High Court Holds Equitable Defenses Do Not Trump ERISA Plan’s Clear Reimbursement Language

by Genova Burns LLC

The Supreme Court’s April decision in U.S. Airways, Inc. v. McCutchen resolves a circuit split on the issue of a medical plan’s right to reimbursement of medical expenses from a plan participant who recovers on a personal injury claim. In a unanimous decision, the Supreme Court adopted the approach taken by the Fifth, Seventh, Eighth, Eleventh, and District of Columbia Circuits and rejected the approach taken by the Third and Ninth Circuits, and held that equitable defenses, such as unjust enrichment, do not trump clear plan language.  The Supreme Court enforced the plan provision that required the participant to reimburse the plan to the extent he recovered his post-accident medical expenses from the third party. 

In McCutchen the plan participant suffered injuries in an auto accident caused by third parties.  The plan paid $66,866 in resulting medical expenses the participant incurred. The participant separately recovered $110,000 from one third party and her insurance carrier. After deducting $44,000 for attorneys’ fees and litigation costs, the net recovery by the participant was less than $66,000.  The plan sought full reimbursement of the $66,866 the plan paid in accordance with plan subrogation, reimbursement and collateral source provisions.

The participant refused to reimburse the plan and the plan sponsor sued in federal court pursuant to ERISA §502(a)(3) seeking appropriate equitable relief to enforce the plan’s reimbursement provision.  The District Court granted summary judgment to the plan finding that the plan document clearly required reimbursement of the monies recovered and rejecting the participant’s argument that application of the equitable common-fund and make whole doctrines required an offset of attorney’s fees against any plan reimbursement. On appeal, the Third Circuit vacated the District Court’s decision and held that equitable defenses could override the express reimbursement and subrogation provisions of a plan.

The Supreme Court reversed the Third Circuit and held that in a reimbursement action under ERISA Section 502(a)(3), equitable doctrines do not trump plan terms.  However, on the issue of attorney’s fees, the Court held that when a plan is silent or ambiguous as to whether equitable defenses are available, equitable principles may apply to help the court interpret the plan or fill in gaps. In this case, the relevant plan language did not specifically require reimbursement without reduction for attorneys’ fees. The Court explained that if the plan sponsor did not want the common-fund doctrine to apply, it must state so in the plan.   Accordingly, the Supreme Court remanded the case back to the District Court to determine the appropriate adjustment to the plan’s reimbursement to account for attorneys’ fees under common-fund principles.

This decision highlights the benefit to plan sponsors of drafting clear and comprehensive plan language to control employee benefit plan costs and avoid the judicial application of equitable rules to fill gaps in plan terms where the plan is silent or plan terms are ambiguous.  In view of the McCutchen decision, plan sponsors should review their plans’ subrogation, reimbursement and collateral source provisions to ensure they, primarily, are clear and unambiguous and, secondarily, address the issue whether the plan’s rights to subrogation and reimbursement extend to the attorneys’ fees portion of the participant’s recovery from a third party.

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.

© Genova Burns LLC | Attorney Advertising

Written by:

Genova Burns LLC

Genova Burns LLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*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. Or, sign up using your email address.