ERISA REIMBURSEMENT AND SUBROGATION CHECKLIST
The following checklist provides a basic set of criteria for evaluating the rights of group health plans to enforce reimbursement, or “subrogation” rights.
Not every operational flaw can be identified, of course, since facts will in certain circumstances give rise to new issues and the law will vary among the circuits even on the same set of facts. Nonetheless, from a participant’s point of view all of the following should be considered at the very least. From a plan fiduciary’s perspective, these issues form a baseline for due diligence in case preparation.
1. To assert a claim for reimbursement under ERISA, the plan must first be subject to ERISA.
This means that the plan must not be a governmental plan, a church plan, a non-ERISA multiple employer welfare arrangement (”MEWA”) *, etc. See, How To Identify A Self-Funded ERISA Plan and How To Identify An Exempt Governmental Plan
[Distinguish MEWA's, whose reimbursement rights may be questionable from multi-employer plans which typically have ERISA plan reimbursement rights.
2. To avoid potential state regulation of reimbursement rights, the plan must be a self-funded plan.
This means that the plan must fund benefit payments from general assets. Complex issues may arise where the plan is self funded but benefits provided through a MEWA that claims ERISA status.
3. To assert an equitable lien for the purposes of § 1132(a)(3), the ERISA plan must meet several prerequisites. It has been held that the plan document must identify a particular fund distinct from the plan member's general assets.
The Eleventh Circuit held that the plan must specify that the reimbursement be made out of a particular fund--distinct from the beneficiary's general assets--and not simply trigger a general reimbursement obligation based on a settlement, judgment, or other payment relating to the accidental injury or illness. Popowski v. Parrott, 461 F.3d 1367, 1374 (11th Cir. 2006); James River Coal Co. Med. & Dental Plans v. Bentley, 2009 U.S. Dist. LEXIS 65310 (E.D. Ky. July 23, 2009)
4. Likewise, it has been held that the plan document must specify the particular share of the fund to which the plan is entitled.
The plan must be entitled to reimbursement from only a particular share of a fund. Popowski v. Parrott, 461 F.3d 1367, 1374 (11th Cir. 2006); Sereboff, 547 U.S. at 364. James River Coal Co. Med. & Dental Plans v. Bentley, 2009 U.S. Dist. LEXIS 65310 (E.D. Ky. July 23, 2009). If a plan fails to identify a particular fund which a reimbursement should come from (as the first prong requires), it will necessarily fails the second prong of the Sereboff test.
5. The plan language should, and in some circuits, must, adequately reject application of the "make whole" doctrine, the "common fund" doctrine, and other equitable doctrines. These issues can become complex depending on venue and plan language. For a good overview, see Percy, Applying the Common Fund Doctrine to an ERISA-Governed Employee Benefit Plan’s Claim for Subrogation or Reimbursement, 61 Fl. L. Rev. 55 (2009). See, Cagle v. Bruner, 112 F3d 1510 (1997).
6. The defendant must be in possession of specifically identifiable funds. For example, in Sereboff, the plan sought "specifically identifiable" funds that were "within the possession and control of the Sereboffs"--that portion of the tort settlement due Mid Atlantic under the terms of the ERISA plan, set aside and "preserved [in the Sereboffs'] investment accounts.” Sereboff v. Mid Atl. Med. Servs., 547 U.S. 356 (U.S. 2006) (quoting Fourth Circuit opinion, 407 F.3d, at 218).
7. The funds must belong in good conscience to the plan.
This requirement stems from several sources. This requirement dovetails with the requirement for specificifically identifiable funds in that it focuses relief on an “in rem” claim, directed at property, as opposed to seeking personal liability. A subrogation lien “is not an express lien based on agreement, but instead is an equitable lien impressed on moneys on the ground that they ought to go to the insurer”. Sereboff v. Mid Atl. Med. Servs., 547 U.S. 356, 364 (U.S. 2006) (noting issue of “appropriate” relief not before the Court). It also dovetails with the nature of equitable remedies since, in the days of the divided bench,a plaintiff could seek restitution in equity only “where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant’s possession.” Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (U.S. 2002) (citing 1 Dobbs § 4.3(1), at 587-588; Restatement of Restitution, supra, § 160, Comment a, at 641-642; 1 G. Palmer, Law of Restitution § 1.4, p. 17; § 3.7, p. 262 (1978)).
8. The plan must assert an equitable remedy.
As observed in Knudson, for restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant’s possession. Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (U.S. 2002) And, in Sereboff, the plan “sought its recovery through a constructive trust or equitable lien on a specifically identified fund, not from the Sereboffs’ assets generally, as would be the case with a contract action at law.” For a general overview of this requirement, see Harmon, “Equitable Relief Claims Under ERISA Section 502(a)(3)“, Benefits Law Journal (Spring 2007) and for general discussion, Harmon, Settling Personal Injury Claims After Sereboff v. Mid-Atlantic“, The South Carolina Lawyer (2006).
