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Employer-sponsored group health plans often include a provision in the plan documents that affords the plan a right of reimbursement as to benefits paid to an injured participant when he or she obtains a settlement or judgment from a culpable third-party who caused the injuries.

On several occasions the Supreme Court of the United States has taken up the subject of group health plan reimbursement claims under ERISA's civil remedies provisions. Generally, such cases have involved situations in which an ERISA-governed welfare benefit plan (typically an employer-sponsored group health plan) has paid benefits to a plan participant for medical bills incurred to treat injuries caused by a culpable third-party, such as a negligent driver whose car collided with that of the plan participant. If the covered employee obtains a recovery from the negligent third-party, by way of a settlement or judgment, the fiduciaries of the ERISA plan that paid the medical expenses will often assert a claim for reimbursement of the payments the plan has made, based upon a provision in the plan documents that allows the plan to seek such recovery.

Enforcement of Reimbursement Rights

The plan's attempt to recover a reimbursement of benefits it had paid was often premised upon a provision of ERISA that allows a plan fiduciary to seek an injunction or "other appropriate equitable relief' to enforce the terms of an ERISA-governed plan. (29 U.S.C. § 1132(a)(3)). In prior plan reimbursement cases brought under this provision, the Supreme Court took a narrow view of the phrase "other appropriate equitable relief' by excluding plan reimbursement claims from this category of remedies, holding such claims to be legal in nature instead of those typically arising in equity. See Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002); see also Mertens v. Hewitt Associates, 508 U.S. 248, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993) (affirming  the dismissal of a claim for money damages against an actuary whose participation in a breach of fiduciary duty caused losses to the plan, since such a claim was not considered "equitable" within the civil remedies provisions of ERISA which allow for injunctions or other forms of equitable relief).

Beginning in 2006, however, a less restrictive view emerged regarding the availability of remedies under the rubric of "other appropriate equitable relief." In Sereboff v. Mid At!. Med. Services, Inc., 547 U.S.  356,  126  S.Ct.  1869,  164  L.Ed.2d  612 (2006),  the Supreme Court recognized the right of an ERISA plan fiduciary to seek reimbursement from a plan participant to whom it had paid medical benefits. In Sereboff, the Supreme Court allowed the plan to seek reimbursement from a settlement paid by a culpable third-party to a plan participant under the theory that an equitable lien against the settlement proceeds had been created in favor of the plan when the plan paid benefits to the participant.  !d. at 366.

More recently, in US Airways, Inc., v. McCutchen, 133 S.Ct. 1537, 185 L.Ed.2d 654 (2013), the Supreme Court ruled that an employee benefit plan could enforce a reimbursement right set forth in its summary plan description. The plan in McCutchen had paid medical expenses to a plan participant who was injured in an automobile accident and who subsequently received a settlement, in the form of under-insured motorist benefits paid by the participant's own auto insurer. !d. at 1543. The reimbursement was subject to the common fund doctrine, however, since the plan language was silent as to the payment of attorneys' fees. !d. at 1548. The common fund doctrine allows a fee to be charged by the attorney who generated the fund from where the plan's reimbursement is paid, thereby decreasing the plan's reimbursement, usually by 25 percent.

Now, the Supreme Court will take up a plan reimbursement claim in a case in which the plan language expressly disallows reduction of the plan's reimbursement claim for attorneys' fees associated with generating the fund, and where the fund against which the reimbursement claim is made has been dissipated by the plan participant through the payment of attorneys' fees, litigation costs and various living expenses.


On March 30, 2015 the Supreme Court granted a writ of certiorari to the United States Court of Appeals for the Eleventh Circuit to resolve a split among the federal appellate circuits over the enforcement of claims made by ERISA plans against plan participants to recover medical expenses that had been paid to plan members from recoveries received from culpable third-parties. The case in question involved a situation in which the settlement funds from which the plan seeks reimbursement were not isolated or kept discrete from the participant's general funds, and instead had been expended or dissipated by the participant. See Montanile v. Bd. of Trustees of the Nat'! Elevator Indus. Health Benefit Plan, 135 S.Ct. 1700,  191  L.Ed.2d 675 (2015).

