A key step in resolving an ERISA lien is analyzing the ERISA plan document. The plan document sets forth all the rights and responsibilities of the plan and the plan participant. In this context, the plan document sets forth the extent of the plan’s right of reimbursement or subrogation.
A big mistake personal injury attorneys make is failing to scrutinize the plan document reimbursement provision. The ERISA plan may have a poorly written or out of date plan document. If you take for granted that the plan document is bullet-proof, you may miss a major opportunity to put more money in your client’s pocket.
Following a structured approach to scrutinizing an ERISA plan document is critical to reducing an ERISA lien, and it is attainable by following the steps below. This guide provides actionable advice on evaluating the strengths of the plan’s right of reimbursement and where to find opportunities to reduce or eliminate the ERISA lien.
1. Make sure you have the Master Plan Document, not just the Summary Plan Description
The Summary Plan Description (SPD) is not the Plan Document. It is essential to differentiate between the two.
The Supreme Court has stated: “… that the summary documents, [], provide communication with beneficiaries about the plan, but [] their statements do not themselves constitute the terms of the plan…” Cigna v. Amara, 131 S. Ct. 1866, 1878 (2011).
The Master Plan Document (MPD) is the legally binding document that contains the plan terms. Thus, you must obtain a copy of the MPD.
To obtain the Master Plan Document, send a 29 USC 1024(b)(4) request for documents to the Plan Administrator.
2. Does the ERISA Plan Document Set Forth a Right of Recovery?
ERISA itself does not dictate that health and welfare plans have the right to subrogate or seek reimbursement from a personal injury settlement. The terms of the plan document must establish that right.
Therefore, first, simply confirm that the Plan Document states that the ERISA plan has a right to recover from the personal injury settlement. Look for a provision in the plan that is titled something like “Acts of Third Parties,” “Subrogation,” or “Reimbursement.”
If the plan document does not reference a right to recover, then the plan does not obligate your client to reimburse it.
3. Confirm that the ERISA Plan Seeks Equitable Relief
Under ERISA’s enforcement provision, ERISA 502, 29 USC 1132, an ERISA plan is limited to “equitable relief” – it may not seek legal damages. Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 221 (2002).
In a line of cases on this issue, the Supreme Court delves deep into what exactly constitutes “equitable relief” for purposes of ERISA 502, 29 USC 1132.
But, if an ERISA plan just sets forth a general obligation to reimburse the plan, the plan essentially assigns personal liability to the participant and seeks damages. For the ERISA lien to be enforceable, the plan document must contain more than just a general obligation to reimburse.
In other words, if the plan document seeks reimbursement from the member’s general assets, i.e., seeks legal damages, not equitable relief, the lien is not enforceable. Knudson, 534 U.S. at 221.
4. Evaluate the Plan’s Language for a Valid Right of Recovery
In Sereboff v. Mid Atlantic Medical Services, Inc., the U.S. Supreme Court found that an ERISA plan correctly sought equitable relief from a participant’s personal injury settlement. 126 S. Ct. 1869 (2006). According to the Court in Sereboff, to recover from the personal injury settlement, the ERISA Plan Document must:
- identify a particular fund from which the Plan may recover, distinct and apart from the member’s assets, and
- the plan language must identify the share of that fund to which the Plan is entitled.
What Language is Required?
A perfect illustration of the required plan language is contained in Popowski v. Parrott, 461 F.3d 1367, 1374 (11th Cir. 2006). In Popowski, the Court analyzed two separate plans under the Sereboff standard, holding that one plan was enforceable and another was not.
Enforceable Plan Language: lien was created “on any amount recovered . . . whether or not designated as payment for medical expenses” (identifies specific fund), and “the Covered Person . . . must repay to the Plan the benefits paid on his or her behalf out of the recovery made from the third party or insurer.” (identifies share of the specific fund).
Unenforceable Plan Language: right of reimbursement “in full and in first priority, for any medical expenses paid by the Plan relating to the injury or illness.” (does not identify specific fund or share of the specific fund; just states a general obligation to reimburse).
What is the Scope of the Right of Recovery?
If the plan document does not identify a separate fund or a share of the fund to which the plan is entitled, then the lien is not enforceable. Sereboff v. Mid Atlantic Medical Services, Inc., 126 S.Ct. 1869 (2006). If the plan document is missing either of these elements, then you should argue that the plan has no right of reimbursement.
However, a situation may arise where the plan document meets both elements, but limits the scope of what is recoverable. In these cases, you should argue that the plan cannot recover anything that falls outside the scope of the plan language.
For instance, if the plan language exclusively identifies the fund as proceeds recovered from the at-fault party, attorneys can argue that the Plan may not recover from first-party coverages, such as Uninsured/Underinsured Motorist (UM/UIM) coverage.
5. ERISA Reimbursement Post-McCutchen: Does the language in the ERISA Plan Document leave gaps that may be filled by equitable doctrines or defenses?
In U.S. Airways v. McCutchen, the Supreme Court held that equitable doctrines could not override the explicit terms of the plan but that equitable doctrines could help fill gaps in the plan language. 133 S. Ct. 1537 (2013). In McCutchen, the plan document was silent on the allocation of attorney’s fees, so the Court applied the common fund doctrine to fill that gap in the plan.
Articulate Equitable Defenses That May Limit the Lien Claim
Therefore, identify any equitable doctrines or defenses that may fill gaps in the plan language. Argue that if gaps exist in the Plan Document, certain equitable doctrines should be used to demonstrate the parties’ intent on handling those issues. For example:
- Common Fund Doctrine: As in McCutchen, look for attorney fee payment language. If the Plan Document is silent on the issue of attorney’s fees, argue that the common fund doctrine should apply.
- Made-Whole Doctrine: If the Plan Document is silent on situations where the recovery is insufficient to adequately compensate the plaintiff for the harm done, argue that the made-whole doctrine should apply.
Even if the Plan Document is airtight and disavows the equitable doctrines, arguing that public policy favors a reduction of the ERISA lien by raising these equitable doctrines or their statutory analogs may be persuasive.