In a major blow to the Pennsylvania Insurance Guarantee Association (PIGA), the Superior Court in Brusilow v. Swartz recently held that PIGA was not entitled to an offset for medical bills paid by a plaintiff's private health insurance carrier.
PIGA is the state agency which steps in to pay claims on behalf of insolvent insurance companies. In recent years, PIGA has been hit with a deluge of medical malpractice claims in the wake of the insolvencies of some major malpractice carriers in Pennsylvania, primarily the Physicians Insurance Company (PIC) and the Physicians Insurance Exchange (PIE).
Under state law, when PIGA steps into the shoes of an insolvent carrier, it is liable to pay claims up to $300,000.00, or the liability limits of the underlying policy, whichever is less. In most malpractice cases, the healthcare provider's underlying policy typically has limits of $200,000.00, although there are a few cases involving limits of $300,000.00.
The PIGA statute contains a "non-duplication of recovery" section, commonly referred to as the "set-off provision," which indicates that the agency is entitled to reduce their total payment by the amount which the plaintiff has received from various other insurance sources. Historically, PIGA has interpreted this section to mean that if it otherwise owes $200,000.00 on a medical malpractice claim and the plaintiff had medical expenses of $65,000.00 paid by private health insurance, PIGA only has to pay a net amount of $135,000.00 to the plaintiff. However, as with subrogation in auto cases, even PIGA has acknowledged that the off-set provision does not apply if the medical expenses were paid by a federally-funded program such as Medicaid or a self-funded ERISA plan.
The Brusilow case involved the classic situation in which the plaintiff's medical bills were paid by a private health insurance carrier, not a government entity or a self-funded ERISA plan. This was precisely the situation in which PIGA has customarily taken a deduction.
Now, however, the Superior Court, relying on its decision in another PIGA off-set case, McCarthy v. Bainbridge, has dealt a severe setback to PIGA. In McCarthy, the Superior Court was also asked to construe the non-duplication of recovery section, only in that case the off-set at issue was life insurance rather than medical expenses. The court held that in order for the off-set provision to be activated, there had to be some natural relationship between the risk that the doctor's policy was protecting against and the risk protected against by the plaintiff's collateral source. In the case of life insurance, the court concluded that the risks protected by the two sources were entirely different, the one being designed to protect the doctor against civil liability judgments and the other being designed to protect a beneficiary in the event of the death of a specified person.
Similarly in Brusilow, the court refused to uphold the offset because private health insurance protects against medical illness and expense, not civil liability of a healthcare provider.
John P. Gismondi, Chairman of PaTLA's Medical Malpractice Section, says the Brusilow decision is extremely important. "This is definitely the most important PIGA decision that has come down from the appellate courts in some time."
Gismondi suggests that the decision has to be causing great concern among PIGA staff. "I have to believe that this decision sent shock waves through the PIGA office since they were almost taking it as a 'given' that they could save some money on most cases by off-setting the amount of plaintiff's medical bills."
Gismondi says that there are some unanswered questions in the opinion. "The Brusilow decision does not directly answer what happens in those cases were the plaintiff has already settled their claim with PIGA and accepted a reduced amount. Can they go back and re-open things and demand full payment?"
The McCarthy life insurance decision has been accepted for allocatur by the Supreme Court and is awaiting oral argument. Gismondi foresees a similar appellate course for Brusilow. "In terms of dollars and cents, the impact of McCarthy was peanuts compared to the potential impact of this case. Therefore, I am sure that PIGA will seek re-argument before the court en banc and then request allocatur if necessary. There is no way they will let this decision go unchallenged."