The Montanile case began in the United States District Court for the Southern District of Florida when the plaintiff, an ERISA-governed, employer-sponsored group health plan, sued one of its plan participants to recover certain medical expenses that the plan had paid to the participant to cover medical bills for personal injuries sustained by the covered employee due to the fault of a negligent third-party.  Bd. of Trustees of the Nat '1 Elevator Indus. Health Benefit Plan v. Montanile, 2014 U.S. Dist. LEXIS 36309 (S.D. Fl. Mar. 17, 2014).

The plan participant had received approximately $121,000 from his group health plan to cover the cost of his medical bills, and subsequently obtained a $500,000 settlement from the drunk driver who had injured him in a car crash. !d. at p.7.  The group health plan made a claim for reimbursement of the benefits it had paid to Montanile, seeking recovery from the settlement funds that he had received from the drunk driver. !d.

The relevant plan documents provided, in pertinent part, that:

  • "The Plan has the right to recover benefits advanced by the Plan to a covered person for expenses or losses caused by another party ... Amounts that have been recovered by a covered person are assets of the Plan by virtue of the Plan's subrogation interest and are not distributable to any person or entity without the Plan's written release of its subrogation interests."  !d. at p.5 (emphases added).

The plan documents further provided that:

  • "Acceptance of benefits from the Plan for an injury ... [to] a covered person ... constitutes an agreement that any amounts recovered from another party . . .  will promptly be applied first to reimburse the Plan in full for benefits advanced by the Plan ... without reduction for attorney's fees, costs [or] expenses claimed by the covered person and regardless of whether the covered person is made whole or recovers only part of his/her damages. " !d. at pp.S-6 (emphasis added).

Finally, the plan documents stated that:

  • "The covered person agrees that neither he/she nor anyone acting on  his/her behalf will settle any claim relating to the injury ... without the written consent of the Plan." !d. at p.6.

When the negotiations broke down between the plan and its participant, Mr. Montanile, over the plan's reimbursement claim, the plan sued Montanile to enforce its right of recovery, citing the provision of ERISA that allows a plan fiduciary to bring a civil action "to obtain appropriate equitable  relief' in order to enforce the terms of the plan. See 29  U.S.C. § 1132(a)(3)(b). See also McCutchen, 133 S.Ct. at 1545, 185 L.Ed.2d 654; Sereboff, 547 U.S. at 364-65, 126 S.Ct. 1869, 164 L.Ed.2d 612; Montanile, 2014 U.S. Dist. LEXIS 36309 at p.8.

Two questions of law were presented to the District Court in the Montanile case in the parties' cross-motions for summary judgment: (1) Did the plan have an enforceable right to reimbursement from the settlement proceeds received by Montanile from the third-party, and (2) is  such a reimbursement claim properly considered "appropriate equitable relief' under ERISA's civil remedies provisions? 2014 U.S. Dist. LEXIS 36309 at pp.8-9.

The District Court readily answered both questions in the affirmative, finding that the summary plan description upon which plan participants justifiably relied to determine their benefit coverage was equally clear and unambiguous in defining the plan's right of reimbursement. See id. at 20. The District Court also deemed the plan's reimbursement rights as being "appropriate equitable relief' under ERISA in light of the McCutchen and Sereboff precedents. See id. Lastly, as to Montanile's claim that the funds from which the plan sought reimbursement had not been segregated from his general assets and, indeed, had been dissipated by payment of attorneys' fees, satisfaction of certain medical liens, litigation costs and the expenses of everyday living, the District Court cited decisions from "the overwhelming majority of circuit courts ... that a beneficiary's dissipation of assets is immaterial" when a plan fiduciary asserts a reimbursement claim under plan documents, (a so-called "lien by agreement"). !d. at pp.30-31, (citing cases from the First, Third, Sixth and Seventh Circuits, along with contrary authority from the Eighth Circuit and the Ninth Circuit Court of Appeals).¹

It is this split among the federal circuits, as to whether or not ERISA's equitable remedies provision (29 U.S.C. § 1132(a)(3)) can be invoked by a plan fiduciary to assert a reimbursement claim upon settlement funds received by a plan participant from a third-party in instances where the settlement proceeds have already been dissipated, that the Supreme Court will have to decide in its October, 2015 term.

