Plans face new a new erosion of their powers to recover the full amount of benefits paid in third-party recovery cases. Attorneys with Epstein Becker and Green discussed these and other trends in a Sept. 13 audio conference on benefit claim denial litigation.
Plans Face Diminishing Ability to Recover
The growing ability of plaintiffs to block plans trying to recover overpaid health benefits will be ruled on by the U.S. Supreme Court (it granted certiorari to the case on July 12). In U.S. Airways, Inc. v. McCutchen, 663 F.3d 671 (3rd Cir., Nov. 16, 2011) the High Court will decide whether individuals holding settlements from third parties have equitable defenses to limit a plan’s right to recover all benefits it paid. This will be the third important subrogation/reimbursement case reviewed in the last decade, the others being Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006) and Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002).
ERISA plan sponsors are cautious about the Court’s upcoming ruling, given last year’s decision on “appropriate equitable relief” permitted under ERISA Section 502(a)(3) in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (May 16, 2011). The ruling marked a new focus of equitable relief to emphasize “appropriate,” thereby limiting complete plan recoveries, and boosting plaintiffs’ made-whole and collateral source arguments.
In Amara, which involved a pension benefit dispute, the plan was found to have misrepresented the impact of changing from a defined benefit to a defined contribution plan. The court ordered it to “reform” the plan, and pay the already retired employees what was owed to them under the revised plan. Those remedies were deemed to be “appropriate relief” typically available in equity.
In McCutchen, the 3rd Circuit stressed the word “appropriate” in “appropriate equitable relief” in its decision against the plan. It accepted the argument that the equitable doctrine of “unjust enrichment” is available as a defense to an insured in a subrogation action by a plan. The outcome will influence the extent to which plan participants can limit plans’ recovery claims.
A Supreme Court ruling upholding the 3rd Circuit’s McCutchen verdict could undermine ERISA plans’ ability to enforce subrogation rights, Friedman said.
Post-Amara decisions run the risk of expanding judicial “feel-good activism” and “results-driven” judicial decisions. “We hope the Supreme Court will say ‘we’re going too far,’” Friedman said.
The U.S. Chamber of Commerce, the ERISA Industries Committee, American Benefits Council and the Society for Human Resource Management filed a joint amicus brief in McCutchen. Attorneys in EBG’s Washington and New York offices were speaking.
For more information about ERISA plans’ recovery rights, see Thompson’s employee benefits library, including the Employer’s Guide to Self-Insuring Health Benefits.