In its US Airways v. McCutchen decision on April 16th,
the U.S. Supreme Court overturned the U.S. Court of Appeals for the
Third Circuit and ruled equitable defenses (such as unjust
enrichment) do not supersede an ERISA plan's terms.
Background
McCutchen was a participant in the US Airways self-funded medical
plan and had been injured in a car accident. Although the plan
initially paid $66,866 in medical expenses for McCutchen, it
included a provision that entitled US Airways to reimbursement if
McCutchen recovered money from a third party. McCutchen
subsequently settled his case for $110,000, although his total
damages were estimated to be more than $1 million. After paying his
attorney a 40 percent contingency fee, McCutchen retained $66,000.
US Airways subsequently demanded reimbursement of the $66,866 it
had paid for McCutchen's medical expenses. When McCutchen
refused to comply, US Airways sued McCutchen under Section
502(a)(3) of ERISA in order to obtain "appropriate equitable
relief" to enforce the plan's reimbursement provision.
McCutchen raised two equitable defenses and claimed that, absent
any over-recovery on his part, US Airways' right to
reimbursement did not apply and, alternatively, that US Airways
should be required to contribute its fair share to the costs
McCutchen incurred in obtaining any recovery (i.e., his
attorney's 40 percent contingency fee). The district court
granted summary judgment to US Airways, which was later vacated by
the Third Circuit.
The Supreme Court held that because the reimbursement terms of the
plan were clear, they governed and US Airways was entitled to
recover the funds from McCutchen. However, because the plan was
silent with respect to attorney fees, the Court ruled that US
Airways would have to contribute an allocable share of the
attorney's 40 percent contingency fee.
What Does This Mean for Plan Sponsors of Self-Insured
Medical Plans?
This decision is good news for plan sponsors of self-insured
medical plans. The decision reaffirms that where the plan terms are
clear, they will govern. As the Court described in its opinion,
"neither general unjust enrichment principles nor specific
doctrines reflecting those principles - such as double-recovery or
common fund rules" can override the terms of the plan.
Plan sponsors of self-insured medical plans should review their
plan documents, specifically the reimbursement provisions (that is,
the subrogation provisions), to ensure they are clearly drafted. If
not clear, plan sponsors should consider amending the plan so that
it specifies whether the plan is obligated to share in costs
incurred by a participant when pursuing recovery of a claim against
a third party.
If you have any questions about whether your plan's
reimbursement provisions should be amended to clarify your intent
with respect to who shares in the costs of recovery, please contact
a member of Day Pitney's Employee Benefits practice
group.
www.daypitney.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
