:: ERISA Plan’s Subrogation Rights Enforceable Against Workers’ Compensation Award
In Local 705 Int’l Bhd. of Teamsters Health & Welfare Fund v. Bilal, 2009 U.S. Dist. LEXIS 87090 (N.D. Ill. Sept. 22, 2009) the employee suffered two head injuries, one in January 2003 and the other which was sustained at work on November 21, 2003.
On or about January 22, 2004, a workers’ Compensation claim was filed with the Illinois Industrial Commission, n/k/a Illinois Workers’ Compensation Commission relating to the second accident that occurred on November 21, 2003.
On January 31, 2004, Bilal signed a “Reimbursement and Subrogation Agreement” acknowledging that payments for medical expenses had been and would be made on his behalf by the Plaintiffs under the provisions of the Plan as a result of the head injury sustained in the work-related accident described above. He further agreed to reimburse the Plaintiffs in accordance with the Plan to the extent of any net recovery of benefits paid by the Plaintiffs as a result of legal action or settlement.
The Agreement read as follows:
In consideration of the Fund payment benefits before there has been a final decision on the issue of third party or employer liability, I hereby agree that any and all monies due from any party (including an insurance company), by reason of any claim, demand, suit or settlement (including worker’s compensation) arising out of my injuries or illness shall be subrogated to the Fund for all payments, including weekly sick/accident, which it made, and further that out of any and all monies received from any party (including worker’s compensation) arising out of my injuries or illness, I shall first reimburse the Fund for all payments, including weekly sick/accident, which it made.
A similar provision appeared in the plan.
When he subsequently received a workers’ compensation award, the fund sought to impose a constructive trust on the recovery. A dispute arose over whether the subrogation claim was directed at the 2006 settlement (which Bilal contended was not subject to the Subrogation Agreement) or the workers’ compensation recovery.
Bilal had previously filed a complaint against DHL on August 10, 2006, seeking relief for employment discrimination, retaliation, and a head injury that occurred in January 2003, which caused his diminished vision. This case was settled on May 6, 2008.
The workers’ compensation arbitrator’s rejected the argument that Bilal’s optic nerve atrophy was caused by a work-related accident. Thus, Bilal argued that the plan was seeking a piece of the 2008 settlement, which he argued contends was not subject to the Subrogation Agreement.
The plan nonetheless sought reimbursement under ERISA Section 502(a)(3):
Plaintiffs allege that they are fiduciaries under ERISA and that they seek to enforce the terms of the Subrogation Agreement. (Compl. PP2,5.) They seek restitution and creation of a constructive trust for the portion of Bilal’s settlement funds (from Case Nos. 04 WC 03220 and 04 WC 05155) that he owes under the Subrogation Agreement. (Compl. PP10-11.) This remedy is “equitable” within the meaning of § 502(a)(3). See Sereboff v. Mid Atlantic Med. Servs., Inc., 547 U.S. 356, 126 S. Ct. 1869, 164 L. Ed. 2d 612 (2006) (constructive trust imposed on particular funds in defendant’s possession, such as judgment from tort suit, is “equitable relief” and thus actionable under ERISA). Plaintiffs have therefore stated a plausible cause of action under § 502(a)(3) of ERISA.
And state contract law:
“Plaintiffs have also asserted a right to reimbursement under state contract law and the terms of the Subrogation Agreement. See Eddy v. Sybert, 335 Ill. App. 3d 1136, 783 N.E.2d 106, 110, 270 Ill. Dec. 531 (Ill. App. Ct. 2003) (”Where [a] right is created by an enforceable subrogation clause in the contract, contract terms, not the common law or equitable principles, apply.”)”
The Court concluded that the plan sufficiently pled a cause of action that plausibly entitles them to relief under contract law and the terms of the Subrogation Agreement.
Note: It is rather curious that the Court felt it necessary to invoke state contract law. ERISA preempts state law occupying the field of claims by fiduciaries against plan participants.
The case illustrates the difficulty plan participants have when they attempt to compartmentalize recoveries as to types of damages.
See also - :: Where ERISA And Workers’ Compensation Claims Intersect – An Insider’s Guide
[Cross posted on erisaboard.com]
