Benefits and Compensation

Supreme Court Will Resolve Split over ERISA Reimbursement

The U.S. Supreme Court decided to hear a case to resolve whether an ERISA health plan can recover money it spent on a plan participant’s care from his or her personal injury settlement, even if the participant has already spent those particular funds. To settle this question, the Court granted certiorari March 30 in Montanile v. Bd. of Trustees of Nat. Elevator Industry Health Ben. Plan, No. 14-723 (U.S., March 30, 2015).

The question presented is: “Whether a beneficiary of a benefit plan governed by the Employee Retirement and Income Security Act of 1974 can defeat enforcement of the plan’s valid equitable lien by agreement — after the lien attaches — by dissipating the fund subject to the lien.”

Employer-sponsored health plans could benefit from a ruling that ends a circuit court split that has allowed plan participants and beneficiaries in certain jurisdictions to avoid repaying plans by spending funds faster than plans could track them.

Plans also would enjoy a ruling saying plan recovery language still can be enforced even if it is not in every part of the document (for example, if it is in the summary plan description only).


To put the question in context, a bit of background is helpful. ERISA permits a civil action for only “equitable relief,” which generally does not include money damages. It does not allow recoveries from individuals per se, but only from pots of money that should belong to the plan.

In 2002, the Supreme Court in Great-West Life & Annuity Insurance Co. v. Knudson534 U.S. 204 (2002), said that a plan’s claim for payment fails if the defendant is not in possession of the disputed funds. For more on the Knudson ruling and its aftermath, go to Section 631 of the Coordination of Benefits Handbook. Subsequently, plans were required to trace funds back to the tort settlement or judgment proceeds. This gave defendants an incentive to spend plan money immediately upon receipt to prevent plans from making recoveries, even if the plans had established recovery rights in their plan documents.

In 2006, the Court recognized a broader definition of funds being in a defendant’s possession in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), thereby preserving more plan fiduciaries’ claims for equitable relief. For example, more courts now hold that if an equitable lien can be established (for example, by a signed subrogation agreement), then direct tracing to an actual fund might not be required for plans to achieve equitable relief. For more on the Sereboff ruling, see Section 632 of theHandbook.

Since then, the circuits have been split on whether a fiduciary is allowed to sue a participant who is no longer in possession of the disputed benefit payments. The 1st, 3rd, 6th, and 7th Circuits do not require the defendant to possess the disputed funds. The 8th and the 9th Circuits have held to the contrary.

Facts of the Case

Robert Montanile was covered by the National Elevator Industry health plan, and was involved in an auto accident. The plan had reserved the right of first reimbursement in its SPD. Montanile settled his lawsuit against the other driver for $500,000, then paid his attorneys $263,788 in fees and expenses. The plan sued Montanile, seeking the $121,044 it had paid for his medical expenses, and a federal district court ruled in its favor.

On appeal, Montanile argued that the district court erred in finding that the plan could recover from him, because less than $121,044 remained in his possession.

In November 2014, the 11th Circuit affirmed the district court’s ruling. It said it was bound by an 11th Circuit ruling issued two months earlier in a similar case, AirTran Airways, Inc. v. Elem, 767 F.3d 1192 (11th Cir., 2014). In that case, the appeals court found that the airline didn’t need to trace specific funds in the employee’s possession and that the recovery was equitable because the plan had a “lien by agreement” on the settlement. The AirTran court had ordered the employee to pay back $131,704.

Note: The appeals court rejected Montanile’s arguments (which he attempted to base on the Supreme Court decision in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011)) that the SPD was unenforceable, because it was the only document that contained the clause the plan sought to have enforced. The 11th Circuit rejected this, holding that an SPD is enforceable when it does not conflict with the plan document, and can be authoritative in situations where the plan document is silent.

The Petition

The certiorari petition, written by a team of lawyers that includes former acting U.S. Solicitor General Neal Kumar Katyal, said ERISA plan members who accept health coverage also accept the duty to reimburse the plan. Such members should not be able to avoid their side of the bargain by dissipating their settlement.

The arrangement is mutually beneficial, the team of plan lawyers said: It ensures that covered employees’ medical bills will be paid, without the uncertainty and delay of needing to get that money from someone who injured them.

The arrangement also accommodates the concerns of health plans that do not want their limited resources spent on medical bills that could and should be paid by a wrongdoer, the brief said, adding: “[This] ensures a more equitable allocation of plan resources and lower rates for all beneficiaries.”

The petition noted that Montanile signed an agreement to reimburse the plan before he received benefits. After attorney’s fees and expenses, double the amount the plan sought was in his lawyer’s possession. Montainile was on notice that the plan was seeking reimbursement, but when his lawyer released the funds to him, Montainile spent them, the petition argued. This means there was once a fund that was in his possession, and the plan’s lien was enforceable, the petitioners said, as both the district and appeals courts held.

The brief can be read here.