Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan is the fourth decision by the U.S. Supreme Court addressing the subrogation rights of self-insured ERISA-covered health plans. Three previous decisions discuss a plan’s right to recover benefits paid for the medical treatment of participants and beneficiaries injured by the acts of third parties.1 This reimbursement or subrogation right must be described in the plan document, is based upon ERISA’s “equitable” remedy provisions, and permits the plan to assert a lien against amounts paid the participant by the responsible third party. The January 20, 2016 Supreme Court decision, noted above, describes just how far a plan can go to seek recovery.
In the typical scenario, a participant (or beneficiary) in an ERISA-covered, self-insured group health care plan (“plan”) is injured in an accident. The plan pays the medical expenses related to the participant’s injuries. The plan contains provisions that permit it to seek reimbursement and recovery. The participant files a claim against the third-party responsible for the accident and receives a settlement. The settlement is paid to the participant’s attorney. The plan asserts its reimbursement rights against the settlement.
The facts in the Montanile case follow the same pattern. Mr. Montanile (“participant”) was injured by a drunk driver. The National Elevator Industry Health Benefit plan (“Fund”) paid the participant’s medical expenses incurred for his injuries. A claim was filed both against the drunk driver and under Mr. Montanile’s own auto policy. After a settlement was reached, Mr. Montanile’s attorney held certain settlement proceeds in his client trust account. The plan asserted its subrogation rights, but negotiations broke down. The Fund was sent notice that the balance of the settlement would be distributed to the participant, but the Fund failed to respond. Mr. Montanile received and spent the money. The Fund filed suit seeking recovery from the participant’s general assets.
The Montanile decision addresses the very narrow question of what happens if the participant spends all of the settlement proceeds on non-traceable items – such as services, food, or other consumables – before the plan obtains reimbursement. The Supreme Court held that, once a participant spends the whole settlement on non-traceable items and there is no longer any identifiable fund against which the plan’s lien could be enforced, the plan has no right to seek reimbursement from the participant’s general assets. In reaching this conclusion, the Court determined an action seeking reimbursement from the participant’s general assets (and not from the settlement fund) would constitute a “legal” remedy, not recognized under ERISA. The Court’s opinion does suggest, however, that a fiduciary could enforce the plan’s lien if the participant spends the money on traceable items, such as the purchase of an automobile.
It is important that sponsors and third party administrators of self-insured ERISA-covered health care plans understand subrogation rights, and make certain that these rights are adequately described in the plan documents and plan procedures. In addition, sponsors and third party administrators need to think through the entire claims payment process where there is the possibility of recovery to the plan, so as to put the plan in the best position to recover any payments made to a covered participant. Lastly, plan sponsors need to be more vigilant with regard to retirement plan and disability plan payments and discovering errors in payments as soon as possible.
The impact of this case may go beyond its effect on self-insured health plan subrogation rights. Because the decision addresses generally what relief is available under ERISA § 502(a)(3), it is not necessarily limited to health plan subrogation rights. We anticipate participants may attempt to use the case as defense where fiduciaries seek to recover pension (and other retirement plan) or disability plan overpayments. In addition, in what may become an important footnote to ERISA litigators, the Court’s opinion could be read as possibly suggesting that Cigna v. Amara 563 U.S. 421 (2011), which many construed as expanding the ERISA remedies available to plaintiffs, did not in fact change the Court’s interpretation of what constitutes “equitable relief” under ERISA. Since Amara, the lower courts appear to have been more willing to award plaintiffs expanded relief on their ERISA claims, most notably the equitable relief of surcharge. This footnote in Montanile may give defendants an additional argument that the availability of such expanded relief should be curbed.
1 See: Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002); Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006); US Airways, Inc. v. McCutchen, 569 U.S. ____ (2013).