ORDERS:
ORDER
REVERSED AND REMANDED
This matter is before the Administrative Law Judge Division ("ALJD") upon appeal of a
decision of the Director ("Director") of the South Carolina Department of Insurance ("Department")
denying Appellant's request for a subrogation fairness hearing. The request was denied by the
Department because the dispute involves a Health Maintenance Organization (HMO). The
Department maintains that an HMO is not subject to the code sections regulating insurers, including
the section authorizing the Director to conduct a subrogation fairness hearing. Oral arguments were
heard before the ALJD on July 21, 1997. Upon consideration of the briefs submitted , oral arguments
and the applicable law, the decision of the Director is reversed, and this matter is remanded to the
Department for further proceedings consistent with this opinion.
STATEMENT OF THE CASE
Maxicare North Carolina, Inc. is an HMO which provided medical services to Appellant
Doris Gardner for injuries suffered in a slip and fall accident. The HMO agreement between
Maxicare and Appellant included a provision which entitled Maxicare to exercise subrogation rights
in the event Appellant recovered damages from a tortfeasor. Appellant filed a civil suit against the
tortfeasor and ultimately received monetary damages in a settlement. Maxicare subsequently sought
to enforce its subrogation rights against Appellant. Appellant believes Maxicare is exercising its
right of subrogation in an unfair and inequitable manner.
As a result of her dispute with Maxicare, Appellant requested a hearing before the Director
of the Department of Insurance pursuant to S.C. Code Ann. § 38-71-190 (Supp. 1996) for the
purpose of determining whether the HMO should be prevented from exercising its right of
subrogation in the manner sought. Appellant's request was denied by letter dated March 3, 1997,
on the basis that Maxicare is an HMO rather than an insurer. Appellant's subsequent March 7, 1997
request to reconsider the denial and to classify the Appellant's HMO as an "insurer" was denied by
the Department on March 27,1997, relying upon S.C. Code Ann. § 38-33-240 (Supp. 1996). On
April 24, 1997, Appellant appealed the Department's decision to the ALJD. The parties submitted
briefs and on July 21, 1997, presented oral arguments to this tribunal.
ISSUES PRESENTED
1) Does the Director of the Department of Insurance have the authority to hear a
subrogation fairness hearing involving an HMO pursuant to S.C. Code Ann. § 38-71-190 (Supp.
1996), notwithstanding the language of S.C. Code Ann. § 38-33-240 (Supp. 1996)?
2) Did the Director of the Department of Insurance improperly deny Appellant's
request for a subrogation fairness hearing?
DISCUSSION
The parties agree that S.C. Code Ann. § 38-71-190 (Supp. 1996) is the sole statutory
mechanism by which subrogation disputes between insureds and insurers may be heard and decided
at the administrative level. Section 38-71-190 provides:
Any policy or contract of accident and health insurance issued in this State
may include provision for subrogation by the insurer to the insured's right of
recovery against a liable third party for not more than the amount of insurance
benefits that the insurer has paid previously in relation to the insured's injury by the
liable third party. If the director or his designee, upon being petitioned by the
insured, determines that the exercise of subrogation by the insurer is inequitable and
commits an injustice to the insured, subrogation is not allowed. Attorneys' fees and
costs must be paid by the insurer from the amounts recovered. This determination
by the director or his designee may be appealed to the Administrative Law Judge
Division as provided by law in accordance with Section 38-3-210.
They also concur that S.C. Code Ann. § 38-1-20 (25) defines the term "insurer" for purposes
of the insurance code. S.C. Code Ann. § 38-1-20 (25) (Supp. 1996) defines an insurer to include:
. . . any corporation, fraternal organization, burial association, other association,
partnership, society, order, individual, or aggregation of individuals engaging or
proposing or attempting to engage as principals in any kind of insurance or surety
business, including the exchanging of reciprocal or interinsurance contracts between
individuals, partnerships, and corporations.
The parties disagree, however, as to whether "insurer" is defined broadly enough in
§ 38-1-20 (25) to encompass an HMO. Appellant contends that it is. The Department asserts that
HMOs are not "insurers" within the meaning of § 38-1-20 (25), as an HMO does not indemnify a
victim for a loss pursuant to a contract as an insurer does. The Department insists that, instead, an
HMO merely provides health care coverage. Appellant's counter argument is that regardless of the
semantic nuances of the contractual relationship between an HMO and an enrollee, the purpose and
result are the same as an insurer-insured relationship. Accordingly, Appellant contends that the
technical distinction between the two is inconsequential, and that as an insurer, de jure or de facto,
an HMO is subject to the same provisions relating to subrogation disputes as any other insurer.
The Department relies upon § 38-33-240, contained in the separate chapter of the insurance
code which regulates HMOs (Chapter 33 of Title 38) to bolster its argument that a subrogation
dispute involving an HMO does not fall within the Director's hearing authority under § 38-71-190.
Section 38-33-240 provides that absent a specific provision of law mandating it, the State's insurance
law does not apply to an HMO. On its face, § 38-33-240 would seem to be a clear bar to Appellant's
hearing request. In fact, neither party cited any specific provision of law that directly mandated that
HMOs are insurers or must be treated as insurers for subrogation dispute purposes.
Neither party mentioned the language contained in 25A S. C. Code Ann. Regs. 69-22, § III(T)
(Supp. 1996). In addition to the statutes contained in Chapter 33 of Title 38, the Department of
Insurance also regulates HMOs under a series of regulations promulgated by the Department. See
25A S.C. Code Ann. Regs. 69-22. Section III(T) of R. 69-22, entitled Subrogation/Injuries Caused
by Third Parties provides, "any provisions concerning subrogation for injuries caused by third
parties shall conform to the requirements of S.C. Code Ann. § 38-71-190 (1976), as amended." This
regulation specifically provides the framework for the resolution of HMO subrogation rights.
Clearly then, regardless of whether an HMO is an insurer, subrogation disputes involving an HMO
and an enrollee are required to be decided by the Department's Director or his designee upon being
petitioned by the enrollee in the same manner as an insurer-insured subrogation dispute.
For the foregoing reasons, I hold that the Director of the Department of Insurance has the
authority to hear a subrogation fairness hearing involving an HMO pursuant to S.C. Code Ann.
§ 38-71-190 (Supp. 1996), as specifically provided in 25A S.C. Code Ann. Regs. 69-22, § III(T)
(Supp. 1996), notwithstanding the language of S.C. Code Ann. § 38-33-240 (Supp. 1996).
Accordingly, it was error for the Director of the Department of Insurance to deny Appellant's request
for a subrogation fairness hearing.
ORDER
IT IS THEREFORE ORDERED that the decision of the S.C. Department of Insurance
to deny Appellant's request for a hearing is reversed. This matter is remanded to the Director for
him or his designee to determine whether the exercise of subrogation by Maxicare North Carolina,
Inc. against Appellant is inequitable and commits an injustice to Appellant.
AND IT IS SO ORDERED.
_______________________________________
STEPHEN P. BATES
ADMINISTRATIVE LAW JUDGE
August 1, 1997
Columbia, South Carolina |
