United States: Supreme Court Forbids Rewrite Of ERISA Plan

The supremacy of a written ERISA -governed plan still reigns as the U.S. Supreme Court reversed the ruling of an appellate court which had held that a court in equity can ignore unambiguous subrogation reimbursement language, and simply rewrite the terms of an ERISA-governed plan in line with its own ideas of what was "fair and equitable." McCutchen v. U.S. Airways.


James McCutchen was an employee of U.S. Airways and a participant in a self-funded benefits plan governed by ERISA.  The plan covered McCutchen's medical expenses in the event that he was ever injured by a third party, which McCutchen would then reimburse in full "out of any monies recovered" from third parties.  The plan also required that McCutchen would not "negotiate any agreements" that would divert the plan's reimbursement monies to others. 

McCutchen suffered injuries in a non-work-related accident and incurred medical bills totaling $66,866.  In accordance with the plan, U.S. Airways paid for McCutchen's medical care. McCutchen hired a lawyer to sue the third party, and ultimately recovered $110,000.  McCutchen paid his lawyer 40% out of the $110,000 settlement fund, but then refused to reimburse the plan the $66,866 it paid in advance to cover treatment for his injuries.  U.S. Airways filed suit in federal district court to enforce its rights under the plan to seek reimbursement of the full amount paid.  The district court held in favor of U.S. Airways.  McCutchen appealed. 

On appeal to the U.S. Court of Appeals for the 3rd Circuit, U.S. Airways argued that under Section 502(a)(3) of ERISA, plan fiduciaries may enforce written reimbursement provisions in court by seeking "appropriate equitable relief" to enforce "the terms of the plan."  The 3rd Circuit reversed the decision of the district court reasoning that the principle of unjust enrichment overrode U.S. Airways' reimbursement clause. U.S. Airways appealed to the Supreme Court. 

The question on appeal was whether the 3rd Circuit correctly held – in conflict with the 5th, 7th, 8th, 11th, and D.C. Circuits – that ERISA Section 502(a)(3) authorizes courts to use equitable principles to rewrite contractual language and refuse to order participants to reimburse their plan for benefits paid, even where the plan's terms give it an absolute right to full reimbursement. 

The Positions Of The Parties

ERISA was designed to respect the primacy of written benefit plans. ERISA recognizes that plans are contracts between employers and employees.  U.S. Airways argued that Section 502(a)(3) authorizes appropriate equitable relief to enforce the terms of a plan, not rewrite it.  There was no issue in this case that the plan engaged in any sort of fraud or misrepresentation in the agreement with McCutchen.  The Supreme Court previously held in the case of CIGNA Corp. v. Amara, that fraud or misrepresentation may permit such discretion in fashioning equitable relief.  

U.S. Airways further claimed that the type of "equitable relief" sought, an equitable lien by agreement, "does not authorize a court to do equity in the abstract, adjusting burdens and benefits long after the fact." An equitable lien by agreement enforces the parties' actual agreement.  Finally, it argued that McCutchen's position "runs headlong into the goals of ERISA" as the legislation seeks to minimize litigation burdens and his position would undoubtedly multiply them.  ERISA encourages employers to offer benefits, makes liabilities predictable, and eliminates ambiguities.   

U.S. Airways reasoned that McCutchen's position, and that of the 3rd Circuit, could lead to disastrous results for ERISA-governed plans because a court could simply rewrite the reimbursement or subrogation provisions and leave the plan holding the bag. 

McCutchen argued that the language of ERISA stating that a court may award "appropriate equitable relief" for claims brought under 502(a)(3), permitted reformation of the bargained for and agreed terms of the plan between himself and U.S. Airways.  Here, after paying his attorneys and repaying the plan, McCutchen would be left with no monetary recovery for himself.   

McCutchen, with no apparent regard for the fact that U.S. Airways advanced him in excess of $66,000 so he could receive medical treatment, argued that he should be made whole before the plan was reimbursed. This would include compensation for his lost wages, physical and emotional damages, future medical expenses, attorneys' fee and the like.   

Alternatively, he argued that the plan should only receive a percentage of what it paid for care and only after a payment of fees was made to his attorney for the suit against the third party who injured him.  This theory is known as the common-fund doctrine.  McCutchen wholly rejected the agreement he made in accepting benefits via the plan wherein the plan gets paid first from any moneys secured by judgment or settlement.   

Finally, McCutchen argued that since the plan fiduciaries did not do anything to assist in the case against the third party who injured him, that it was not "equitable" for the plan to seek full reimbursement after the settlement was made.  He claimed that allowing the plan to swoop in at the end of the matter and take its 100% reimbursement off the top of the settlement amounted to a double recovery for the plan – even though all the plan would take was exactly what it paid out of pocket to care for McCutchen's injuries. 

The Court's Decision

In reversing the holding of the 3rd Circuit, the Supreme Court held "in a §502(a)(3) action based on an equitable lien by agreement – like this one – the ERISA plan's terms govern.  Neither general unjust enrichment principles nor specific doctrines reflecting those principles – such as the double-recovery or common-fund rules invoked by McCutchen – can override the applicable contract."

The Supreme Court reasoned that the logic of its prior ruling in the case of Sereboff v. Mid Atlantic Medical Services, Inc. doomed McCutchen's legal position.  In Sereboff, like U.S. Airways, the plan administrator sought to enforce an equitable lien by agreement found in the reimbursement provision of the plan.  "Enforcing the lien means holding the parties to their mutual promises...."  When the contract contains clear reimbursement provisions, ERISA governs, not general equitable doctrines.   

But Sereboff left open the question of whether a future litigant, such as McCutchen, could assert that contract based relief, while "equitable," was not "appropriate" under §502(a)(3) because it contravened principles like the make-whole doctrine.  The Court's ruling today closed that gap in favor of the written ERISA-governed plan.

The Court also held that while "equitable rules cannot trump a reimbursement provision, they may aid in properly construing it."  This is directed at McCutchen's claim for allocation of attorneys' fees.  U.S. Airways' plan is silent in this regard.  Thus, the Court noted that the common-fund doctrine provides the default rule to fill this gap.  When a contract is silent, courts must look outside the four corners of the document and take into account other doctrines that have traditionally been applied in similar situations. Under the common-fund doctrine, litigants or lawyers who recover an amount (common fund) for themselves or their clients are entitled to a reasonable attorneys' fee from the recovery as a whole.  The case will now be remanded to the lower court for proceedings consistent with this decision. 

What Does This Mean For Employers? 

Although this is a win for those self-funded plans governed by ERISA, plan fiduciaries and administrators are wise to review with their counsel the subrogation, reimbursement and attorney fee and costs provisions in the written documents to ensure conformity to the law in this area.   

Undoubtedly, those who litigate in the personal-injury arena will continue to develop new theories to test the sufficiency of ERISA, since taking the claim of injured persons who have had their expenses paid by a medical plan will be less attractive if the ability to collect fees and recover damages for their client will be secondary to the rights of the plan. 

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.