This is how and why the ERISA Plan that paid your medical expense will screw up your personal injury settlement. Thanks to my colleagues at Faegre Baker Daniels we have their summary of the most recent pronouncement from SCOTUS about the latest and greatest ERISA case law. Most people involved in personal injury go to sleep at the mention of ERISA, the federal retirement laws. They perk up after their case is settled and the ERISA Plan that paid their medical wants to take every dime of the settlement. Most of the time it’s true even if the injured party paid all or a part of the premium for the health insurance that covered their medical bills. so, let us do a quick synopsis of the facts as they usually develop.

  • You work for a big corporation.
  • You have health insurance.
  • You get in an accident.
  • You receive medical care.
  • The bills pile up and between the doctors and hospital they charged $65,000.
  • You hire a lawyer and sign a contingent fee agreement, agreeing to pay 1/3rd plus litigation costs, if it’s successful.
  • You sue the at-fault driver.
  • The at-fault driver has a measly $10,000 in insurance coverage.
  • Your lawyer does a good job and he persuades all involved to pay their limits.
  • The at-fault driver ponies up the ten grand.
  • You recover $100,000 from your own insurance, under the underinsured motorist coverage.
  • Your lawyer drafts the disbursement sheet showing roughly 40% comes off the top to pay his fees and the litigation costs.
  • The ERISA Plan comes in screaming and yelling they want their $65,000.
  • If ERISA takes back the $65k, then you, the poor injured guy, get zilch, nada, Zippo, or practically nothing.
  • You think about moving to CUBA where there is no health care but dying is free.

Now do you understand how this works? It’s pretty simple really, painfully simple.

So what happened at the US Supreme Court? Well, those at the Big Dance heard your case or one quite similar and figured out how to reduce what the ERISA plan can get and how to shove 40% back on the table for the little guy, you know the guy who suffered the injuries. You will find in life there is nothing greedier than an ERISA Plan. They are the closest thing we have in America to totalitarians and the dictators running regimes in third world countries. They are like an enormous vacuum cleaner sucking up nickels, dimes quarters and even pennies in between sofa cushions.

Back to the case, because it’s important and lawyers must know it exists. On April 16, 2013, the U.S. Supreme Court decided US Airways, Inc. v. McCutchen (No. 11-1285), holding that the terms of the ERISA plan govern how the plan will be interpreted and while equitable doctrines don’t override the plan language, they are a backstop when the plan language is silent. In this case the equitable doctrines to which they refer were unjust enrichment or the common fund doctrine. These were used to aid in the interpretation of the plan’s provisions. In other words SCOTUS said, your Plan was silent on the issue of paying the lawyers so we will use the common law to decide what should happen and guess what? You lose Plan, you gotta share in the lawyer fees and litigation costs.

And that’s fair, because let’s face it the Plan benefits from what the lawyer did and common sense dictates you have to give something to the injured guy if you want him to help out with the litigation. If you leave out the little guy America might as well be a third world country run by some Communist dictator.

The lawyers in McCutchen came up with some pretty neat legal arguments. They asserted two defenses. Here they are as described by the lawyers at FB&D:

US Airways filed a claim under ERISA § 502(a)(3) seeking appropriate equitable relief to enforce the plan's reimbursement provision. McCutchen raised two defenses: (1) that his recovery included only a portion of his damages, and absent over-recovery, US Airways had no right to reimbursement; and (2) that any reimbursement had to be reduced by 40% to cover the attorney contingency fee. The district court rejected his defenses and ordered full reimbursement. The Third Circuit reversed, finding that equitable doctrines and defenses applied to "limit the effectiveness" of the plan's reimbursement provision.

What SCOTUS did was reverse the Third Circuit and using the reasoning in Sereboff v. Mid Atlantic Medical Services. 347 U.S. 356 (2006), held the nature of US Airways' suit was "an equitable lien by agreement," which "arises from and serves to carry out a contract's provisions." Thus, enforcing the lien requires "holding the parties to their mutual promises," and equitable doctrines cannot trump a reimbursement provision. However, equitable principles can aid in construing plan provisions. Because the US Airways plan was silent on allocation of attorney's fees, the equitable common-fund doctrine provides the appropriate default and "the best indication of the parties' intent" to allocate the costs of obtaining third-party recoveries between insurers and beneficiaries.

Again, the quote comes from our brethren at FB&D.

You can read the case by following this link.

Now one more thing you workers should realize; you’re doing this to yourselves. Your union representatives are not helping you by negotiating contracts with rights to full reimbursement when you sue the at-fault drivers. Do you understand what it is I’m trying to tell you? Let’s go back to the summary of facts.

  • You work for a large corporation.
  • You are represented by a union.
  • At contract time the union rep allows the ERISA plan to insert a provision in the ERISA plan.
  • That provision allows for full reimbursement without regard to fees and expenses in litigation.
  • Your union rep signs off as doe’s management.
  • The union members rejoice because they still have a job working in a factory where the buildings don't collapse.
  • One day on the way home you get in a car accident.
  • Your medical bills are $65,000.
  • You hire a lawyer and… follow the scenario above.

As you can see the union negotiations took away a valuable right from you; that being your right to share some recovery from the monies recovered from the at-fault party in the event you get in a car accident. And the Plan knowing this is purely a money grubbing idea, to not share in the costs of recovery, got their hand slapped by SCOTUS. Here is the hand wrapping passage from SCOTUS.

“US Airways’ reimbursement provision precludes looking to the double-recovery rule in this manner because it provides an alloca­tion formula that expressly contradicts the equitable rule. By con­trast, the plan says nothing specific about how to pay for the costs of recovery. Given that contractual gap, the common-fund doctrine pro­vides the best indication of the parties’ intent. This Court’s cases make clear that the doctrine would govern here in the absence of a contrary agreement. See, e.g., Boeing Co. v. Van Gemert, 444 U. S. 472, 478. Because a party would not typically expect or intend a plan saying nothing about attorney’s fees to abrogate so strong and uni­form a background rule, a court should be loath to read the plan in that way. The common-fund rule’s rationale reinforces this conclu­sion: Without the rule, the insurer can free ride on the beneficiary’s efforts, and the beneficiary, as in this case, may be made worse off for having pursued a third party. A contract should not be read to pro­duce these strange results unless it specifically provides as much. Pp. 13–16.

663 F. 3d 671, vacated and remanded.”

*For the uninitiated SCOTUS refers to the Supreme Court of the United States. 

Steve Lombardi
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Iowa personal injury, workers' compensation, motorcycle, quadriplegic, paraplegic, brain injury, death
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