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Fall 2012
IN THIS ISSUE
d&G Lawyer News
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Supreme Court to Resolve Conflict Concerning ERISA Plan Reimbursement
By: Kristin K. Morris and Dan McBreen
The United States Supreme Court is set to decide whether equitable principles and defenses may be asserted by insureds in defense of claims for reimbursement brought by employee benefit plans under the Employee Retirement Income Security Act (“ERISA”)1 when there is an express disclaimer of those equitable defenses in the plan.
When an insurer pays for its insured’s medical expenses as a result of an injury caused by the negligence of a third party, the insurer generally has either an equitable or contractual right of subrogation against the third party tortfeasor. If the insured sues the third party, the insurer usually seeks to be reimbursed for any benefits paid from any settlement or other recovery by the insured from the third party. Employee benefit plans governed by ERISA have taken the position that they are entitled to 100% reimbursement for expenses paid on their insured’s behalf, regardless of whether the insured was able to recover 100% of his or her damages from the tortfeasors and regardless of whether the insured incurred attorney’s fees and costs to make the recovery.
An ERISA plan’s claim for reimbursement based on the terms of an employee benefit plan is an action for “appropriate equitable relief” pursuant to ERISA §502(a)(3)2. It appears that it is the scope of “appropriate equitable relief” that the Supreme Court will decide. There is currently a split among the federal circuit courts as to whether equitable defenses may be considered in fashioning the “appropriate equitable relief” to which the plan is entitled when the plan language expressly disclaims the application of equitable defenses, such as the make whole doctrine3 and the common fund doctrine4.
Several federal courts of appeal, including the Eleventh Circuit, have held that when the employee benefit plan language is clear and unambiguous in disclaiming the applicability of equitable defenses, such as the common fund doctrine or the make whole doctrine, courts should enforce the plain language of the ERISA plan without regard to any equitable defenses. See Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, 354 F.3d 348, 362 (5th Cir. 2003); Zurich Am. Ins. Co. v. O’Hara, 604 F.3d 1232, 1239 (11th Cir. 2010); Admin. Comm. of Wal-Mart Stores, Inc. Assoc. Health and Welfare Plan v. Shank, 500 F.3d 834, 838 (8th Cir. 2007). In contrast, other federal circuit courts of appeal have held that “appropriate equitable relief,” may be limited through the application of equitable defenses and principles even if they are expressly disclaimed by the benefit plan language. U.S. Airways, Inc. v. McCutchen, 663 F.3d 671 (3d Cir. 2011); CGI Technologies and Solutions v. Rose, 2012 WL 2334230 (9th Cir. 2012). The Ninth Circuit reasoned that §502(a)(3) invokes the broad equitable powers of the District Court and that while a District Court may consider the express term of a benefit plan, it is still within the District Court’s discretion whether to give those provisions controlling weight in fashioning what equitable relief is appropriate. See Id. at *8, 9.
In McCutchen, the Third Circuit reversed a district court decision that held that an ERISA plan was entitled to 100% reimbursement from its insured for the medical expenses it paid on behalf of its insured. McCutchen had been involved in a serious automobile accident rendering him functionally disabled. The plan paid medical expenses in the amount of $66,866 on his behalf. Due to limited insurance coverage available, McCutchen settled with the other driver for $10,000. McCutchen received another $100,000 in uninsured motorist coverage for a total third-party recovery of $110,000. After paying a contingency fee to his attorneys’ and expenses, McCutchen’s net recovery was less than $66,000. Nevertheless, the plan demanded reimbursement of the entire $66,866 that it had paid for McCutchen’s medical bills. When McCutchen did not pay, the plan brought a lawsuit seeking “appropriate equitable relief” under §502(a)(3). McCutchen argued that it would be unfair and inequitable to reimburse the plan in full when he had not been fully compensated for his injuries, including pain and suffering. He further argued that the plan, which made no contribution to his attorney’s fees and expenses, would be unjustly enriched if it were permitted to recover from him without an allowance for those costs. Based on the terms of the plan, the district court entered summary judgment in favor of the plan. On appeal, the Third Circuit reversed. It held that the plan’s claim for reimbursement was subject to equitable limitations, such as unjust enrichment.
On June 25, 2012, the United States Supreme Court granted certiorari to review Third Circuit’s decision in McCutchen based on its conflict with the decisions from other jurisdictions. The Supreme Court’s decision will likely have a wide reaching effect on the way lawyers handle ERISA plans’ claims for reimbursement from recoveries made on behalf of their clients.
For more information, or assistance with related issues, please contact attorneys Dan McBreen or Kristin Morris at (813) 229-2775, or by email at dmcbreen@dgfirm.com or kmorris@dgfirm.com.
1 ERISA governs “any employee benefit plan if it is established or maintained: (1) by any employer engaged in commerce or in any industry or activity affecting commerce; or (2) by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce; or (3) by both.” 29 U.S.C. § 1003(a). These plans include but are not limited to employee benefits such as employer provided health and disability insurance. Under §502(a)(3), an insurer qualifies as a fiduciary and as such may only seek “appropriate equitable relief,” and is not entitled to any other type of relief.
2 29 U.S.C. §1132(a)(3).
3 Under the “make whole doctrine,” an insurer cannot enforce its subrogation rights unless and until the insured has been “made whole” by a recovery from a third party. CGI Technologies and Solutions v. Rose, 2012 WL 2334230 *4 (9th Cir. 2012).
4 Under the common fund doctrine, “a litigant or lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to reasonable attorney’s fee from the fund as a whole.” Bombadier Aerospace Employee Welfare Benefits Plan v. Ferrer, 354 F.3d 348, 360 (5th Cir. 2003).
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