This article has been published in “The Advocate”, a monthly publication of the Arizona Association for Justice/Arizona Trial Lawyers Association, November – December 2014 issue, @2014 by Steven J. Bruzonsky, Esq.
FEHBA Liens – ER 1.15 Compliance in Consideration of Kobold?
InKobold v. Aetna Life Ins. Co., No. 1 CA-CV 12-0315. 2013 Ariz. App. LEXIS 187 (Ariz. Ct. App. Sept. 5, 2013), the Arizona Court of Appeals issued a ruling that the Federal Employees Health Benefits Act does not preempt Arizona’s state anti-reimbursement laws. Aetna filed a Petition for Review with the Arizona Supreme Court on November 6, 2013, with the United States filing an amicus curiae brief on December 20, 2013. However, the Arizona Supreme Court denied review on March 21, 2014. Division One issued a 90 day Stay Order on May 8, 2014, staying the issuance of the mandate in Kobold. However, that Stay Order expired in early August 2014. Aetna filed a Writ of Certiorari with the U.S. Supreme Court on June 20, 2014. Attorney David Abney, handling the Kobold appeal for the injured plaintiff, advises that the stay on issuance of the mandate does not affect the Kobold opinion’s validity or controlling nature; that as the Arizona Supreme Court denied the petition for review, Kobold is the substantive law of the State of Arizona (that there is no federal preemption and Arizona anti-subrogation case law applies to FEHBA lien claims); and that Kobold will remain the substantive law of the State of Arizona unless and until Congress amends the FEHBA or the U.S. Supreme Court accepts a petition for writ of certiorari and then reverses the Arizona Court of Appeals.
The question remains, as the U.S. Supreme Court has yet to accept or deny cert to Kobold, whether plaintiff personal attorneys representing injured persons with FEHBA coverage are required by ER 1.15 to protect the interest of the potential FEHBA lien claimant at settlement? Is the current status of Arizona law, that FEHBA liens are invalid, dispositive on the ER 1.15 issue such that there is no ER 1.15 duty to protect potential FEHBA liens at settlement? Clearly, if the U.S. Supreme Court denies cert to Kobold then there is no question that the appellate process is complete and Kobold is dispositive in that FEHBA lien claims are unlawful and unenforceable in Arizona. However, what if the U.S. Supreme Court grants cert for Kobold – if this occurs is there an ER 1.15 duty to protect potential FEHBA liens at settlement? If you or the client do not receive “actual notice” (See comments to ER 1.15) from the FEHBA healthplan or its subrogation company/agent that a lien is being claimed, then is there no ER 1.15 duty to protect the potential FEHBA lien at settlement? ( See Arizona Ethics Opinion No. 11-03, December 2011, in regard to the importance of “actual notice”.) What if the potential FEHBA lienholder has written a letter to you, or to another attorney on another client’s case, stating that the FEHBA plan has stopped or suspended FEHBA lien collection activities? What if the letter is dated prior to or after June 20, 2014, the date that Aetna filed a Writ of Certiorari with the U.S. Supreme Court for Kobold?
Or should you perhaps do a ninety day letter to the potential FEHBA lien claimant, under the recently amended ER 1.15? For more on this subject, please see the article “New Tool Addresses Third-Party Claims to Client Funds”, Arizona Attorney, January 2014, authored by Geoff Trachtenberg and Patricia Sallen. And even if you document what you deem to be full compliance with ER 1.15, what if later on the U.S. Supreme Court not only accepts cert for Kobold, but also reverses the Arizona Court of Appeals in Kobold? Then could the FEHBA healthplan reduce or terminate payment of medical benefits due to nonpayment/nonreimbursement of the lien (various healthplan policies often include such language)? As the attorney how do you protect yourself versus your own client in such a situation?
Here’s one situation where an attorney who I assisted on the potential FEHBA lien concluded that he has no ER 1.15 responsibility to protect the lien at settlement. In that case, the FEHBA healthplan paid all medical benefits and failed to deny any medical benefits on the basis that the bills were accident-related. The attorney, his law firm and the client had no “actual notice” of any FEHBA lien claim and had received no letter or other contact from the FEHBA healthplan or on their behalf either claiming or not claiming a lien. Also, I obtained a letter (from another AAJ/AzTLA member on one of that member’s injury claims) from the FEHBA healthplan, dated September 18, 2014 (well after Aetna filed a Writ of Certiorari with the U.S. Supreme Court in Kobold), stating that the healthplan is not asserting FEHBA lien claims “unless and until the Kobold decision is reversed or the law is otherwise changed.”
Unfortunately, ER 1.15 and the Comments thereto, and Arizona Ethics Opinions (which are advisory only) give us little clear guidance concerning potential FEHBA lien claims and compliance with ER 1.15. Nonetheless, bring your specific fact situation involving FEHBA lien claims to the AAJ/AzTLA Annual Liens Seminar, February 6, 2015, and we can discuss and perhaps enlighten you on how to handle these situations. (We will also be discussing Medicare Advantage lien claims and ER 1.15 compliance in consideration of The Arizona Court of Appeals, Division One, holding in Estate of Ethridge Ex Rel. Pradia v. Recovery Management Systems, Inc., No. 1 CA-CV 12-0740 (Az. Ct. App. Feb. 13, 2014), that federal law preempts Arizona anti-subrogation case law in regard to Medicare Advantage liens.)