On appeal to the Eleventh Circuit (Bd. of Trustees of the Nat 'l Elevator Indus. Health Benefit Plan v. Montanile, 593 Fed. Appx. 903, 2014 U.S. App. LEXIS 22438 (11th Cir. 2014)), Montanile argued that the plan could not impose an equitable lien on the settlement proceeds he received from the third-party since the funds had already been spent, and therefore there was no longer any subject to which the lien could attach. 2014 U.S. App. LEXIS 22438 at p. 12. The Eleventh Circuit found that argument foreclosed by its 2014 opinion in AirTran Airways, Inc. v. Elem,  767  F.3d  1192  (11th Cir.  2014), in which it held that since "an equitable lien had immediately attached to the settlement funds" where the plan documents created a "first-priority claim over all payments made by a third-party," the fact that the settlement funds were spent "could not destroy the lien that attached before the dissipation." 2014 U.S. App. LEXIS 22438 at p.12, quoting AirTran Airways, 767 F.3d at 1198.

The Supreme Court will ultimately have to determine if the Eleventh Circuit, in affirming the District Court's decision in Montanile, and in its reliance on the AirTran case, was correct, along with the decisions of other circuits which have also held that dissipation of the funds to which the "equitable lien by agreement" attaches is no hindrance to a plan's enforcement of its reimbursement rights. (See Footnote 1).

A Cautionary Tale

The Montanile case, and the decisions from other federal appellate circuits that agree with its holding, present a cautionary tale to plan participants who recover funds from culpable third-parties after receiving medical or other benefits from their employer-sponsored group health plans that include a right of reimbursement. The mere fact that the funds received from the third-parties have been dissipated, whether by payment of attorneys' fees, costs of litigation, or simply everyday living expenses, does not prohibit a plan sponsor from enforcing an "equitable lien by agreement" against the proceeds of the settlement, since the lien attaches as soon as the benefits are paid by the plan.

The recipient of the now-dissipated funds may find him- or herself on the hook for satisfaction of the plan's liens, even if the funds to which the lien attached have already been spent.


*The author gratefully acknowledges the research and editing assistance of Amber Lukowicz, a third-year law student at the Chicago-Kent College of Law.

¹ Compare, Cusson v. Liberty Life Assurance Co. of Boston, 592 F.3d 215 (I81 Cir. 201 0); Funk v. Signa Group Ins., 648 F.3d 182 (3rd Cir. 2011 ); The Longaberger Co. v. Kolt, 586 F.3d 459 (61h Cir. 2009); Gutta v. Std. Select Trust Ins. Plans, 530 F.3d 614  (7th Cir. 2008)  (all holding that ERISA plan fiduciaries may enforce an equitable lien against plan participants or beneficiaries who have received money from third-parties, in addition to having received plan benefits, even where the funds upon which the lien is asserted have been dissipated) to Treasurer, Trustees of Drury Industries, Inc. Health Plan Care and Trust v. Goding, 692 F.3d 888 (8th Cir. 2012)  and Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d  1083 (9th Cir.  2012) (both holding that an equitable action for reimbursement brought by a plan fiduciary against the participant for recoupment of funds received from a third­ party cannot be maintained under ERISA if the funds targeted by the reimbursement claim have been dissipated, or are no longer in the plan participant's possession, since such an action would be legal in nature rather than equitable). The Second Circuit has rejected a disability insurer's attempt under 29 U.S.C. § 1132(a)(3) to assert an equitable restitution claim for overpaid benefits under an ERISA plan because such a claim was legal, rather than equitable in nature. Thurber v. Aetna Life ins. Co., 712 F.3d 654 (2d Cir. 2013),  cert denied, 134 S.Ct. 2723,  189 L.Ed.2d 778 (2014).