It is clear based upon the U.S. Supreme Court decision in U.S. Airways v. McCutchen that ERISA health plans should consider modifying their plan provisions to expressly negate the application of the common fund rule in the future.
This decision represents a victory and a reminder. The McCutchen ruling (No. 11-1285 (U.S. Ct., April 16, 2013)), strongly affirmed the principle that clear plan terms prevail over plan participants’ equitable defenses — such as make-whole, common fund, unjust enrichment and double-recovery doctrines. Therefore, equitable theories should not be allowed to override a plan’s clear language reserving its right to full reimbursement to benefits it paid when contractual conditions are met.
But it also reminded plans that when less-than-perfect plan language is used, courts can insert a beneficiary’s “equitable” rules as gap filler. In the US Airways plan document, the gap to be filled resulted from a lack of language disavowing the common-fund doctrine. This left an opening for a reduction in the plan’s recovery. The common-fund issue was also the sole point of dispute between the majority and minority opinions. It appears that the US Airways plan will have to bear a pro rata share of the legal fees incurred by McCutchen in achieving the tort settlement.
It appears that all ERISA plans that similarly fail to include disavowals of the common-fund doctrine may have to accept reduced recoveries from tort settlements. Certainly, self-funded ERISA plans can reject the rule’s application, but they will have to be crystal clear in doing so. Such plan sponsors and administrators should consider reviewing their plan provisions with legal counsel and, if they wish, make changes.
For more information on subrogation and reimbursement of ERISA health benefits go to Section 600 of the Coordination of Benefits Handbook.