:: Wal-Mart Takes All In ERISA Reimbursement Dispute With Minor Child Plan Beneficiary
On July 18, 2006, Plaintiff Zachery Brown was injured in an automobile accident. Due to the severity of his injuries, Zachery was hospitalized in an intensive care unit for eleven days and remained in the hospital an additional three days. Plaintiff’s mother Loretta Cole is a participant in the Associates’s Health and Welfare Plan (“Planâ€) as an employee of Wal-Mart Stores, Inc. . . . [and] Zachery was covered as a beneficiary under the plan as a dependent. . . . [The] Associates’ Health and Welfare Plan, paid $63,465.83 in medical expenses.
Plaintiffs argue the funds do not in “good conscience†belong to the Plan as Defendants are precluded from claiming a constructive trust or equitable lien since Plaintiffs settled the case before notice of a claim was asserted by Defendants. Furthermore, Plaintiffs argue Zachery was not made whole by the settlement of his claims and therefore, the funds do not in good conscience belong to the Plan.
Zachery T. Brown and Loretta Cole v. Associates Health and Welfare Plan and WAl-Mart Stores, Inc., Case No. 07-2006, W.D. Ark. (August 16, 2007)
Continuing a discussion of ERISA health plan reimbursement and subrogation rights, Brian S. King, Esq. provides the foregoing order in a very recent case out of the Western District of Arkansas.
After the attorney for the injured minor settled a personal injury action, Wal-Mart made demand for reimbursement of its plan’s expenditures. The settlement proceeds consisted of $25,000 of coverage through the at-fault party’s coverage and another $25,000 of underinsured motorists coverage. (For those unfamiliar, underinsured motorists coverage is coverage one carries in case the at fault party does not have sufficient liability coverage to compensate for the injuries sustained.)
Full Reimbursement Demanded
The attorney for the plan beneficiary, minor child Zachery Brown, argued that Wal-Mart should not be entitled to take all the settlement proceeds.
Plaintiffs argue the funds do not in “good conscience†belong to the Plan as Defendants are precluded from claiming a constructive trust or equitable lien since Plaintiffs settled the case before notice of a claim was asserted by Defendants. Furthermore, Plaintiffs argue Zachery was not made whole by the settlement of his claims and therefore, the funds do not in good conscience belong to the Plan.
The District Court Rules In Favor Of The Plan
The district court held for the plan, however, finding that the plan language was adequate under Sereboff v. Mid Atlantic to meet the requirements for equitable relief under ERISA Section 502(a)(3).
The provisions of the plan requiring full reimbursement decided the issue for the district court. The court observed:
Plaintiffs agreed to reimburse the Plan if it paid out funds to them and they were able to recover from a third party. Therefore, the actual settlement date is not relevant as Plaintiffs had prior notice they would be required to reimburse the Plan if they recovered funds from a third party as reimbursement for injuries for which the Plan paid out benefits.
No Make Whole Doctrine Defense
The plan language saved Wal-Mart from the rigors of the make whole defense. The court stated:
Because the make whole doctrine is a default rule, the parties can contract out of the doctrine.†Id citing Barnes v. Independent Auto. Dealers Ass’n of Calif. Health & Welfare Benefit Plan, 64 F.3d 1389, 1395 (9th Cir. 1995). The Eighth Circuit has held that “[a] subrogation provision affects the level of benefits conferred by the plan, and ERISA leaves that issue to the private parties creating the plan.†Waller v. Hormel Foods Corp., 120 F.3d 138, 140 (8th Cir. 1997). The Court has also noted that the “Make-whole rule is a rule of interpretation that functions as a default rule to be applied only when the plan is ambiguous.†Id. citing Cagle v. Bruner, 112 F.3d 1510, 1521 (11th Cir. 1997).
The Eighth Circuit has allowed ERISA plans to disclaim the make whole doctrine. “It is settled that ERISA plan participants have an obligation to reimburse the plan when a recovery is made from a third party responsible for the injuries and the plan terms require reimbursement. Waller, at 140.
