FROM: KAREN L. SUTER, COMMISSIONER
RE: INVALIDITY OF SUBROGATION AND REIMBURSEMENT PROVISIONS IN PREVIOUSLY APPROVED CONTRACT FORMS
On June 26, 2001 the New Jersey Supreme Court issued its decision in Perreira v. Rediger et al., A-145-99. The Court held that the collateral source rule contained in N.J.S.A. 2A:15-97 bars health carriers that expend funds on behalf of covered persons from recouping such payments through subrogation or contract reimbursement. "Health carriers" includes health insurance companies, health maintenance organizations, health service corporations, hospital service corporations and medical service corporations.
The Court ruled that: health carriers have no common law equitable right to subrogation; the enactment of N.J.S.A. 2A: 15-97 continued to leave health carriers with no right to recover paid benefits; and the rules adopted by the Department of Banking and Insurance, which allow reimbursement and subrogation provisions in contract forms, must be narrowly interpreted to apply only in cases that do not involve the collateral source rule, e.g., those in which New Jersey law is not applicable. The Court cited only to the rules of the Department of Banking and Insurance that permit subrogation and third party recovery provisions in contracts of health insurers and service corporations. However, similar provisions are also contained in the rules of the Department of Health and Senior Services with respect to subrogation and third party recovery provisions in contracts issued by health maintenance organizations. Those rules are also affected by the Courtís decision. Both Departments will be amending their rules to comply with the decision.
Health carriers are therefore directed immediately to cease all subrogation and recovery efforts against persons covered by group or individual contracts or policies
issued in New Jersey, except to the extent permitted by N.J.S.A. 2A:15-97, regardless of whether these contracts include subrogation or reimbursement provisions. Such provisions are effective only in those limited situations, for example, in which New Jersey law is inapplicable.
7/5/01 /s/ Karen L. Suter, Commissioner