A victory by the health plan participant in US Airways v. McCutchen, now before the U.S. Supreme Court, may erode ERISA plans’ ability to enforce plan terms as written, a legal expert tells the blog.
In McCutchen, the Court has a very difficult balancing act to answer whether: (1) an ERISA health plan administrator is entitled to full reimbursement of plan payments from a participant who received a damage settlement from a third party; or (2) that by arguing that a plan would be unjustly enriched, the participant will be able to override clear plan language and refuse to reimburse a plan for all benefits paid. The High Court heard oral arguments on Nov. 28.
According to Charles Seemann, an attorney in Proskauer Rose’s ERISA litigation group in New Orleans, this case will be difficult for the Court to rule on for two reasons :
- More exceptions to recoveries could hurt plan participants as well as plans. In this case, the US Airways plan is trying to recover, and the defendant is invoking an “equitable defense,” namely unjust enrichment. But in most ERISA cases those roles are reversed, Seemann says. And when the shoe is on the other foot, and plan participants seek equitable relief under ERISA, plans may be able to use the same equitable defenses that shielded McCutchen in this case. Therefore, the justices may have to be careful: A ruling that recognizes too many defenses to recovery could be used to block participants seeking recoveries for plans in the future. “If they help the participant here they may find they’re hurting the participant in future cases,” Seemann says.
- The case pits the common-fund doctrine against clear plan language. If attorneys who achieve a tort recovery can lose their fee to the plan, that could discourage victims of wrongdoing from seeking recoveries from the parties that caused damage, Seemann says. On the other hand, a patchwork of judges allowing various equitable defenses would have major implications for ERISA plans nationwide. “If you allow judges to deviate from plan rules to satisfy the concept of fairness, then what does that do to uniform, nationwide law governing administration of ERISA plans?” he asks.
Plan Sponsor’s Position
During oral arguments before the High Court, Attorney Neal Katyal for US Airways contended that: (1) the plan had clearly stated its reimbursement rights (reimbursement of all costs the plan paid); (2) it had no agreement with McCutchen’s attorney; and (3) McCutchen “double-promised” his money — first to the plan and then to his personal injury attorney.
Katyal said the key conditions for recovery set forth in Sereboff v. Mid Atlantic Medical Services, Inc., 2006 WL 1310754 (U.S. 2006) were met: the action was not seeking personal liability; it specified a particular fund traceable to the settlement; and the parties had an equitable lien by agreement. That was enough.
He said agreements between participants and plans trumped the common-fund doctrine in most circuit courts recently. (“A valid contract … [displaces inquiries] into unjust enrichment,” he said, quoting case law.) Justice Scalia supported that.
Justices Express Skepticism
Justices Sotomayor and Breyer critiqued the idea that the plan should trump the common fund doctrine in this case. Without the common-fund doctrine, an accident victim pays for litigation to generate a fund and then turns over the settlement to the plan even if he or she has to pay attorney’s fees out of pocket. That requires very clear language (best achieved by a direct abrogation of the common fund doctrine), which they said wasn’t in the US Airways plan.
Several justices, notably Ginsburg and Kennedy, said US Airways did not have adequate language in the plan document to give its lien precedence over McCutchen’s attorney’s lien.
The discussion of what should take precedence — an agreement under the plan or the common-fund doctrine — continued as the federal government’s attorney (appearing as a friend of the court) supported the idea that courts could enforce equity though the common-fund doctrine in order to avoid a negative recovery scenario like McCutchen had. Scalia and several others critiqued that standpoint.
The hearing concluded with Katyal describing the impact of weakened subrogation and reimbursement rights on millions of insurance policies, many of them backed by Medicare and Medicaid. Then Breyer described a scenario where the tort victim spends 98 percent of a settlement just proving its case, only to have an insurer swoop in and take the entire amount, leaving the victim paying to enrich the plan.
See Section 720 of the Guide to Self-Insuring Health Benefits from Thompson Information Services for a description of subrogation and reimbursement.