NY Law Limiting Insurer Rights Upheld by Second Circuit

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

A New York law making it harder for insurers to claw back previously paid benefits is enforceable and isn’t preempted by federal benefits law, the U.S. Court of Appeals for the Second Circuit ruled ( Arnone v. Aetna Life Ins. Co. , 2d Cir., No. 15-02322, 6/22/17 ).

As a result, Aetna won’t be able to offset a New York man’s disability benefits to account for money he received in an $850,000 personal injury settlement.

The June 22 decision builds off a 2014 ruling by the Second Circuit, which first held that the New York law wasn’t preempted by the Employee Retirement Income Security Act because it was a permissible regulation of New York’s insurance markets. In this case, Aetna Life Insurance Co. argued that it didn’t have to comply with the New York law because the disability plan at issue had to be construed under Connecticut law. The Second Circuit disagreed, saying the New York law was enforceable because it had no bearing on how the plan was “construed.”

The New York law provides that personal injury settlements are “conclusively presumed” not to include compensation for amounts that must be paid by an insurer. The law’s goal is to make it harder for insurers to limit or deny payments based on other sources of income received by an insured claimant.

Other states have adopted similar “anti-subrogation” laws that limit insurers’ ability to recoup previously paid benefits. Some courts, including the Third, Fourth, and Fifth circuits, have been more inclined to find that these laws interfere with ERISA.

The Second Circuit’s ruling was written by Judge Susan L. Carney and joined by Judge Rosemary S. Pooler and Senior Judge Gerard E. Lynch. It partly reverses a 2015 district court decision in favor of Aetna.

Sedgwick LLP represented Aetna. Solomon Law Firm LLC represented the insured claimant.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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