:: ERISA’s Plan’s Reimbursement Claim Enforced Against Disbursed UIM Benefits
Here, US Airways seeks the restoration of particular funds, the lawsuit settlement and UIM benefits, as distinct from McCutchen’s general assets, traceable to the Plan and subject to an equitable lien for the benefit of the Plan. Therefore, even if the monies paid to McCutcheon are not specifically traceable to McCutchen’s current assets because of commingling or dissipation, such monies remain subject to the Plan’s equitable lien.
U.S. Airways v. James McCutchen et al, (W.D. Pa.) (August 30, 2010)
This is a very significant opinion addressing ERISA health plan subrogation. I uploaded the opinion on erisaboard.com and this is a cross-post of the commentary on the case.
U.S. Airways v. James McCutchen et al presents a set of facts typical of an ERISA health plan subrogation case. After suffering injuries in an automobile accident, James mcCutchen engages plaintiff’s counsel, “RL&P” for purposes herein, and ultimately settles his case:
| McCutchen’s claims were eventually settled for $10,000.00 from the driver whose vehicle struck McCutchen’s, and $100,000.00 in underinsured motorist benefits (the “UIM Claim”), the limits of the policy, under McCutchen’s automobile insurance policy. |
McCutchen rejected the ERISA plan’s reimbursement claims. Upon receipt of settlement funds, RL&P deducted its fee and a proportionate share of the expenses from the total settlement and placed $41,500.00 in its trust account for any lien against McCutchen found to be valid.
The plan sues for reimbursement under the terms of 29 U.S.C. 1132(a)(3). In the suit, the plan seeks the $41,500.00 held by RL & P, as well as $25,365.82 allegedly in the possession of McCutchen.
The Court finds that the plan has properly framed its claims under ERISA:
| ERISA expressly authorizes fiduciaries of ERISA-governed plans to sue to seek redress of violations or enforce provisions of ERISA or of particular plans. 29 U.S.C. § 1132(a)(3). Further, where an ERISA-governed plan seeks to impose a constructive trust or equitable lien on “particular funds or property in the defendant’s possession,” such plan is seeking equitable restitutionary relief as contemplated by ERISA under § 502(a)(3). Sereboff v. Mid-Atlantic Medical Services, 547 U.S. 356, 361-362 (2006). Here, US Airways is seeking to enforce certain subrogation/reimbursement provisions of the Plan. |
The court quickly rejects the notion of “make whole” as a defense to the plan’s claims. A more interesting issue arose in the context of whether the UIM coverage was subject to the plan’s claims:
| Defendants argue that, in the area of personal injury law, the term “third party” is universally accepted as referring to the at-fault tortfeasor. Defendants argue, therefore, that the language “[y]ou will be required to reimburse the Plan for amounts paid for claims out of any monies recovered from a third party, including, but not limited to, your own insurance company . . .” creates an ambiguity because one “cannot recover money from the third party from one’s own insurance company.” |
The Court finds the issue resolved by prior Third Circuit authority:
In Bill Gray, the Third Circuit was presented with the same issue and found:
Bill Gray Enters. v. Gourley, 248 F.3d at 220. Similar to the language in the US Airways’ Plan, the Plan document in Bill Gray explicitly provided that reimbursement also applied “when a Covered Person recovers under an uninsured or underinsured motorist plan . . .” Id. Based upon that language, the court found that a “reasonable plan participant . . . would understand the Plan document clearly mandates any recoveries from an uninsured motorist plan are subject to reimbursement.” Id. Based on the above, this Court finds that the term “third party” as it is used in the passage related to subrogation and reimbursement is clear and unambiguous. The Plan document clearly requires reimbursement by McCutchen of monies recovered including the UIM benefits paid by his insurance company. The Court finds that the interpretation on the Plan document was not arbitrary and capricious, and the Plan is, therefore, entitled to reimbursement from the monies McCutchen received in settlement of his tort claims including the uninsured motorist benefits received from his insurance company. |
The Court then turned to the issue of attorneys’ fees. The Defendants argued that the plan had not expressly addressed this issue and that the Court should thus find deduction of attorneys’ fees from the settlement permissible. The Court rejects this argument, stating:
| A plan or agreement, however, need not specifically address attorney’s fees in order to unambiguously require full reimbursement. See Bollman Hat Co. v. Root, 112 F.3d at 117; see also Ryan by Capria-Ryan v. Federal Express Corp., 78 F.3d at 127-128. The ERISA plan in Ryan required “100% reimbursement for any plan benefits paid.” Ryan by Capria-Ryan v. Federal Express Corp., 78 F.3d at 125.
The US Airways Plan is unambiguous and requires reimbursement of any payments made by the Plan to the participant and clearly provides for subrogation to all of McCutchen’s rights of recovery. Third Circuit precedent does not permit federal common law to override a subrogation provision in an ERISA-regulated plan. US Airways, therefore, is entitled to full reimbursement of benefits paid under the Plan without reduction for the proportionate share of attorneys’ fees. |
Probably the most interesting outcome of the case is the finding that the plan’s equitable lien extended to funds which had not been held in trust. The Court states that:
| Here, US Airways seeks the restoration of particular funds, the lawsuit settlement and UIM benefits, as distinct from McCutchen’s general assets, traceable to the Plan and subject to an equitable lien for the benefit of the Plan. Therefore, even if the monies paid to McCutcheon are not specifically traceable to McCutchen’s current assets because of commingling or dissipation, such monies remain subject to the Plan’s equitable lien. See e.g. Gutta v. Standard Select Trust Ins. Plans, 530 F.3d 614, 621 (7th Cir. 2008) (allowing a claim under “29 U.S.C. § 1132(a)(3) even if the benefits it paid [the beneficiary] are not specifically traceable to [the beneficiary’s] current assets because of commingling or dissipation.”); Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348, 350, 362 (5th Cir. 2003) (allowing an ERISA plan to recover the settlement proceeds that the plan beneficiary’s law firm had deposited into its trust account).
US Airways, therefore, has a claim for equitable relief over the “specifically identifiable” fund consisting of the $100,000.00 from the UIM Claim and the $10,000.00 from the personal injury settlement. |
This decision is definitely one for plan fiduciaries and plaintiff’s attorneys to add to the “must read” stack on ERISA subrogation.
