U.S. Supreme Court Decision Limits ERISA Plans’ Subrogation Rights

On January 20, 2016, the United States Supreme Court issued a significant decision that makes it more difficult for employee benefit plans governed by the Employee Retirement Income Security Act of 1974 (ERISA) to obtain reimbursements of payments made to plan participants who have subsequently received third-party settlements. The decision is Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, __ U.S.__, 136 S. Ct. 651, 84 USLW 4046 (Montanile). In Montanile, the issue presented to the Supreme Court for its review was whether an ERISA plan has authority under the statute to place a lien on a plan participant’s general assets once that person has obtained funds from the settlement of a legal action with a third party and then dissipated the settlement funds.

The Supreme Court held in an 8-1 decision that an ERISA plan fiduciary may not seek reimbursement out of the third-party settlement a plan participant has received in circumstances where the participant has spent the settlement funds. Writing the opinion for the majority (Justice Ruth Bader Ginsburg issued a dissenting opinion), Justice Clarence Thomas found that ERISA provision Section 502(a)(3), which authorizes a fiduciary to bring a suit for equitable relief to enforce the terms of the plan, precludes such a suit for reimbursement where the plan fiduciary is seeking to attach the participant’s separate assets that are not traceable to the settlement funds.

As will be discussed below, Montanile involved an employee health benefit plan. Justice Thomas did not address whether the court’s ruling applies more broadly to other types of ERISA plans, such as pension or disability plans, that may seek to recoup benefits that could have been paid to participants over many years or even decades. Given the length of time during which such pension or disability payments may have occurred, it is even more likely that the payment recipients will have spent the payments they had received.

Overview of Montanile Decision

This case arose from the medical expenses Robert Montanile incurred as a result of injuries he suffered when a drunk driver ran through a stop sign and crashed into his vehicle. Montanile was a participant in the National Elevator Industry Health Plan. The plan paid in excess of $120,000 for medical care Montanile required as a result of his injuries from the car accident. However, the plan’s provisions enable it to demand reimbursement when a participant recovers money from a third party for medical expenses. Indeed, Montanile did file a negligence claim against the drunk driver and obtained a $500,000 settlement. He netted $240,000 after paying attorney’s fees and repaying an advance from his attorneys.

The plan’s Board of Trustees sought reimbursement of the medical expenses the plan paid to Montanile, but his attorney argued that the plan was not entitled to any recovery. The parties entered into negotiations over reimbursement but never reached an agreement. Thereafter, Montanile’s attorney informed the board that he would distribute the remaining settlement funds unless the board objected within 14 days. After the board did not object within that timeframe, Montanile’s attorney paid him the remainder of the funds from the settlement.

Six months later, the plan filed suit against Montanile in the United States District Court for the Southern District of Florida under ERISA Section 502(a)(3) seeking reimbursement of the amount it expended on his medical care. The plan sought to enforce an equitable lien against any settlement funds, as well as any funds that were in Montanile’s actual or constructive possession. Montanile argued that he had spent almost all of the settlement funds and that there were no specific, identifiable funds separate from his general assets against which the equitable lien could be enforced. The district court rejected that argument and held that even if Montanile had dissipated some or all of the settlement funds, the board was entitled to reimbursement from Montanile’s general assets. The United States Court of Appeals for the Eleventh Circuit affirmed the district court’s decision. The court of appeals held that the equitable lien was enforceable, notwithstanding dissipation of the specific fund to which the lien attached. The court of appeals determined that a plan can recover out of a participant’s general assets when the participant dissipates the specifically identified fund.

Courts of appeals in only two circuits have adopted the position that ERISA plans cannot seek reimbursement of general assets under Section 502(a)(3) from participants unless they can trace their claims to specific funds in the participant’s possession. The Eleventh Circuit’s decision followed the majority position taken by courts of appeals in other circuits permitting an ERISA plan to enforce an equitable lien against a defendant’s general assets without having to satisfy a tracing requirement.

The Supreme Court’s decision in Montanile upholds the minority position. One point Justice Thomas made in his opinion was that a plan can only seek equitable relief under Section 502(a)(3), whereas ERISA contains other civil action provisions, such as Section 502(a)(1)(B), that more broadly allow plan participants and beneficiaries to enforce their rights under the plan that does not limit them to equitable relief. He further explained that equitable remedies enforce a right against a particular thing, rather than a right to recover money generally out of a defendant’s general assets. In addition, Justice Thomas found that an equitable lien could ordinarily be enforced against specifically identifiable funds that remain in the defendant’s possession or against traceable items that the defendant purchased with the funds, such as a car. However, he indicated that expenditure of the entire identifiable fund on non traceable items (like food or travel) destroys an equitable lien. Justice Thomas then concluded that the board could not enforce its equitable lien against Montanile’s general assets.

