The opinion of the court was delivered by: MIRIAM GOLDMAN CEDARBAUM
This action arises from a dispute over the interpretation of a right of recovery clause in a health benefits plan issued by plaintiff U.S. Healthcare, Inc. of New York ("USH"). The plan is an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. USH seeks a declaratory judgment that it is entitled to recover from the proceeds of a pending state medical malpractice action more than $ 1 million in benefits that it paid for the care of Michael O'Brien, on whose behalf the malpractice action was brought. USH sues Kathleen and Kevin O'Brien, the parents of Michael O'Brien, and Goldsmith, Tabak & Richman, P.C.,
the law firm representing the O'Briens in the state court action. USH also sues two defendants in the state malpractice action, Staten Island University Hospital ("SIUH") and Dr. Gloramelia Dano. This action has been settled and discontinued as against defendants Aziz S. Hasan,
Dr. Lee Robbins, and Howard S. Richman. See Orders of Jan. 24, 1994; Feb. 4, 1994, and May 16, 1994.
USH moves for summary judgment against the O'Briens for "$ 536,528.89, which is the amount of the state-court, medical malpractice settlement ($ 725,000) less attorney's fees and expenses ($ 186,822.11) and the Medicaid lien ($ 1,649)." (USH Notice of Motion.) In addition, USH seeks a declaratory judgment that USH may enforce its right of recovery against any further settlements or judgments in the state court action, and that the O'Briens must pursue a claim to recover benefits paid by USH. (Id.) In its reply papers, USH acknowledges that it cannot force the O'Briens to pursue a claim to recover the benefits, but states that the O'Briens should pursue such a claim because USH is entitled to enforce its right of recovery against any settlement or judgment in the state court action. (USH Reply Mem. at 27.) The defendants each move for summary judgment and contend that USH is not entitled to any of the proceeds of the malpractice action.
For the reasons discussed below, USH's motion for summary judgment is denied, and the motions for summary judgment of Kathleen and Kevin O'Brien, Goldsmith, Tabak & Richman, P.C., SIUH, and Dr. Dano are granted in part and denied in part.
The following facts are undisputed. From 1987 through 1988, USH provided medical benefits to Kevin O'Brien and his family pursuant to a Group Master Contract between his employer, Scott Environmental Technology, and USH. (USH 3(g) Stmt. Ex. A.) On January 1, 1989, after leaving his job at Scott Environmental Technology, Mr. O'Brien arranged to continue receiving medical benefits from USH by entering into an Individual Conversion Contract. (Id. Ex. B.)
On April 4, 1987, Mr. O'Brien's son, Michael, was taken to the emergency room at Richmond Memorial Hospital, and was later transferred to Staten Island Hospital. SIUH is the successor in interest to Richmond Memorial Hospital and Staten Island Hospital. In 1988, the O'Briens brought a medical malpractice action in New York Supreme Court, Richmond County, against SIUH, Dr. Robbins, Dr. Dano, and Dr. Hasan. In the state court complaint, the O'Briens alleged that Michael's meningitis was not timely diagnosed, and that as a result of the delay in diagnosis, he suffered severe brain damage and neurological impairment. USH paid $ 1,115,648.54 for his medical care through September of 1992. (USH 3(g) Stmt. P 5.) USH has paid an additional $ 282,876.42 for his care since October 1, 1992. (USH Claims Reports, Ex. 1 to Letter from Charles D. Cole, Jr., Attorney for Plaintiff, to Judge Cedarbaum (Aug. 2, 1994).)
In a letter dated December 14, 1989, USH advised the O'Briens' lawyer that the Group Master Contract provides that USH "will be subrogated and succeed to Member's right of recovery against any person or organization with regard to any benefits provided to Member." (USH 3(g) Stmt. Ex. M.) The Group Master Contract and the Individual Conversion Contract include the following provision, which is the focal point of the parties' dispute:
With regard to any benefit paid to a Member, [USH] can recover the reasonable value of such benefits when they were paid to the Member in any third party settlements or satisfied judgments. [USH] will exercise its right only when the amount received by a Member is: (i) for hospital, medical or surgical services; and (ii) only to the extent that those services were provided by [USH].
(USH 3(g) Stmt. Ex. A, § IX, P J; Ex. B, § VII, P I.)
In July of 1991, the O'Briens settled their claim against Dr. Robbins, one of the state court defendants, for $ 725,000. According to the Settlement Orders approved by the court, the $ 725,000 was to be allocated in the following manner:
$ 181,419.47 Legal Fees
$ 5,402.64 Legal Costs
$ 89,198.36 For non-reimbursed expenses
paid by the O'Briens and for the
purchase of a van n3
$ 1,649.00 Medicaid Lien
$ 15,000.00 Escrow Account for future legal
$ 432,330.53 Annuity for Michael O'Brien
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