Plan sponsors, particularly those that sponsor self-funded
health plans, should review plan document provisions in light of
the recent decision of the Supreme Court of the United States in
US Airways, Inc. v. McCutchen. In McCutchen, the
Court may have reopened the door to some defenses commonly asserted
by participants in cases involving subrogation rights under health
plans. Subrogation rights allow a plan to "step into the
shoes" of the participant to obtain a recovery of the plan
expenses from a third party who caused an injury to the
The following highlights the key points in the opinion:
The Court held that equitable rules will not override the clear terms of a plan. If
the plan clearly disallows the use of a particular defense, then
such defense should not be permitted.
Equitable doctrines including "double recovery" and
"common fund" should not be applied where express plan
terms provide for the contrary. The double recovery doctrine is
used to limit a plan's recovery to the portion of the
settlement expressly designated for medical expenses, which may not
be sufficient reimbursement for amounts the plan actually covers.
Similarly, the common fund doctrine is used to reduce the amount
reimbursed to a plan by a share of the attorney's fees incurred
in obtaining the third-party settlement.
The Court found that the plan's provision for "first
claim on the whole third-party recovery" was expressly
contrary to, and precluded application of, the double recovery
doctrine. However, the Court found that the plan was not
clear as to the allocation of attorney's fees and hence applied
the common fund doctrine, reducing the plan's recovery
The decision provides helpful clarification with respect to
subrogation rights and emphasizes the importance of precise plan
language in subrogation provisions. In light of McCutchen,
plan sponsors of self-funded health plans should review existing
plan terms to ensure that they explicitly address equitable
defenses such as the common fund and double recovery doctrines.
Plan sponsors of insured plans may also want to review how their
plans pursue subrogation rights because subrogation recovery can
help the plan's claims experience.
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.
As our readers know, federal and state departments of labor have intensified their scrutiny of independent contractor arrangements and are coordinating with the federal and state taxing authorities when misclassifications are found.
Courts often conclude that absent appropriate disclaimer language and statements in employee handbooks are "promises" to employees, binding employers to abide by these promises in their dealings with employees.
Employers sometimes rely on equitable arguments, such as "unclean hands" (which asserts that it would not be fair to hold an employer liable when the employee’s actions caused or contributed to his own injury or damages).