Conclusion

The decision in Montanile puts responsibility on health benefit plan fiduciaries to have in place processes to ensure that they seek reimbursement for medical expenses that they have paid to plan participants and beneficiaries promptly after those individuals have recovered those medical expenses from third parties in legal proceedings. It is especially important that these processes include a system for investigating and tracking expensive claims.

By commencing reimbursement actions promptly, the likelihood that third-party settlement funds will be wholly dissipated will be diminished. Nevertheless, as some settlements (especially settlement amounts) are reached in secrecy with nondisclosure agreements, it may be difficult for plans to gain sufficient information to trigger a prompt reimbursement effort. Furthermore, if lower courts interpret Montanile to apply to other types of ERISA plans, it may not be practicable for plans to quickly seek reimbursement before dissipation of pension or disability disbursements that were perhaps paid years earlier.

If you have a subrogation case and want the very best South Florida has to offer, look no further than Stephen Barker Law! We work with the best attorney’s to bring you the compensation you deserve. Reach out to us for a quote today and a more lucrative tomorrow!

 

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Subrogation Tactics Involving Heavy Equipment Fires

Heavy equipment fires occur frequently and can lead to substantial losses. The loss of the equipment itself is often compounded by the insured’s loss of use of the equipment.  For businesses that rely extensively on heavy equipment (e.g., agricultural and construction businesses), the loss of use/business interruption claim arising from such a fire can be staggering.

Heavy equipment is often used in undeveloped areas not readily accessible to fire departments. As a result, the equipment is often badly damaged by the fire, creating challenges to identifying the point of origin. Subrogation recovery for such fire will hinge on proper investigation immediately after the loss occurs. The following are some tips to guide a subrogating carrier’s investigation in heavy equipment fires.

In analyzing a heavy equipment fire case, it is important to gather data and evaluate the maintenance history of the equipment. Lack of maintenance of hoses carrying hydraulic fluid can be problematic, as these rubber hoses become brittle and prone to cracking over time, creating the potential for the failed hose to discharge pressurized, flammable hydraulic fluid onto hot parts of the equipment’s motor or exhaust system, resulting in a fire. Thus, one of the first steps in evaluating the recovery potential of a heavy equipment fire claim is to determine whether the equipment was properly maintained. A diligent insured will keep log books recording each instance of maintenance to the equipment. The carrier should request such maintenance records from the insured at the outset of such a claim, as those records can substantially inform the subsequent investigation.

Additionally, some heavy equipment fires may occur at job sites where there is already a fire in progress. In a land clearing project, for instance, there is usually a pile of cleared wood and vegetation being burned. This creates a significant potential for the equipment operator to move the equipment too close to the burn pile, causing combustible components of the equipment to ignite. On many pieces of equipment, the cold air intake is located at the rear of the machine, behind the operator. We have investigated several fires wherein the operator, looking forward, did not realize that the rear of the machine was perilously close to a burning debris pile, and a smoldering ember is sucked into the machine’s cold air intake, causing a fire in the engine compartment. This potential fire cause makes it crucial that the subrogating carrier establish the pre-fire location and movements of the equipment as soon as possible following a loss. The carrier should make every effort to obtain this information directly from the operator of the equipment and other individuals who were actually present when the fire occurred; obtaining the information from a foreman or company representative who was not present at the time of the loss is not a substitute for first-hand statements.
Finally, the carrier should be aware that not all fire investigators and engineers are created equal for purposes of investigating a heavy equipment fire. If possible, the subrogating carrier should retain a fire investigator familiar with heavy equipment fires and a mechanical or electrical engineer who specializes in heavy equipment, as non-specialist fire investigators and engineers may not be able to quickly and accurately identify all potential ignition sources on the relevant equipment.

Having learned the ropes of subrogation in terms of heavy equipment fires, it is best to work with a lawyer that specializes in subrogation like Stephen Barker. His expertise and knowledge of assisting clients through subrogation claims will help you get what you deserve from insurance companies and insure that you are not left in the ashes from fires.