Navigating the intricate landscape of the Employee Retirement Income Security Act of 1974 (ERISA) and ERISA subrogation liens can be challenging for personal injury attorneys. However, having a working knowledge of the key Supreme Court cases on ERISA liens can greatly benefit personal injury attorneys and their clients.
This post delves into pivotal Supreme Court cases on ERISA liens that set forth the basis and limitations of an ERISA health plan’s ability to enforce a subrogation or reimbursement interest against a participant’s personal injury settlement. By integrating the insights from these decisions, personal injury attorneys can approach ERISA lien negotiations with enhanced clarity and confidence.
FMC Corp. v. Holliday: ERISA Has Broad Preemptive Power
In FMC Corp. v. Holliday, the Supreme Court held that ERISA preempted a state anti-subrogation law that conflicted with the subrogation right in the self-funded ERISA plan’s plan document. 498 U.S. 52 (1990).
In reaching its conclusion that the anti-subrogation law did not apply to reduce a self-funded ERISA plan’s subrogation interest on a beneficiary’s tort settlement, the Court examined three ERISA provisions. Id., at 57.
- ERISA’s preemption clause preempts state laws that “relate to any employee benefit plan” covered by ERISA. ERISA 514(a), 29 USC 1144(a).
- ERISA’s savings clause “saves” certain state laws from preemption if they “regulate[] insurance, banking, or securities.” ERISA 514(b)(2)(A), 29 USC 1144(b)(2)(A).
- ERISA’s deemer clause states that no self-funded ERISA plan “shall be deemed to be an insurance company or other insurer.” ERISA 514(b)(2)(B), 29 USC 1144(b)(2)(B).
In short, the Court reasoned that: (i) ERISA preempted the anti-subrogation law because the law “relate[s] to” the ERISA plan; (ii) the state anti-subrogation would be saved from preemption because it regulates insurance; but (iii) the deemer clause exempts self-funded ERISA plans from laws that regulate insurance, like the anti-subrogation law. Id. at 61.
Key Insight from FMC Corp
- Investigate the ERISA Plan’s Funding Status: Knowing whether an ERISA plan is self-funded or insured is crucial to evaluating the extent to which state laws affect an ERISA plan’s subrogation rights. If the plan is self-funded like the plan in FMC Corp., state anti-subrogation laws will likely be preempted by ERISA if the plan document conflicts with the state law. If the plan is insured, it is more likely that the state anti-subrogation law would apply.
Great-West v. Knudson: ERISA Plans are Limited to Equitable Relief
In Great-West Life & Annuity Ins. Co. v. Knudson, the Supreme Court clarified that ERISA only entitled a benefit plan to seek equitable relief, not legal damages. 534 U.S. 204, 221 (2002). In Knudson, the ERISA plan filed suit under ERISA 502(a)(3) seeking recovery of the proceeds it paid out related to the plan participant’s injury by seeking an injunction and restitution. Id., at 208. In ruling in favor of the plan participants, the Court reasoned that the ERISA plan was not seeking equitable relief but was actually “seeking legal relief — the imposition of personal liability on respondents for a contractual obligation to pay money.” Id., at 221.
Key Insight from Knudson
- An ERISA Plan is Only Entitled to Equitable Relief, Not Damages: To have an enforceable subrogation interest, the Plan Document must articulate that the ERISA Plan is entitled to some type of equitable relief (e.g., equitable lien, constructive trust) and is not seeking to impose personal liability for reimbursement to the plan.
Sereboff v. Mid Atlantic: ERISA Plans Must Specify a Separate Fund
In Sereboff v. Mid Atl. Med. Servs., the Supreme Court enforced the ERISA plan’s reimbursement provision because it correctly articulated a claim for equitable relief. 547 U.S. 356 (2006). In this case, the ERISA plan sought the imposition of an equitable lien by agreement and sought reimbursement from a specifically identifiable fund separate from the participant’s general assets. Id., at 363. If the ERISA plan simply sought repayment from the participant’s general assets, it would be an action for legal damages and not allowed under ERISA. Id.
Key Insight from Sereboff
- Plan Document Must Specify a Separate Fund Distinct from the Participant’s Assets: The ERISA plan’s subrogation provision is not enforceable if it only states a general obligation to reimburse the plan. The Plan Document should specify a particular fund from which the ERISA plan can claim reimbursement and the share of that specific fund to which it is entitled.
U.S. Airways v. McCutchen: The Plan Language Governs
In U.S. Airways v. McCutchen, the Supreme Court emphasized that plan language determines the rights and limitations of an ERISA lien. 569 U.S. 88, 99 (2013). The Court stated that equitable defenses, such as the make-whole doctrine, cannot override clear plan terms. Id., at 98. However, equitable principles could help construe the plan terms where the plan document was silent on those issues. Id., at 101. Specifically, the Court held that the common fund doctrine should apply because the plan document was silent on the allocation of attorney’s fees. Id., at 103.
Key Insights from McCutchen
- Review the Master Plan Document: Always ensure you obtain a copy of the Master Plan Document, not the Summary Plan Description.
- Employ Equitable Defenses: Utilize equitable principles available at common law if not disclaimed in the plan document. Familiarize yourself with equitable principles that legislators might have integrated into state statutes.
Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan: No Lien on Nontraceable Items
In Montanile v. Bd. of Trs. of the Nat’l Elevator Indus. Health Ben. Plan, the Supreme Court held that an ERISA plan could not enforce an equitable lien against a plan participant’s general assets under ERISA § 502(a)(3) if the participant has already spent the specific settlement funds on nontraceable items (e.g., food, travel, services). 577 US 136, 145 (2016).
Key Insights from Montanile
- Ethical Obligations to Third Parties: In Montanile, the attorney disbursed the proceeds to the participant even while on notice of the Plan’s subrogation interest. The participant’s attorney may have violated ethics rules by disbursing the proceeds without agreement from the ERISA plan. In particular, ABA Ethical Rule 1.15 states that when an attorney holds assets where ownership is disputed, the attorney must keep the assets until the dispute is resolved.
- The Plan May Have the Right to Claw Back Benefits or Offset Future Benefits: In cases where an ERISA plan may not deem it viable to file a lawsuit, it may claw back payments already made or offset future benefits if outlined in the plan document. Review the plan to understand the scope of the ERISA plan’s leverage.
Summing Up: Supreme Court Cases on ERISA Liens
ERISA liens present a complex challenge for personal injury attorneys. However, having a working knowledge of ERISA subrogation law will help demystify ERISA lien negotiations. These key Supreme Court cases on ERISA liens set forth the basis of an ERISA plan’s rights and limitations in enforcing its subrogation interest. A clear grasp of these cases will significantly increase your chances of a successful lien negotiation.