Plaintiffs’ Release of All Claims Not Enough to Protect Defendant Carrier Against a Double Damages Cause of Action under the MSP Six Years Post-Settlement
Heather Sanderson
July 7, 2020

In an opinion out of the United States District Court for the District of New Jersey, Osterbye v. United States, 2020 U.S. Dist. LEXIS 116591 (June 30, 2020), the Court denied Defendant Selective Insurance’s (Defendant) Motion to Dismiss Plaintiff’s suit and allegations that Defendant failed to reimburse Medicare for Osterbye’s medical expenses under the Medicare Secondary Payer Act (MSP) private cause of action pursuant to 42 USC § 1395y(b)(3)(A).

Background of the case involved Plaintiffs’ decedent, Anna May Osterbye, a Medicare beneficiary, who was injured in a fire at her home. The fire allegedly resulted from the negligence of a plumbing contractor, who was insured by the Defendant. Osterbye initiated suit against the contractor/Defendant. The parties settled the matter via mediation and agreed on a lump sum settlement in the amount of $740,000 based on known damages, including $13,562.90 that Medicare estimated it would seek for reimbursement of conditional payments. On April 29, 2013, the Plaintiffs executed a Release, under which the Plaintiffs released and gave up any and all claims and rights which Plaintiffs might have against the Defendant.

When the parties settled, the Plaintiffs reimbursed $13,562.90 to Medicare. However, on June 4, 2013, Medicare issued a final demand letter for an additional amount of $118,071.28. The Plaintiffs alleged that Defendant had initiated a separate conditional payment claim with Medicare and failed to inform the Plaintiffs of this separate claim. Ultimately, this separate claim resulted in Medicare claiming the additional conditional payments- an amount that was not factored in the parties’ settlement.

The Plaintiffs then proceeded to exhaust administrative appeals with Medicare. On June 26, 2019, the Medicare Appeals council dismissed Plaintiffs’ request for review. On August 28, 2019, Plaintiffs initiated this action against the United States of America, the Secretary of Health and Human Services, United States Department of Health, and Defendant Selective. Selective is the only remaining Defendant.

Defendant sought dismissal of the MSP private cause of action claim based upon statute of limitations as well as the parties’ settlement agreement. Defendant argued that Plaintiffs’ MSP claim was time-barred because Medicare sent its final conditional payment letter on June 4, 2013 and Plaintiffs failed to bring a claim against Selective within six years of that notice. The Court found that because Plaintiffs did not exhaust administrative remedies until June 26, 2019, when the Medicare Appeals Council dismissed Plaintiffs’ request for review, Plaintiffs were unable to seek judicial review on their MSP claim until June 26, 2019. Further, only a couple of months lapsed when Plaintiffs initiated suit on August 28, 2019; therefore, it was not apparent that the Plaintiff’s MSP private cause of action was time-barred.

As it relates to the parties’ settlement agreement defense, Defendant argued that the Court should dismiss Plaintiff’s claims by enforcing the Release Plaintiffs executed on April 29, 2013. Further, Defendant argued that by executing the Release, Plaintiffs waived their right to pursue the additional Medicare conditional payment amount. Plaintiffs argued that the Release was invalid: The parties’ settlement was based on the original $13,562.90 Medicare lien- not the additional lien amount; the Release was, therefore, based on a “critical mistake of fact.”

The Court ultimately determined that whether the Plaintiffs’ Release should be nullified based on mutual mistake turns on a factual inquiry that was better left for a later time. It was enough that Plaintiffs alleged that the settlement was for a lump sum based on known damages, including $13,562.90 that Medicare estimated that it would seek for reimbursement of conditional payments, and that the Release was not based on Medicare’s additional lien. Therefore, Defendant’s Motion to Dismiss was denied.

Commentary: While this litigation is far from final and the Opinion is simply on a Motion to Dismiss, what happened in this case is disturbing for several reasons and there are several lessons to take-away for workers’ compensation, no-fault, and general liability primary payers subject to MSP obligations:

  1. The parties settled based upon Medicare’s estimated conditional payment amount. Parties settling with Medicare beneficiaries should never rely on an interim conditional payment amount as the final number.
  2. The Release, if drafted better, could have addressed this scenario and how it would be handled to avoid this litigation six years post-settlement. First, the release should have contemplated how any post-settlement conditional payments lodged by Medicare would be handled and by which party. Even in scenarios where parties have a Final Demand from Medicare, it is never truly final. Medicare technically has up to 3 years from the notice of settlement to seek recovery of conditional payments. Second, the Release should have specifically included a waiver of the MSP Private Cause of Action, due to its broad usage in recent litigation by various parties seeking to benefit from its ambiguous double damages’ clause.
  3. The parties should have involved an MSP expert to avoid this unnecessary litigation. The Final Demand amount would have been ascertained prior to settlement to avoid duplicate files being opened at Medicare’s recovery contractor. Further, Release language which contemplated this scenario could have had this litigation disposed at its onset. Contact us at to learn more about our conditional payment and Release language services.