In Iowa Health Systems v. Graham, 2009 U.S. Dist. LEXIS 63544 (C.D. Ill. July 23, 2009), Iowa Health wants the Court to impose a constructive trust or equitable lien over a portion of specifically identifiable funds over which Graham has possession. This district court opinion provides a useful contrast between Sereboff and Knudson. The benefit plan pad medical expenses following an automobile accident involving Duncan Graham. The plan then sought reimbursement for the expenses paid. The suit settled for $50,000, with $20,000 paid pursuant to a liability policy and $30,000 paid from the underinsured motorist provision of Duncan’s parents’ insurance policy.

The plan filed suit based upon Section 502(a)(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”), codified at 29 U.S.C. § 1132(a)(3). The district court noted the defect in the benefit plan’s argument in Great-West Life & Annuity Insurance Company v. Knudson and then contrasted that case with Sereboff v. Mid Atlantic as follows:

A few years after Knudson, the Supreme Court decided the case of Sereboff v. Mid Atlantic Medical Services, Inc. – the lead case cited by Iowa Health in its summary judgment brief. 547 U.S. 356, 126 S. Ct. 1869, 164 L. Ed. 2d 612 (2006). In Sereboff, a health insurance plan paid $ 74,869.37 in medical expenses on behalf of plan beneficiaries as the result of an auto accident. The beneficiaries subsequently recovered a tort settlement against third parties involved in the accident, leading the health plan’s administrator to sue the beneficiaries in federal court under Section 502(a)(3) to enforce a reimbursement provision within the plan. The parties to the federal court action stipulated to preserving the disputed $ 74,869.37 in an investment account until the case was resolved. Justice Roberts, writing for the Supreme Court, held that the administrator’s suit was authorized under Section 502(a)(3). Distinguishing Knudson, Justice Roberts wrote,

That impediment to characterizing the relief in Knudson as equitable is not present here…in this case the plan administrator sought specifically identifiable funds that were within the possession and control of the beneficiaries – that portion of the tort settlement due the administrator under the terms of the ERISA plan, set aside and preserved in the beneficiaries’ investment accounts. Unlike the insurer in Knudson, the administrator here did not simply seek to impose personal liability for a contractual obligation to pay money. It alleged breach of contract and sought money, to be sure, but it sought its recovery through a constructive trust or equitable lien on a specifically identified fund, not from the beneficiaries’ assets generally, as would be the case with a contract action at law. Sereboff, 547 U.S. at 362-63; see also Administrative Comm. of Wal-Mart Stores, Inc. Assocs.’ Health and Welfare Plan v. Varco, 338 F.3d 680, 688 (7th Cir. 2003) (requirements to equitable relief under Section 502(a)(3)(B) are threefold: specifically identifiable funds; in the defendant’s control; to which the plaintiff is rightfully entitled under terms of the benefit plan).

The Court noted that the case falls closer to Sereboff than to Knudson since Iowa Health asks the Court to impose a constructive trust or equitable lien over a portion of specifically identifiable funds over which Salli Graham has possession. The relief sought is equitable in nature. Further, the plan’s reimbursement provision provides an equitable basis for relief, as the provision cannot be meaningfully distinguished from the reimbursement provision in Sereboff. The district court thus granted the benefit plan’s summary judgment motion.

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This entry was posted by Adam V. Russo on Tuesday, August 4th, 2009 at 8:15 am and is filed under 8th, ERISA, Health Care Legislation, Subrogation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.