I recently had the pleasure of speaking at the AAJ and WSAJ conventions regarding updates on ERISA Subrogation and Reimbursement Issues. By way of this blog as well as my firm’s blog and website, I will make available excerpts of the presentation. For attorneys out there who understand the importance of staying current on ERISA and related subrogation issues, check out the CDs, DVDs, and MP3s available at the AAJ website.
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal statute that preempts state laws. In it, there is no express subrogation provision. Section 502(a)(3) of the Act is the civil enforcement provision. It authorizes the pursuit of a civil action to “obtain other appropriate equitable relief.”
Noteworthy case law includes Great-West Life & Annuity Ins. Co. v. Knudson, which interpreted the law as only those remedies typically available in equity. 534 U.S. 204 (2002) 208 F.3d 221, affirmed. Because the funds were in the Special Needs Trust, the action was one at law, not equity, and so they were not allowed. Id.
Sereboff said that the Plan could claim an equitable lien from the identifiable portion of the third-party recovery for medical bills it had paid. The key footnote in Sereboff is footnote 2, which states that the parties did not raise the issue below. And the Court expressly declined to address whether “appropriate equitable relif” encompasses equitable defenses.
Here are ways how ERISA subrogation claims have gone wild
- Plan language called for first dollar recovery
- Plan language called for elimination of the Made Whole rule
- Plan language called for elimination of the Common Fund Doctrine
- Plan language called for no consideration for comparative negligence
- Plan language created obligations on Plaintiff counsel
- Plan language refused to pay for proportionate share of attorney fees and costs
Then, we have the U.S. Airways v. McCutchen, which I headed up the Public Justice tema that briefed and argued before the Third Circuit and the United States Supreme Court. SCOTUS handed down its opinion earlier this year. But, before we dive into SCOTUS’ decision, here’s a quick overview of McCutchen
- McCutchen suffered serious injuries;
- Estimated value of case was $1 million;
- ERISA Plan paid $66,866 in medical expenses;
- Because of limited insurance, McCutchen recovered $10,000 from third-party liability carrier;
- McCutchen recovered $100,000 from his own UIM policy;
- Attorney fee was 40% which equaled $44,000;
- Attorneys placed $41,500 in escrow account pending resolution of the dispute;
- ERISA suit asked for $41,500, plus $25,366 from McCutchen.
Equitable defenses included the Common Fund doctrine and unjust enrichment, which called on the Double Recovery rule and the Make Whole Doctrine.
The Supreme Court decision, in a nutshell, was as follows:
- Equitable lien by agreement. That type of lien serves to carry out a contract’s provisions.
- Equitable principles are “beside the point” when parties demand what they bargained for in a valid agreement.
- Principles of unjust enrichment give way when a court enforces an equitable lien by agreement.
- The relief is to enforce the terms of the plan. That limitation reflects ERISA’s principle functions: to protect contractual defined benefits.
Here’s what I say in response: You have got to be kidding me. Why? Well,
- These Plans are not arm length bargained for transactions;
- The Plans amend the documents with no input whatsoever from the beneficiary.
- This leaves a markedly injured person without a tort remedy because of the overreaching of this health benefit plan.
Now, what do we do? I will provide step-by-step instructions in my next blog post.
Some of you know how passionate I’ve been as a lawyer over the past several decades. My focus has always been about standing up for those profoundly injured and for victims of wrongful death. What fuels my fire is the knowledge that someone should have known better, but chose to ignore it. This has resulted in some tough battles that my partners and I have waged against large corporations. Yes, we’re a team of Davids well equipped to fight the Goliaths.
Well, I’m honored that Super Lawyers features a story about me in their latest issue of Washington Super Lawyers. The article outlines some of the “big shots” with whom I’ve picked fights. Please enjoy and drop me a line with any questions, comments, or thoughts.
As many of you have probably heard, it was a tough day earlier this week in the Supreme Court. Check back in the future for my own comments about SCOTUS’ decision in U.S. Airways v. McCutchen. In the meantime, I want to share with you what Arthur Bryant, Executive Director of Public Justice and the Public Justice Foundation, wrote to PJ members:
The Court issued its long-awaited decision in U.S. Airways v. McCutchen, crafting a rule that, in many cases, will allow ERISA plans to strip their beneficiaries of much-needed compensation when they are injured in an accident. ERISA plans must be enforced according to their terms, the Court held, even where those terms indisputably conflict with principles of equity that have governed for hundreds of years. For the Court, “if the agreement governs, the agreement governs,” and no amount of unfairness will alter that fact.
That holding embraces what is fast becoming this Court’s legacy: an unyielding allegiance to contract language over and above everything else. The Court’s decision in McCutchen applies this concept to ERISA in much the same way it has already done in the consumer and employment contexts. The overriding theme in all of these areas — which, it is worth noting, all involve a corporation imposing a take-it-or-leave-it contract on an individual — is that when something goes into a contract it becomes automatically binding, even if it contradicts basic legal rules that have governed for hundreds of years. Contract, in essence, has superseded the law.
But our effort in McCutchen was not in vain. The Court’s ruling also favored Mr. McCutchen, and the millions of employees and their families who receive health insurance through an ERISA plan. In the second half of its decision, the Court refused to allow U.S. Airways to force Mr. McCutchen to pay all of the collection costs in the case. As the Court explained, not only would that put Mr. McCutchen “in a hole,” but it would force him to “pay for the privilege of serving as U.S. Airways’ collection agent.” Faced with this deeply unpalatable possibility, the Court refused to permit it.
This is Part 1. See the later posts for more on this same issue.
In Homewood (see Sept 12, 2012 post), the insurer didn’t meet its burden to prove that the plaintiff was made whole. That burden was placed squarely on the insurer. Brown v. Snohomish Co. Phys. Corp., 120 Wn.2d 747, 759 (1993). I have tried three subrogation cases to verdict and each time the insurer has failed to meet that burden. In fact, each time the insurer has insisted that all it needed to show was that less than policy limits had been accepted. Thus, my evidence that the plaintiff had not been made whole was essentially uncontested. These insurers are incorrect that acceptance of less than liability policy limits meets the burden of proving that the plaintiff was made whole.
To prove that my client had not been made whole in all three trials, I hired an experienced personal injury lawyer to act as an expert witness and render an opinion that under the facts of each case the plaintiff was not made whole The expert considered all liability and all damage evidence in the tort action, and then opined that the plaintiff was not made whole for various reasons, usually the liablity facts forced a settlement for less than full value of the case.
Liberty Mutual v. Tripp  laid this issue to rest, ruling specifically that there is no presumption of full compensation or prejudice to the insurer simply because a plaintiff settles for less than policy limits. In Tripp, the plaintiff settled for $35,000 out of a $50,000 policy. The court held that it was a question of fact whether the plaintiff had been fully compensated.
NOTE: More on this in the next blog post.
 144 Wn.2d 1, 25 P.3d 997 (2001).
Read a detailed analysis of oral arguments at the U.S. Supreme Court for US Airways v. McCutchen: Bloomberg BNA US Law Week Supreme Court Today Article.