United States: Supreme Court Limits ERISA Plans' Reimbursement Rights

In Montanile v. National Elevator Industry Health Benefit Plan (January 20, 2016), the U.S. Supreme Court dealt a blow to ERISA plans that seek to recover health benefits paid to participants who sustain injuries caused by third parties.

The fact pattern in Montanile was unremarkable and frequently recurring: an ERISA plan participant received health coverage for injuries sustained in a car accident, received a recovery in an underlying action relating to the accident, and the plan then requested reimbursement based on plan terms requiring Montanile to repay the plan out of the settlement he received. After unsuccessfully attempting to resolve his reimbursement obligations with the plan, Montanile's counsel dispersed the settlement monies to Montanile, who quickly spent the settlement (or, at least portions of it).

The plan brought an action under ERISA Section 502(a)(3), which provides in part that an ERISA plan fiduciary may obtain "appropriate equitable relief" to enforce ERISA plan terms. These three words have received perhaps more attention from the Supreme Court than any other provision of ERISA over the past 30 years, with the Court continually refining its interpretation of the phrase in cases involving ERISA plans as both plaintiffs and defendants. In erecting a framework to analyze claims arising under Section 502(a)(3), the Supreme Court has repeatedly referred back to olden times when the legal system was divided into two different sets of courts with different remedial powers: courts in law and equity. Though such courts merged long before the passage of ERISA, the Supreme Court interpreted "appropriate equitable relief" to mean the categories of relief "typically available in equity." Mertens v. Hewitt Assocs., 508 US. 248, 256 (1993). This test in turn required an examination of old legal treatises explaining the various forms of equitable relief available in "the days of the divided bench." Therefore, the outcomes under Section 502(a)(3) depended on whether the Supreme Court could find an analogue in the basis for relief and type of remedy sought in a Section 502(a)(3) action.

Remarkably, in just 15 short years prior to Montanile, the Court has had three separate occasions to analyze the phrase "appropriate equitable relief" as it applied to ERISA plan reimbursement cases. The first was Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002). In Knudson, the Supreme Court, in a 5-4 decision, rejected an ERISA plan's attempt to enforce plan reimbursement terms in a situation where the injured plan participants did not actually receive the underlying tort recovery – instead, that recovery had been placed in a special needs trust and was also in the custody of counsel, neither of whom were named by the ERISA plan in its lawsuit. The Court rejected the plan's claim as not "typically available in equity" because it sought "legal restitution" rather than "equitable restitution." The difference turned on the fact that equitable restitution required a plaintiff to obtain relief over a particular fund in the possession of defendant, rather than a general money judgment for the same amount against the individual's general assets. That decision drew a sharp dissent from Justice Ginsberg, who criticized the majority's seemingly archaic and formalistic analysis, believing that Congress did not use the word "equitable" with the notion of reintroducing those antiquated legal doctrines.

ERISA plans fared better in Sereboff v. Mid-Atlantic Medical Services, 547 U.S. 356 (2006). Sereboff presented a similar third-party reimbursement scenario, only this time the defendant had possession of the settlement fund from which the plan sought reimbursement. The Court thus distinguished Knudson, and analogized the plan's claim to an "equitable lien by agreement," a category of relief "typically available in equity." An "equitable lien by agreement" is an agreement by one party to convey a specific fund or property to another before that fund or property exists. Most ERISA plan reimbursement clauses, if drafted properly, constitute an "equitable lien by agreement." Such liens are valid if they identify a particular fund over which the plan has rights, specify the portion of the fund to which the plan is entitled, and are enforced as against a fund in the defendant's possession or control. Notably in Sereboff, the Supreme Court rejected the Sereboffs' assertion that "strict tracing" principles – the plaintiff's ability to "'trac[e]' the asset into its products or substitutes," or "trace his money or property to some particular funds or assets," were relevant in cases involving equitable liens by agreement. Said another way, in equitable restitution cases, it was often the case that the plaintiff had to identify a specific piece of property or asset it possessed and that defendant wrongfully took, and would be required to "trace" that asset from when plaintiff possessed it to the time defendant wrongfully took possession. This was called "strict tracing" the asset into defendant's hands. The Court flatly found that such requirements did not apply in situations involving equitable liens by agreement like those contained in ERISA plans. Lower courts' interpretation of that part of Sereboff ultimately led to the dispute in Montanile.

Conspicuously left open in Sereboff, however, was the question of whether enforcement of such ERISA plan clauses, though arising properly in equity, was nevertheless "appropriate" within the meaning of the phrase "appropriate equitable relief" in Section 502(a)(3).

The Court took up that question in U.S. Airways v. McCutchen, 133 S. Ct. 1537 (2013).1 The core question in McCutchen was whether the word "appropriate" in the phrase "appropriate equitable relief" allowed courts to disregard ERISA plan terms and fashion "appropriate relief" on a case-by-case basis, ostensibly on the basis of various equitable doctrines, depending on the fairness of the particular situation in which the plan sought reimbursement. The Court agreed with the plan that such doctrines could not be used to override clear plan language, and thus solidified Sereboff and ERISA plans' reimbursement rights.

