Right to Subrogation Rights of Federal Employee Health Benefits Act Insurer/Federal Preemption

Kobold v. The Aetna Life Ins. Co., 668 Ariz. Adv. Rep. 42 (App. Div. I, September 5, 2013) (J. Swann)


Plaintiff was injured in a motorcycle accident. The carrier for his Federal Employee Health benefits (5 U.S.C. §8902(m)(1) of the Federal Employee Health Benefits Act [FEHBA]) paid $24,473.53 in medical expenses. Subsequently plaintiff settled his injury claim with a third party for $145,000. The carrier than sought to subrogate against those proceeds for what it paid per the FEHBA policy provision allowing for such reimbursement. Plaintiff interplead the $24,473.53. Plaintiff and the carrier each filed cross motions for summary judgment. The carrier argued that FEHBA preempts state law and allows for this subrogation claim. The trial court granted plaintiff's motion finding no preemption and awarded plaintiff costs and attorneys' fees. The carrier appealed and the Arizona Court of Appeals affirmed.

The court first stated that preemption is never favored. The court then interpreted the FEHBA and specific policy in question to not require preemption. "Here, the fact that Aetna's contractual right to reimbursement is triggered by the payment of benefits does not mean that it "relate[s] to the nature, provision, or extent of" benefits. The "benefits" to which [plaintiff] was entitled under the Plan were not dependent on recovery from a third party – they existed independently. [Plaintiff] would have been entitled to the same benefits had he never even brought an action for damages. 'When 'benefits' are understood to include every financial incident of an illness or injury, national uniformity is unattainable without a federal takeover of the entire tort system.'"

Plaintiff was awarded costs but no fees for the appeal.

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