Supreme Court Rules on Equitable Defenses to Reimbursement Claim by Employee Health Plan

Executive Summary: Reimbursement claim brought under ERISA sec. 502(a)(3) was akin to “equitable lien by agreement,” and therefore could not be defeated by equitable defenses that contradicted plan terms.
With the United States Supreme Court’s decision released Tuesday, U.S. Airways, Inc. v. McCutchen, 2013 U.S. LEXIS 3156 (April 16, 2013), health plan administrators and sponsors were heard to breathe a collective sigh of relief. In McCutchen, an ERISA-governed employee health plan sought to enforce its reimbursement clause. The clause provided that, if a participant recovered from a third party for injuries, he must reimburse the plan for any medical benefits it paid for treatment of the participant’s injuries, out of "any monies recovered...." Because the avenue of recovery for a plan's reimbursement claim is "appropriate equitable relief" under ERISA § 502(a)(3), the participant argued that equitable doctrines such as the make-whole doctrine and the common fund doctrine could be applied as defenses. The Third Circuit Court of Appeals agreed with the participant, allowing these doctrines to reduce the reimbursement to the Plan, even if these doctrines contradicted the Plan’s terms.
The Supreme Court reversed the Third Circuit, ruling consistently with the view espoused by the Eleventh Circuit in Zurich American Ins. Co. v. O’Hara, 604 F. 3d 1232 (11th Cir. 2010). The Supreme Court noted that the equitable doctrine by which the Plan sought recovery under ERISA § 502(a)(3) was most akin to an equitable lien by agreement, which "arises from and serves to carry out a contract's provisions." Because the boundaries of relief under ERISA § 502(a)(3) are limited to enforcing plan terms, any equitable defenses that resulted in undermining the plan terms could not be used as a defense.
Applying its holding to the Plan in its case, the Supreme Court found that the "make-whole" doctrine could not defeat the Plan’s terms allowing for first-dollar reimbursement. However, it found that the Plan did not specifically address the apportionment of attorneys' fees; therefore, the common fund doctrine could be used as a default rule, thus requiring the Plan to contribute toward the participant’s attorneys’ fees incurred in pursuing recovery from third parties.
Lesson: Plan administrators and sponsors should now feel confident that their plan’s reimbursement clause will be honored by the courts, but they should review their plans to insure that the plan language clearly states their intention as to first-dollar reimbursement, apportionment of attorneys’ fees, and the applicability of equitable defenses.
Contact Information
If you have any questions please contact Katherine Lange, the principal drafter of this client alert, Debbie Harden, John Despriet or you may contact the Womble Carlyle attorney with whom you usually work.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Womble Carlyle Sandridge & Rice, LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.