Toward Correcting the Misapplication of Subrogation Doctrine in California Healthcare – Note by Steven Flower

From Volume 77, Number 5 (July 2004)

Subrogation has been called a “sleepy, although significant subject,” and perhaps consequently, many articles treating the topic begin with a prefatory example (either real or abstract) of the potential entanglements it can create. In line with this established tradition, this Note begins with two such examples.

Roy Block was injured in an automobile accident caused by another person. Like roughly 23 million other people in California, Block belonged to a managed care organization (“MCO”). His MCO agreed to pay for the treatment of his injuries on the condition that he agree to reimburse it from any eventual tort recovery. This might seem fair since Block might otherwise recover twice for his injuries; first when the MCO paid for his treatment and then again when he recovered from the tortfeasors. Yet, what if Block was not able to recover for all of his injuries, economic or otherwise? For example, what if he suffered a total of $10,000 in damages, half of which was for medical expenses, but was forced to settle for $7,000? Should his MCO still be allowed to recover its full $5,000 claim first, even if this leaves him uncompensated for $3,000 in pain and suffering and lost wages? How should a court interpret MCO contracts that provide for this very contingency? This is one of the problems discussed in this Note.