for
costs and expenses arising out of the injury which is the
subject of the civil action in tort. If there is a
settlement before suit is filed or there is no civil action
pending, then any party may petition a court of competent
jurisdiction for a determination of the validity and amount
of any claim of a lien.
HRS § 663-10 (emphases added).
§§ 431:13-103(a)(10) and 663-10, "the [Hawaii]
legislature intended to limit a health insurer's right of
subrogation[.]" Yukumoto v. Tawarahara, 140
Haw. 285, 291, 400 P.3d 486, 492 (2017). The legislative
history and intent behind both provisions becomes critically
important in resolving the Motions. As explained to follow,
resolution ultimately turns on whether this Hawaii law is
"specifically directed toward entities engaged in
insurance, " Kentucky Ass 'n of Health Plans v.
Miller, 538 U.S. 329, 342 (2003), such that it is - or
parts of it are - "saved" from preemption for
purposes of ERISA § 514(b)(2)(A), 29 U.S.C. §
1144(b)(2)(A). The court thus explains relevant aspects of
this history in detail, and as set forth in
invalidating a contractual subrogation clause in a non-ERISA
health insurance plan, Yukumoto recognized that:
[s]ituations involving tort recovery in personal insurance
contexts, like the instant case [of health insurance], often
include payment by the tortfeasor for intangible losses such
as life, death, health, pain and suffering, and physical well
being, where it is difficult to ascertain exact measurements
of loss. In this way, recovery for medical insurance benefits
and tort damages . . . does not necessarily produce a
windfall or duplicative recovery to the insured.
140 Haw. at 294, 400 P.3d at 495. And after analyzing the
statutory language of both provisions and the legislative
history, Yukumoto concluded that "the [Hawaii]
legislature limited the type of damages from which a
lienholder may be reimbursed. The legislature did not provide
that the lienholder may be reimbursed from an insured's
recovery of general damages which, as mentioned previously,
are difficult to determine exactly." Id. at
295, 400 P.3d at 496. Rather, § 663-10 provides that
"the amount due and owing to any holder of a valid lien,
[is] to be paid to the lienholder from 'special
damages recovered by the judgment or
settlement.'" Id. The idea is that an
injured person should not receive a "windfall" - if
someone recovers damages from a tortfeasor for medical costs
that were already (or will be) paid by a health insurer, the
insured should not be entitled to double-recovery. A health
insurer should be entitled to (and limited to) reimbursement
from "special damages" obtained from a tort
judgment or settlement.
legislative history of HRS §§ 663-10 and
431:13-103(a)(10) demonstrates that a health insurer's
sole rights to reimbursement and subrogation are
provided for in those statutes, and that a health
insurer's right to subrogation is therefore
limited." Id. at 295-96, 400 P.3d at 496-97
(emphasis added). The statutory regime "allow[s] for
collateral sources to be reimbursed when special damages
recovered in a judgment or settlement duplicate the amounts
they had paid." Id. at 296, 400 P.3d at 497.
particular, the Hawaii legislature passed Act 29 in 2000,
"to 'make it an unfair or deceptive act to limit or
withhold coverage under insurance policies because a consumer
may have a third-party claim for damages.'"
Id. (quoting H. Stand. Comm. Rep. No. 1330-00, in
2000 House J. at 1515). "Act 29 made clear that collateral
sources were required to pay benefits, and were limited to
reimbursement under [§ 663-10] in third-party personal
injury situations." Id. (citing H. Stand. Comm.
Rep. No. 1330-00).
2001, "the legislature considered and subsequently
passed [Senate Bill ("S.B.")] 940, which amended .
. . HRS [§] 431:13-103(a)(10) to expressly make it an
unfair insurance practice for a health insurer to
limit or exclude insurance coverage to an insured who has a
third-party claim for damages." Id. at 297, 400
P.3d at 498 (emphasis added) (citing S. Stand. Comm. Rep. No.
107, in 2001 Senate J. at 987). "The purpose of S.B. 940
was to 'make mutual benefit societies (societies) and
health maintenance organizations (HMOs) subject to the unfair
methods of competition and unfair and deceptive acts and
practices of the business of insurance, for refusing to
provide or limiting coverage to an individual having a
third-party claim for damages." Id. (quoting S.
Stand. Comm. Rep. No. 107).
is, S.B. 940 (which was enacted in 2002 by Act 228 of the
Session Laws of Hawaii ("SLH")) specifically
amended § 431:13-103(a)(10) to clarify that "Act
29, SLH 2000, established lien rights for health insurance
benefits paid[.]" Id. (quoting testimony of the
State Insurance Commissioner). The legislature's intent
in amending § 431:13-103 was "that societies and
HMOs promptly pay the benefits owing under their policies,
and recoup their payments from a third-party claim by lien as
provided under section 663-10, HRS." Id.
(quoting S. Stand. Comm. Rep. No. 107). Similarly, in passing
Act 228, the legislature explained:
Refusing to provide or limiting health coverage to persons
who have third-party claims for damages is not permitted,
except for reimbursement under section 663-10, Hawaii Revised
Statutes (HRS). This measure makes such acts unfair insurance
practices under article 13 of the insurance code to eliminate
any doubt that health insurers have always been subject to
these limitations under section 663-10, HRS. Health insurers
continue to be entitled to reimbursement of their subrogation
liens under section 663-10, HRS.
Id. at 298, 400 P.3d at 499 (quoting Conf. Comm.
Rep. No. 67-02, in 2002 House J. at 1783). Act 228 removed
statutory language appearing to exempt health insurers, and
added § 431:13-103(a)(10)(C), applicable to
"entities licensed under chapter 432 or 432D." 2002
Haw. Sess. Laws Act 228, § 1. Act 228 also, as noted
earlier, added several paragraphs to § 663-10, specific
to those entities. Id. § 2.
contrast to this Hawaii law, HMAA's Plan defines a right
of reimbursement that is not limited to special damages.
Specifically, the Plan's Summary Plan Description
("SPD") provides, in part, as follows:
If you have complied with the rules above [regarding
cooperation], we will pay benefits in connection with the
injury or illness to the extent that the medical treatment
would otherwise be a covered benefit payable under this SPD.
However, we shall have a right to be reimbursed for any
benefits we provide, from any recovery received from or
on behalf of any third party or other source of recovery in
connection with the injury or illness, including, but
not limited to, proceeds from any:
• Settlement, judgment, or award;
• Motor vehicle insurance including liability insurance
or your underinsured or uninsured motorist coverage;
• Workplace liability insurance;
• Property and casualty insurance;
• Medical malpractice ...