Stanton v. State Farm Mutual Insurance

Stanton v. State Farm Mutual Insurance
Automobile Insurance Company
No. 11-cv-282-JPG-DGW

2011 WL 3678912 (S.D.Ill.Aug. 22, 2011) 

This case involved an attempt by a defendant insurer (State Farm) to include Medicare’s recovery contractor (MSPRC) on the settlement check in relation to the resolution of a wrongful death claim to ensure that Medicare’s interests were properly protected for conditional payments issued by Medicare.

The plaintiff objected and sought a court order from the Illinois state court ruling that the MSPRC need not be included as a payee on the settlement draft.  State Farm filed an interpleader action against the Secretary of the Department of Health and Human Services bringing Medicare into the action.

The Secretary then removed the case to the United States District Court for the Southern District of Illinois.  The Secretary sought dismissal of the plaintiff’s action and State Farm’s derivative claims on grounds that the plaintiff failed to first exhaust administrative remedies.

The district court ruled in favor of the Secretary finding that the court lacked subject matter jurisdiction to hear the matter since the plaintiff was first obligated to exhaust administrative remedies which he had failed to do.

The Stanton decision can be summarized in greater detail as follows:    

Factual Background

The Stanton case arises from a motor vehicle accident which resulted in the eventual death of plaintiff Timothy Stanton’s father, Phillip Stanton. At the time of this accident, Phillip Stanton was a passenger in a vehicle being driven by his wife, Wanda Stanton, who was insured through State Farm.  In relation to this accident, the decedent Phillip Stanton received medical treatment for a period of time until his death which was paid for by Medicare.

Plaintiff Timothy Stanton (hereinafter “Stanton”), as representative of his father’s estate and for the benefit of his father’s heirs, settled his claims, which included a wrongful death claim, against Wanda Stanton and State Farm for the policy limits $100,000 (liability coverage) and $5,000 (medical coverage). 

As part of the settlement, State Farm tendered, or was prepared to tender, settlement checks to include the Medicare Secondary Payer Recovery Contractor (MSPRC) as a named co-payee thereon in an effort to protect Medicare’s interests for conditional payments.

In response, Stanton filed an action in Illinois state court asking (a) that the court “declare the legal rights and interests” of the parties and determine that the MSPRC need not be included on the settlement check, and (b) that the court issue an order requiring State Farm to re-issue the settlement drafts, this time with only Stanton and his counsel as the named payees.

State Farm then filed an interpleader action against the Secretary of the Department of Health and Human Services (hereinafter referred to as the “Secretary”) in light of its concerns that it was subject to a possible recovery action, including a claim for double damages, if Medicare’s interests were not properly protected.

The Secretary then removed this action out of the Illinois state court and into the United States District Court for the Southern District of Illinois (hereinafter referred to as the “district court”) under applicable removal jurisdiction statutes.

Issue Presented/Court’s Ruling

Upon removal to the district court, the Secretary filed a motion to dismiss and motion for summary judgment seeking dismissal of Stanton’s action and State Farm’s derivative claims on grounds that Stanton failed to exhaust applicable administrative remedies prior to filing suit.

The district court agreed with the Secretary finding that Stanton was obligated to first exhaust administrative remedies, and that since he had failed to so, the district court lacked jurisdiction to hear the case.

In reaching this decision, district court noted that a Medicare beneficiary who is dissatisfied with Medicare’s determination as to the conditional payment reimbursement amount owed must first pursue applicable administrative remedies under the MSP. Citing, 42 U.S.C. §1395ff(a), 42 U.S.C. §§1395ff(b)(1) and 1395 ii, and 42 U.S.C. §405.

Furthermore, the district court referenced that a beneficiary is not permitted to file formal lawsuit until the Secretary has issued a “final” decision per 42 U.S.C. §405 (g), and that federal courts lacked subject matter jurisdiction over claims that had not first proceeded through the administrative review process.  Citing, 42 U.S.C. §405, Fanning v. United States, 346 F.2d 386 (3d Cir. 2003), and Braucher v. Swagat Group, LLC, No. 07-CV-3253 , 2011 WL 832512, at *1 (C.D.Ill. Mar. 3, 2011).  

As part of its analysis, the district court noted that the Secretary produced an affidavit from a CMS official confirming that the agency had not yet issued a final conditional payment demand letter in the underlying action.  The district court found this fact particularly relevant in terms of applicable standards governing summary judgment review and the ability of a beneficiary to initiate the administrative review process.

Based on its analysis of the above legal authority and pertinent facts the district court ruled that it lacked subject matter jurisdiction to address Stanton’s claim. The court stated:

In this case, Stanton has not completed the administrative review process set forth in 42 U.S.C. § 405 and required by 42 U.S.C. 1395ff(b)(1) & 1395ii for a party seeking a determination of the amount of conditional payments Medicare is entitled to recover. There is no genuine dispute that Stanton has not received a final decision from the Secretary as to the amount she believes Medicare is entitled to recover. In fact, [CMS’] uncontested affidavit indicates the Secretary has not even issued a final demand letter from which Stanton could initiate the administrative appeals process. Therefore, the Court does not have subject matter jurisdiction to hear Stanton’s claim, and it must be dismissed without prejudice. Dismissal of Stanton’s claim renders State Farm’s derivative third-party claim moot, so it too should be dismissed without prejudice.  Stanton, 2011 3678912, at * 2.

Accordingly, the court granted the Secretary’s motion for summary judgment dismissingStanton’s claims (without prejudice) and State Farm’s interpleader derivative action (without prejudice).

Leave a Reply