Reimbursement Claim Subject to ‘Appropriate Equity’ Under ERISA
MyHealthGuide Source: Agnes Mendoza-Ben-Yosef, 11/17/2011, BNA Pension & Benefits Daily Article via The Gibson Firm, LLC
Case: US Airways Inc. v. McCutchen, 3d Cir., No. 10-3836, 11/16/11. Court’s Opinion
Article referred by John H. Eggertsen, Esq., Eggertsen Consulting, P.C.
US Airways Inc.’s health benefit plan is not entitled to full reimbursement from an insurance settlement for the medical costs it paid on behalf of a plan participant because the recovery would exhaust the participant’s entire settlement, the U.S. Court of Appeals for the Third Circuit ruled Nov. 16 in the above case.In writing for the three-judge appellate panel, Judge Julio M. Fuentes said the district court’s judgment requiring the plan participant to provide full reimbursement constituted “inappropriate and inequitable relief.”
Instead, the court held that the reimbursement must be subject to the principle of “appropriate equitable relief” under Section 502(a)(3) of the Employee Retirement Income Security Act.
Matthew W.H. Wessler of Public Justice, Washington, D.C., an attorney who represented the participant, told BNA Nov. 16 that “we couldn’t be more pleased with the Third Circuit’s ruling. The plain language of Section 502(a)(3) clearly limits insurers to recovering only that relief which is ‘appropriate’ in equity. The Third Circuit recognized that it’s unfair to allow an insurer to recoup all its costs from an injured beneficiary who has only recovered a fraction of his damages. We agree with the court that this would be a ‘windfall’ for the insurer, and in direct violation of ERISA.”
Wessler added, “This decision confirms that insurers can’t just enforce the plain terms of their plans, no matter how unfair. Instead, a court must consider what would be equitable under the particular circumstances of the case.”
Facts of the Case
James E. McCutchen participated in US Airways’ self-funded health benefit plan. McCutchen was severely injured in a serious car accident that left him functionally disabled, and US Airways paid nearly $67,000 for McCutchen’s medical expenses. McCutchen received $110,000 from third-party insurance companies, but retained less than $66,000 after attorneys’ fees and expenses.
US Airways, as administrator of the plan, demanded reimbursement for the entire amount it had paid for McCutchen’s medical bills and filed a lawsuit in the U.S. District Court for the Western District of Pennsylvania against both McCutchen and his attorneys when McCutchen did not pay. McCutchen’s attorneys then placed their fees, totaling $41,500, in a trust account.
The district court granted summary judgment to US Airways for the entire amount in the trust account and more than $25,000 from McCutchen, ruling that the plan language required reimbursement from “any monies recovered.” McCutchen appealed to the Third Circuit, arguing that it would be inequitable to reimburse US Airways in full when he had not been fully reimbursed for his pain and suffering. He further argued that US Airways would be unjustly enriched by receiving full reimbursement without contributing to the attorneys’ costs.
What Is Appropriate and Equitable?
On appeal, the Third Circuit held that “Congress purposefully limited the relief available to fiduciaries under [ERISA] Section 502(a)(3) to appropriate equitable relief.” Here, the court concluded that it would be inequitable for US Airways to be fully reimbursed when McCutchen received less than full payment for his medical expenses.
The court further said it disagreed with other circuit courts that are satisfied with the characterization of a reimbursement claim as an equitable action “without also asking whether the relief sought in the action is appropriate under traditional equitable principles and doctrines.”
Thus, the appeals court remanded US Airways’ reimbursement claim to the district court for distribution of the settlement funds, taking into consideration the meaning of “appropriate equitable relief.”
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