Montanile presented a situation not found in the prior Supreme Court reimbursement cases, but one that is not uncommon: a plan member who spends a tort recovery before the plan is able to protect its reimbursement rights. A circuit split developed on whether plans could pursue an "equitable lien by agreement" under Section 502(a)(3), even though the plan participant spent the recovery. Six circuits (including the Eleventh Circuit in Montanile) held that the plans could pursue such claims under Section 502(a)(3) notwithstanding a participant's act of ignoring the lien and spending the money. Many of these courts relied on Sereboff's "strict tracing" language to support the conclusion that dissipation did not affect the plans' right to relief. Two circuits held that such action by ERISA plan beneficiaries stripped the claim of its equitable nature, and converted it to a legal claim – a mere money judgment against a defendant's general assets.

The Supreme Court in Montanile agreed with the minority view and, much as it had in Knudson, employed technical rules of equity to find against the plan. The Court found that relief "typically available in equity" meant that a remedy could be enforced only against an intact fund or traceable proceeds (e.g. a car or house) emanating from that fund or, perhaps, "comingled funds." As the Court noted, "A defendant's expenditure of the entire identifiable fund on nontraceable items (like food or travel) destroys an equitable lien." The Court once again examined old equity treatises and doctrines and focused on the fact that equitable remedies were often directed at a particular thing, as opposed to taking the form of a general monetary recovery from a defendant's assets. And the Court noted "the plaintiff could not attach defendant's general assets instead because those assets were not part of the specific thing to which the lien attached."

The Court appeared to cast aside the issue of whether the dissipation of the tort recovery was "wrongful" conduct by the ERISA plan member. Instead, the Court found such conduct—wrongful or not—did not change the analysis and conclusion that relief in such a situation was not "typically available in equity." Justice Ginsburg, the lone dissenting member, noted the patent unfairness of rewarding a plan member's flagrant breach of plan terms, and wondered rhetorically "What brings the Court to that bizarre conclusion?"

The Court considered and rejected the plan's argument that similar forms of relief existed in equity over dissipated assets, finding that those forms of relief were not "typical" in equity and were simply a product of the equity courts' ancillary ability to provide legal relief.

The court also rejected the plan's argument that Sereboff's "strict tracing" language meant the plan could recover regardless of dissipation, noting instead that nothing in Sereboff altered the requirement that "the plaintiff must still identify a specific fund in the defendant's possession to enforce the lien."

Lastly, and perhaps in the opinion's weakest moment, the Court cast aside the plan's policy arguments, which focused on ERISA plan solvency and the creation of perverse incentives whereby ERISA plan participants can simply defeat equitable liens by breaching the very plan language under which they accepted the benefits coverage. The Court casually suggested that it would normally be quite easy for the plan to prevent dissipation of settlement funds, and that the decision will not pose much hardship or additional costs on plans. This section of the opinion (which Justice Alito notably refused to join) is startlingly naïve. While it is true that ERISA plans are at times aware of recoveries or potential recoveries before or shortly after they occur, often they are not. Often ERISA plans are met with resistance at every turn and do not even learn about settlements or recoveries until long after they occur, despite diligent pursuit of information regarding them. In short, encouraging ERISA plan participants to dissipate recoveries on non-traceable items creates poor incentives and invariably will raise litigation costs. The Court weakly supported its conclusion in this regard by noting that the plan had 14 days' notice that the participant's lawyer might disperse the funds to the participant but did not object, and then waited six months to actually bring suit. Seemingly, though, under the Court's analysis it would have made no difference if the plan participant's lawyer gave 48 hours' notice and the plan sued much sooner.


The result in Montanile was not entirely surprising, given that the Court in Knudson had laid the groundwork for such a result. It remains to be seen whether personal injury lawyers and their clients will seize on Montanile and attempt to frustrate plan reimbursement claims by hiding the ball on settlement and quickly spending the funds in such a way as to avoid plans' claims. It similarly remains to be seen whether ERISA plans will continue to provide coverage at all in third-party liability situations, given that plans are not required under ERISA to extend such coverage in the first place. Moreover, even under the majority opinion, it appears plans have avenues of relief in the event settlement funds are spent on "traceable" items. However, these avenues will undoubtedly result in more litigation costs and perhaps invasive discovery into ERISA plan members' finances. A further result is likely to be greater (and more prompt) activity by ERISA plans in securing injunctive relief to preserve settlement funds intact and prohibit plaintiffs from benefitting from their own breach of plan terms. This may, in turn, make settlement of such claims more difficult. In short, while the result in Montanile is a blow to ERISA plans, it may have negative consequences for both plans and participants alike.


1. The author was co-counsel for the ERISA plan in McCutchen.

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.