Insurer must adhere to Fair Debt Collection Practices Act when pursuing subrogation claim

Law Reporter, Apr 2003

Insurer must adhere to Fair Debt Collection Practices Act when pursuing subrogation claim. Hamilton v. United Healthcare of La., Inc., 310 EM 385 (5th Cir. 2002).

The Fifth Circuit Court of Appeals held that an insurer's contract-based subrogation claim is "debt," the collection of which is subject to the requirements of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692 et seq.

Here, Hamilton was injured in an automobile accident. Hamilton's father participated in a group health plan offered by United Healthcare of Louisiana, through which Hamilton was insured as his dependent. Hamilton's father also held uninsured/underinsured motorist insurance policies through State Farm. State Farm made payments to Hamilton under those policies.

Healthcare Recoveries, Inc. (HRI), had contracted with United Healthcare to provide subrogation enforcement services. HRI sent notices to Hamilton's father and to State Farm in an effort to enforce United Healthcare's subrogation rights to the payments State Farm made to Hamilton. Hamilton filed a putative class action suit against HRI, claiming that HRI's practices in attempting to enforce the subrogation rights violated the Fair Debt Collection Practices Act as well as Louisiana law. The trial court dismissed Hamilton's FDCPA claim with prejudice, finding that the subrogation claim was not a "debt" under the act.

Reversing, the Fifth Circuit noted that the term "debt" is broadly defined in the FDCPA as any obligation to pay "arising out of" a consumer transaction. Rejecting defendant's contention that Hamilton's obligation arose out of the automobile accident and subsequent payment, the court said that the obligation arose out of the transaction that occurred when Hamilton's father contracted to purchase insurance. The court's review of the legislative history yielded nothing to contradict the court's finding that the claim was debt within the act.

Accordingly, the court remanded.

Plaintiff's Counsel

George Davidson Fagan, New Orleans, La.