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Private Health Care Costs

08/12/2015

Insurers and their solicitors may see schedules of loss which include claims for the cost of private medical healthcare provided to the claimant. This is usually a private health insurer bringing a subrogated claim under their contract with the claimant.

Such contracts will require the member to recover the cost of treatment if this was needed because of somebody else’s fault. Failure to do so may entitle the private healthcare provider to recover the payments from the member.

This right depends on the terms and effectiveness of the contract itself. Issues can arise where the claimant is not actually a party to the contract. The contract may have been taken out between the private healthcare provider and an employer or trade organisation.

The claim may follow a fatality, where the personal representatives of the deceased are bringing the claim and were not party to the contract.

It has usually been argued by the private healthcare provider that the member’s legal obligations arise under collateral agreements.

These collateral agreements are supposedly formed in two alternative ways. The first is that the member agrees to the provisions in the contract on making a claim.

The second is that the collateral contract is formed from the links between the:

agreement between the employer and private healthcare provider

the employment agreement between the employer and the member / claimant and the provision of cover by the healthcare provider to the member / claimant.

These arguments have been considered in two previous cases: Smith v JM Morris & Another [2009] EWHC 0025 (QB) and Shulman v SH Simon (Electrical) Ltd [2010] EWHC 2762 (QB).

In Smith, a contract had been agreed between BUPA and the employer of the deceased. BUPA refused to disclose a copy of the contract as this was said to be confidential to the employer, effectively confirming that the deceased was not a party to it. BUPA did disclose a sample agreement.

This took the form of a written contract between BUPA and “the sponsor” (the employer), under which BUPA would pay benefits on behalf of covered members in return for subscriptions paid by the sponsor. The sample agreement also contained a clause stating that the contract was only capable of enforcement by the parties to it.

The collateral contract arguments were raised.

The judge concluded that the deceased was not a party to the BUPA contract and had no legal obligation to meet the private medical bills himself. He concluded that the right to subrogation had not been made out and the sums claimed were refused.

In Shulman, a similar situation arose. This was a case involving a living claimant, but again he was not a party to the contract. The contract was with the employer.

The judge rejected BUPA’s primary submissions, but nonetheless concluded that BUPA did have rights of subrogation. In his view, the absence of a contractual relationship was not a bar to subrogation. He said that BUPA had paid for the treatment not as a gift or as a volunteer but because it had received premiums. It was legally obliged to provide the treatment.

Against that background, a legal entitlement to subrogation existed and none of the traditional bars to subrogation applied.

The judge acknowledged that the defendant’s case had contractual logic. He appeared to accept that the private healthcare provider’s arguments were incorrect, but through the product of his own research, he found a way to find against the defendant. This was achieved by concluding that a right to subrogation did not depend upon the existence of a contract between the healthcare provider and the scheme member.

This obviously leaves us with conflicting judgments on this same issue.

However, both judgments agree that the arguments that are regularly raised regarding the existence of a collateral contract are incorrect. The way in which the private healthcare companies regularly argue their right to pursue the subrogated claim appears to be flawed.

The issue remains whether there is a right to subrogation without a contract, as was suggested in Shulman.

In Banque Financiere v. Parc (Battersea) Ltd [1998] 2 WLR 475, Lord Hoffman said subrogation can also describe an equitable remedy to prevent unjust enrichment. This was not based on any contract or common intention of the party enriched and the party deprived.

It was instead governed by three questions:

  • whether the defendant would be enriched at the claimant’s expense
  • whether this would be unjust
  • whether there are nevertheless reasons of policy for denying a remedy.

These three questions seem likely to be answered by a court in favour of a private healthcare provider. It looks like the healthcare claim would succeed on this basis. Was the judge in Shulman right about this?

There are no other direct authorities to support the proposition that a private healthcare provider is entitled to sue for unjust enrichment in the name of the claimant.

There is an argument that the provider would be entitled to claim for unjust enrichment against the defendant, but only once the defendant had discharged its liability to the original claimant (i.e. when the claim has settled and the original claimant’s rights against the defendant have been extinguished).

This means that the private healthcare provider may have no grounds to pursue this action as part of the original claim. Should insurers resist claims for private healthcare costs on this basis?

If further litigation would follow, wouldn’t it make more sense just to deal with this issue within the main claim and avoid further costs?

There is probably an advantage in arguing the point. There may be scope for securing a reduced settlement.

The collateral contract arguments previously advanced by healthcare providers appear flawed.

The ‘solution’ advanced in Shulman is novel and untested in the higher courts. Any remedy based in equity is always going to be nuanced and uncertain of outcome. There are risks here for healthcare providers.

Only the bravest would hold on for full recovery.

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