The ERISA Litigation Newsletter (March 2016)

Editor's Overview This month we review the U.S. Supreme Court's decision in Montanile v. Board of Trustees of National Elevator Industries Health Benefit Plan where the Supreme Court considered the scope of "appropriate equitable relief" in a case involving a health and welfare plan's claim for reimbursement from a participant who was injured by a third party and subsequently obtained monetary relief from that third party. The Supreme Court has taken on the issue four times, and its most recent decision has important implications for plan sponsors and fiduciaries. We review the Court's decision and provide several possibilities for plan sponsors and fiduciaries to consider to minimize the risk that this decision will prevent recovery.

As always, at the conclusion of the newsletter, we provide a brief overview of certain rulings, filings, and settlements of interest, including decisions on anti-assignment clauses, retiree health benefits, and the latest ruling in Tatum v. R.J. Reynolds, as well as an ACA reporting update.

The Ups and Downs of Recovering Third Party Payments after Montanile v. Board of Trustees of National Elevator Industries Health Benefit Plan* By Joe Clark

As a means of controlling costs, many health and welfare plans contain provisions allowing them to seek reimbursement of benefits paid to a participant who is injured by a third party and subsequently obtains a monetary judgment or settlement from that third party. The issue of whether and how a plan can enforce such reimbursement provisions has been the subject of considerable debate, and the U.S. Supreme Court has taken on the issue four times. The Court's most recent decision, in Montanile v. Board of Trustees of National Elevator Industries Health Benefit Plan, arrived this past January. This article briefly summarizes the Supreme Court's prior decisions, the Montanile decision, and implications for plan sponsors and fiduciaries.

Prior U.S. Supreme Court Precedent

The relevant legal history pertaining to reimbursement clauses begins over two decades ago, with the Supreme Court's ruling in Mertens v. Hewitt Associates, 508 U.S. 248 (1993). In Mertens, the Court explained that the term "equitable relief" in ERISA Section 502(a)(3) is limited to "those categories of relief that were typically available in equity." 29 U.S.C. § 1132(a)(3). Three times since Mertens, the Court applied this approach to cases in which a plan fiduciary sought reimbursement for medical expenses after a participant or beneficiary recovered money from a third party.

First, in Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002), a plan sought reimbursement from a special needs trust, which was not in the participant's possession or control. Because the plan's claim for relief was against the participant personally, the Court held that the relief the plan was seeking was legal, not equitable, and thus not recoverable under Section 502(a)(3) of ERISA.

Next, in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), the Court determined that the plan's reimbursement language was sufficient to create an equitable lien by agreement against settlement assets that the participant's lawyer had segregated from other assets. The Court reasoned that whether the remedy sought is legal or equitable depends on the basis for the plaintiff's claim, and the nature of the underlying remedies sought. Here, both factors pointed in favor of equitable relief – there was an equitable lien by agreement (the claim), and the plan sought specifically identifiable funds that were within the possession and control of the participant (the remedy).

Then, in US Airways, Inc. v. McCutchen, 133 S. Ct. 1537 (2013), the Court resolved a circuit split and held that equitable defenses such as unjust enrichment could not be asserted against a plan's equitable lien by agreement claim. In so ruling, the Court reaffirmed its Sereboff analysis and concluded that the plan's reimbursement claim was equitable in nature because the plan's terms created an equitable lien by agreement on third-party settlements, and the plan sought to enforce that lien against "specifically identifiable funds within the [beneficiaries' control]" – a portion of the settlement recovered by the beneficiaries.

The Montanile Decision

Background

The National Elevator Industry Health Benefits Plan (Plan) provides a prescribed plan of medical benefits to its participants and beneficiaries. The Plan also provides that it may demand reimbursement from a participant for the amount paid on his or her behalf where the need for such benefits is the result of an injury sustained by a third party (e.g., motor vehicle accident), and the participant successfully obtains a judgment or settlement resulting in payment to the participant.[1] Furthermore, participants are required to notify the Plan and obtain its consent before settling third-party claims.

Robert Montanile, a Plan participant, was hit by a drunk driver and suffered injuries as a result of the accident. The Plan paid approximately $121,000 of Montanile's medical...