A new case from the United States Supreme Court, U.S. Airways v. McCutchen, Docket No. 11-1285, decided April 16, 2013, represents a small glimmer of hope on the otherwise bleak landscape for injured plan participants trying to negotiate medical liens asserted by ERISA welfare benefit health plans. ERISA applies to claimants whose medical bills are covered by employer-sponsored medical plans.
Handling personal injury cases has been growing more increasingly complex in recent years and one reason for this has been the growing efforts of those who pay medical expenses for injured plaintiffs to recover their costs from third party tortfeasors. By attempting to recover these costs, the payers of claimants’ medical expenses end up competing with injured plaintiffs for the limited settlement funds.
Health insurers have long asserted subrogation interests and prudent counsel have often been successful in reducing and sometimes eliminating these claims. Two legal arguments that have been primarily used against health insurers have been the “common fund” doctrine and the “make-whole” doctrine. The “common fund” doctrine is based on the argument that if an insurer benefits from a fund created as a result of the efforts of the injured party to recover damages from a tortfeasor, the insurer should also share in the costs incurred in creating that fund, typically attorneys’ fees and expenses. The “make-whole” doctrine is based on the principle that the injured party should be made “whole,” that is, reimbursed for all losses, including pain and suffering and lost income, as well as costs, including attorney fees, before the insurer can recover for the costs of its medical insurance by way of subrogation.
However, over time plan sponsors have structured increasingly sophisticated plan documents providing that where a third party is responsible for the plan participant’s injuries, the plan will recover all of its resulting expenses on a first dollar basis, even if the amount recovered from the third party or the plan participant’s own insurance is so small that it means the plan participant gets nothing at all.
This inequity has led to litigation between ERISA plan sponsors and injured plan participants. While there have been occasional favorable decisions, the overall course of this litigation has been discouraging for injured plan participants. The trend has been for courts to allow the plans to recover for medical expenses in accordance with the strict language of the plan document and without reference to “common fund” and “make-whole” doctrines. U.S. Airways v. McCutchen, although not completely abrogating these decisions, represents a small glimmer of hope for injured plan participants.
In U.S. Airways, McCutchen’s attorneys secured $110,000 in payments, and McCutchen received $66,000 after deducting the attorneys fee. US Airways demanded full reimbursement of the $66,866 it paid on behalf of McCutchen’s medical expenses and the plan sued under § 502(a)(3) of ERISA, “seeking ‘appropriate equitable relief’ in the form of a constructive trust or an equitable lien on the $66,000.00 funds available to McCutchen. The United States District Court for the Western District of Pennsylvania agreed with the plan, relying on plain language allowing the plan’s subrogation interest to reach “any monies recovered,” and granted summary judgment for the plan.
The Third Circuit vacated, reasoning that equitable doctrines and defenses overrode the reimbursement clause, which would leave McCutchen with less than full payment for his medical bills and give U.S. Airways a windfall
The Supreme Court vacated and remanded, holding that the language of plan’s terms govern the plan’s reimbursement rights and an administrator can use section 502(a)(3) to obtain funds that its beneficiaries promised to turn over. However, the U.S. Supreme Court stated that ERISA focuses on what the terms of the plan provides. Section 502(a)(3) does not authorize “appropriate equitable relief ” at large,” but only relief necessary to enforce “the terms of the plan” or the statute. While equitable principles such as the “common fund” doctrine or the “make whole” doctrines cannot trump the plain language of the plan’s reimbursement provisions, they may aid in construing it. So if the plan is silent on allocation of attorney’s fees and costs, the “common fund” doctrine provides the appropriate default rule for determining the extent of the plans’ recovery. The court did not address the application of the “make whole” doctrine in its decision.
So even with the Supreme Court’s decision in U.S. Airways v. McCutchen, prudent counsel should still carefully review the language of the plan’s reimbursement provisions in deciding whether to pursue an injured participant’s claim against a third-party tortfeasor.
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