No Attorney’s Fees For The Effort
The court further held that, notwithstanding the plaintiff’s attorney’s services in securing the settlement, Wal-Mart’s reimbursement extended to the full settlement amount, liability coverage and the plan beneficiary’s own underinsured motorists coverage, with no reduction for attorney’s fees.
In Waller, the plan’s subrogation clause contained no language regarding attorney’s fees. The Eighth Circuit agreed with the district court and reduced the subrogation recovery by the amount of a reasonable attorney’s fee. In the present matter, the Plan is not silent on the issue of attorney’s fees. In the section titled “Information Regarding Rights of the Associates’ Medical Plan and the Dental Plan†under the sub-heading “Right to Reduction, Reimbursement, and Subrogation†the Plan states, “the Plan is not responsible for the covered person’s attorney fees, expenses or costs.â€
Since the Wal-Mart plan stated that attorneys’ fees would not reduce reimbursement rights, the court held that the Wal-Mart plan was entitled to full reimbursement, without reduction for attorneys’ fees.
Note: Brian King observes that personal injury lawyers should take stock of the plan’ position on reimbursement before undertaking representation of a client that has coverage under a self-funded ERISA plan. The point is well taken, and in fact, a conclusion in the article Settling Personal Injury Actions After Sereboff v. Mid-Atlantic.
Site of Plan Administration - Attorneys representing Wal-Mart employees in personal injury actions will doubtless need to familiarize themselves with the rulings in this district. As noted in previous articles on this site, ERISA actions will often be resolved in the venue of plan administration. Observe that the district court cited one of its prior rulings in reaching its conclusion in Zachery T. Brown and Loretta Cole v. Associates Health and Welfare Plan and WAl-Mart Stores, Inc.:
In Wal-Mart Stores, Inc. Assocs.’ Health & Welfare Plan v. Scott, 27 F.Supp.2d 1166(W.D. Ark. 1980), this Court found, on language identical to the language in the Plan at issue, “the provision at issue gives the Plan the right of recovery to the ‘extent of any and all’ payments recovered from identified sources.†It makes clear that the attempted designation of the payments for specified types of damages would not prevent the Plan’s full recovery and specifies that the right exists regardless of whether or not the participant is made whole. A fair interpretation of this language would be that full reimbursement is required without reduction for attorney’s fees or costs. There is nothing in the Plan that qualifies the right to reimbursement by the attorney’s fees or costs, if any, expended or incurred, in obtaining recovery of amounts subject to that right. . . [W]here a plan is clear and unambiguous we cannot apply a common law rule of interpretation. Rather the straightforward language of the plan should be given its natural meaning.†Id. at 1175.
Case Evaluation - Attorneys representing Wal-Mart employees in personal injury actions will be expected to render any recoveries to the plan to the extent of plan expenditures on the underlying accident. To accept representation in such cases without first contacting the plan to discuss reimbursement expectations is likely to result in disappointment. Note that many plans, unlike the Wal-Mart plan, do reduce reimbursement claims to some extent in view of attorneys’ fees or hardship circumstances. Thus, an initial inquiry and arrangement as to allocation of recoveries is worthwhile and, in fact, prudent. As always, however, in ERISA matters one should start by review of the ERISA plan language.
See Also - For general background, see :: Article Re: Settling Personal Injury Claims;
:: A Health Plan Subrogation Reader; :: Health Plan Subrogation Provisions: A Revue
for other Wal-Mart cases, see :: SPD Saves Plan’s Subrogation Rights ;:: Probate Limitation Periods Enforced Against Wal-Mart Plan Claims; :: Court Denies Wal-Mart Administrative Committee’s Motions In Subrogation Controversy ;:: Wal-Mart SPD Deemed To Be “The Formal Plan Document†But Release Terms Leave Open Issue On Remand
and note the SUBMIT A CASE OR RULING link on the sidebar.
