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Northwest OH Legal Blog

Tuesday, May 3, 2016

Supreme Court places additional limitations on ERISA plan’s right to recover medical-reimbursement costs

The Supreme Court dealt a setback to ERISA health funds in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan. This case places further limits on ERISA Funds’ ability to recover a subrogation or reimbursement claim under the Employee Retirement Income Security Act of 1974 (ERISA).

This case involved a participant, Robert Montanile, who was covered under an ERISA health insurance plan. He was injured in an automobile accident. Later, the insured participant successfully sued the other driver and recovered for the injuries he suffered in the accident. As the Court noted “the terms of those plans often include a subrogation clause requiring a participant to reimburse the plan if the participant later recovers money from the third party for his injuries.”  This is the fourth time the Court has considered the ability of plans to recover such payments under such clauses.

In the first of the earlier cases, Great-West Life & Annuity Insurance Co. v. Knudson, the Court held that ERISA would not allow the plan to sue the insured for a money judgment, at least when the participant did not have the funds in question (because they had gone directly to his attorneys). The money judgment was a “legal” remedy; the Court has long held that the relevant provision of ERISA (Section 502(a)(3)) permits only “equitable” relief. In the second and third cases, Sereboff v. Mid Atlantic Medical Services and US Airways, Inc. v. McCutchen, the Court held that the plans could reach settlement funds that had been segregated in a separate account; the remedy against that specified fund was an “equitable” lien and thus permitted.

The distinguishing fact in this case is that the money did reach the participant but it has been largely spent. The plan sought a money judgment against the participant, arguing that an equitable lien attached (under Sereboff and US Airways) when the money reached him. Writing for all but Justice Ruth Bader Ginsburg, Justice Clarence Thomas’s opinion for the Court rejected the plan’s argument.  He stated  “[e]quitable remedies are, as a general rule, directed against some specific thing . . . rather . . . than a right to recover a sum of money generally out of the defendant’s assets.” A suit for damages is a legal rather than an equitable remedy.

Because Mr.Montanile had spent the money, there was no longer a fund against which an equitable lien could be enforced.  As a result, the plan’s action failed.  After reviewing the three prior cases and what they had said about equitable remedies, the Court explained that none of the various avenues the plan had suggested for reaching the funds was a “typical” equitable remedy. Therefore, none were available under ERISA. The Court’s opinion concluded by emphasizing that the statute’s general purpose to enhance the solvency of plans could not overcome the specific limitations of remedies available under ERISA.

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