The U.S. Supreme Court has ruled that an ERISA plan has no right to recover benefits paid on behalf of a participant where the participant has already dissipated settlement funds received from a third party.

In Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, a group health plan paid $121,044.02 in medical benefits for a participant who suffered injuries in an automobile accident. The plan sued to recover those payments after the participant obtained a $500,000 settlement from responsible third parties.

Relying on a series of prior decisions, the Court ruled that a plan's right to recover is limited to "equitable" relief. Where there is an actual settlement fund to recover from, recovery may be seen as equitable. But where the amounts in the fund have been spent on food or other purchases that cannot be traced to the original settlement, recovery from the plan participant is considered a legal (not an "equitable") remedy. The Supreme Court left it to a lower court to determine factually whether all of the settlement funds had, in fact, been untraceably dissipated.

In this case, the plan had been given the opportunity to object to the distribution of settlement funds from a trust to the participant, but failed to do so. The plan then waited six months after the distribution before filing a lawsuit to recover funds. In that sense, the Supreme Court’s decision serves as a reminder that a plan seeking to recover benefit payments for an illness or injury caused by a third party should act promptly and consistently to assert its recovery rights.