Montanile v. Board of Trustees: A New Model for Recovery

by Wilson Elser

At times, money may be owed back to the benefit plan which paid benefits to or on behalf of a participant. For example, most health plans include a right to recover from a third party recovery amounts the plan paid. In the context of disability plans, the claim may have been overpaid as a result of the claimant’s subsequent receipt of benefits from other sources or even a miscalculation. The Supreme Court’s recent decision in Montanile v. Board of Trustees of National Elevator Industry Health Benefit Plan, 577 U.S. __ (2016), threw the proverbial monkey wrench into efforts to recover money owed back to ERISA-governed employee benefit plans by their participants. Prior to the decision, most plans assumed that as long as they had a “lien by agreement” they could recover against the participants’ personal assets. In Montanile, the Court placed significant restrictions on a plan’s right of recovery when the funds have been spent. Therefore, benefit plans must consider new ways to preserve their rights.

The starting point for any claim under ERISA is Section 502(a). In relevant part, Section 502(a)(3) of ERISA authorizes civil suits “by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates … the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of … the terms of the plan.” 29 U.S.C. § 1132(a)(3). In Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002), the Court considered the scope of relief available under Section 502(a)(3). Great-West was the insurer of a health plan which paid a significant amount in medical expenses after Knudson was left a quadriplegic from a car accident. The plan included a provision in which participants agreed that they were “personally liable to [the Plan] … up to the amount of the first lien” if they failed to reimburse the plan from a third party recovery. Id. at 207. Only a fraction of Knudson’s third party settlement was allocated for payment of paid medical expenses, much less than was paid. Therefore, Great-West sued to recover the remainder. The Supreme Court concluded that the claim was not viable under ERISA. The Court explained that the plan’s attempt to impose personal liability on Knudson “was not typically available in equity.” Significantly, the money sought by Great-West already had been distributed to a trust and to her attorney. As such, the plan was really seeking the “imposition of personal liability for the benefits that they conferred upon respondents” and this is not equitable relief allowed under Section 502(a)(3) of ERISA. Id. at 214.

The Court’s subsequent decision in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 359 (2006), seemed to provide a road map for plans seeking reimbursement against participants. The Sereboffs also received a settlement following a car accident and they too failed to reimburse the health insurer for expenses paid on their behalf. This time, the Court concluded that the claim by the plan sought equitable relief. The Court held that the plan created an “equitable lien by agreement” which was, as its name states, “equitable” and thus permitted. Id. at 368. Following Sereboff, many believed that as long as the plan included this “equitable lien by agreement” language, a claim could be brought against the participant under ERISA even when the funds were not strictly traceable. Perhaps lost on most of us was the fact that the funds claimed in Sereboff were still “specifically identifiable funds … within the possession and control of the Sereboffs [and] set aside and preserved [in the Sereboffs’] investment accounts.” Id. at 362-63.

US Airways, Inc. v. McCutchen, 569 U.S. __, 133 S.Ct. 1537, 1548 (2013), was also a favorable decision for plans seeking recovery against participants under ERISA. McCutchen challenged the employer’s right to recover on equitable grounds. The Court rejected the equitable defenses which would effectively “override” the terms of the plan. Of note, the funds being claimed in McCutchen were also specifically identifiable and still in the possession of the defendant.

Montanile resolved an apparent split in the circuits over whether an equitable claim for relief can be brought when the participant has spent the entirety of the money received from the third party on “nontraceable” items. Under these facts, the Court concluded that the suit was not seeking “appropriate equitable relief” and must fail. The health plan stated that moneys received from third parties were considered “assets of the plan” and prohibited participants from distributing such funds without a written release from the plan. The plan also required claimants to “promptly” reimburse the plan upon receipt of a judgment or settlement. Once again, the Court was presented with “bad” facts. Montanile was struck and seriously injured by a drunk driver. Montanile’s attorney held a portion of the third party settlement sufficient to reimburse the plan in full in a client trust account but took the position that the plan was not entitled to any portion. The attorney told the health plan that the funds would be distributed unless the Board objected within 14 days, which it failed to do. It then waited six months to file suit against the participant.

The Court stated its holding in Montanile simply: “A defendant’s expenditure of the entire identifiable fund on nontraceable items (like food or travel) destroys an equitable lien.” Although the Court recognized that the dissipation of the fund was “wrongful,” the plan could not then seek to enforce its lien against the defendant’s general assets. Perhaps naively, the Court stated that plans often have provisions which obligate participants to notify the plan of any third party claim/recovery. The Court further stated that plans have an incentive to investigate and track claims. While the participant in Montanile provided notice of the settlement which was disregarded for several months, this is not always the case. Many times plans do not learn of the recovery giving rise to the reimbursement claim until after the funds have been disbursed.

Following the decision in Montanile, plans that are potentially owed money from participants must take a step back and reevaluate the way they investigate potential recovery claims, the language in their plans and the language in any reimbursement agreement. First, the holding in Montanile only applies when the funds have been dissipated on nontraceable items “such as food or travel.” What are traceable items? Examples likely include funds placed in a retirement account or trust under the control of the participant. If a claimant pays off a house mortgage with settlement funds, this too is traceable. A plan should immediately seek bank records and other information to determine how the money received from a third party was spent.

Hopefully, plans will be made aware of the settlements before the funds are spent. In those cases, the plans must act diligently. Once the plan in Montanile learned that the attorney was not going to honor the reimbursement language in the plan, it should have filed its lawsuit and sought a restraining order against any distribution of the funds. Moreover, the participant should not be the only named defendant. Since the attorney has the funds, the attorney should also be named. The potential for disciplinary action and even individual liability if the attorney disburses the funds after receiving notice of a lawsuit may encourage cooperation.

Some practitioners have suggested that once the participant receives money owed to the plan, they become a fiduciary who may be sued under ERISA. In the case of insured plans, the argument appears to be a stretch because the money goes back to the insurer’s general assets, not the “plan.” But what if the plan document identifies the participant as a fiduciary? Nothing appears to prevent a plan from designating a participant as a fiduciary to the extent that the person receives money owed back to the plan and its insurers.

Benefit plans should also consider including penalty provisions to discourage a participant’s failure to comply with reimbursement requirements. For example, the plan document can state that a participant’s (1) failure to timely notify the plan of any claim or settlement which may implicate the reimbursement provision or (2) failure to reimburse the plan will result in the immediate termination of any additional benefits and the forfeiture of participant status and all rights under the plan. This may not be permissible for health plans based on federal requirements but there is nothing that prevents a disability plan from implementing this language. Employer-sponsored life insurance plans should also consider using this language since mistaken payments sometimes occur. Plans should also consider adding language stating that it is entitled to recover attorney’s fees and costs associated with any action necessary to recover an overpayment that is withheld contrary to the terms of the plan.

Plans frequently require participants to sign reimbursement agreements. These agreements can go further in protecting the benefit plans’ rights. As with the plan document itself, the reimbursement agreement should identify the funds that are subject to it (third party recovery, Other Income Benefits, etc.), the participant’s obligation to notify the plan of potential recoveries as well as actual receipt of money, the necessity of reimbursing the plan and the consequences of failing to do so. In addition, the reimbursement agreement should state that the participant acknowledges and agrees that the agreement creates rights and obligations under state laws on the part of the participant, separate from any rights under ERISA.

Can a reimbursement agreement create a state law cause of action that is not preempted by ERISA? Perhaps. In the context of health plan provider agreements, many courts have recognized the applicability of state law. According to these courts, the provider agreement creates an independent legal duty; therefore, claims made under it are not preempted. See e.g., Grasso Enterprises, LLC v. Express Scripts, Inc., 809 F.3d 1033, 1041 (8th Cir. 2016); North Cypress Medical Center v. Cigna Healthcare, 781 F.3d 182, 201 (5th Cir. 2015); CardioNet, Inc. v. Cigna Health Corp., 751 F.3d 165 (3d Cir. 2014). While the issue of preemption has not been addressed in the context of a reimbursement agreement, these cases suggest that such a claim is permissible.

Plans should also consider ways to avoid a reimbursement situation. Most disability plans reduce a monthly benefit by the amount of income a claimant receives from other identified sources. These sources often include Social Security and disability retirement benefits a claimant receives or is eligible to receive. This language permits a plan to reduce the monthly benefit under the plan by the estimated benefit the claimant is eligible to receive. Many plans will forego the estimated offset if the claimant signs a reimbursement agreement. Claim administrators should reconsider whether agreeing to waive the estimated offset is in their best interest.

While Montanile makes it more difficult for benefit plans to seek reimbursement and recover overpayments, it does not shut the door completely on these claims. Insurers and self-funded plans should consider amending their language in the manners discussed above. In addition, Montanile teaches us that plan fiduciaries must act promptly when made aware of a potential recovery. If they fail to do so, the claim may be lost.


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.

© Wilson Elser | Attorney Advertising

Written by:

Wilson Elser

Wilson Elser 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:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. 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. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our 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 are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy 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 our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.