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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Liability Contracts and Policies With Contract Workers

Subrogation law, with Insurance, is constantly being used. It is part of nearly every insurance contract. The courts are loaded with lawsuits involving the negligence of a third party and subrogation claims. This is why, as an injured party, you must seek out a subrogation lawyer. Insurance subrogation is a much more difficult and complicated process. Again in the simplest terms, if you are involved in an accident and there are medical bills or damage to your property. Your insurance company will see to it that the bills are paid. After making the payments or sometime before, your insurance company will try to determine more details about the injuries or damages that occurred.

For example, imagine a painting contractor fell off his ladder while they were on the job. However, when the painter fell, he toppled on top of another contractor’s employee on the job site. This other contractor’s employee  suffers injuries from the collision, and the injured worker sues the Painting contractor as well as project owner. The project’s contract included a requirement that the contractor assume the owner’s liability for any accidents that may result from the contractor’s work. As a result of this, the contractor’s general liability insurance company pays the injured worker for both the owner and contractor’s portions of the damages incurred. After evaluation from the Insurance company, they were able to determine that the owner was actually twenty percent responsible for the accident. The insurance in turn files a claim with the owner to request a return on a portion of the initial payment made.

Although this may seem unfair, this is a completely legal and normal instance of subrogation with Insurance companies. To avoid this scenario, many project owners and general contractors require that their subcontractors agree to a waiver of subrogation. Subrogation ultimately holds the person who should pay for the damage responsible, and will protect the company from being liable for unexpected expenses.

To save money and ultimately not be held responsible when the unexpected occurs, owners and general contractors often transfer their liability to subcontractors. This is why most contracts include a waiver of subrogation agreement. These contracts in turn have the subcontractor promise not to pursue legal action and request payment from the other party in case of an accident. That agreement often links with the subcontractor’s insurance company, depending on the type of policy and its terms.

Types of Liability Contracts and Policies

1.  Commercial General Liability Policy:

Traditionally, a commercial general liability policy prevents the policyholder from being able to adjust the insurance company’s rights after the accident occured. This only applies when a waiver of subrogation was signed and agreed to before a loss holds the company responsible for recovery. The subrogation policy often times protects the other party if in the agreement it lists the person as an additional insured. Under common law, an insurance company may not subrogate against its own insured. To remove any doubt, one should should ask the company involved to add an amendment applying a waiver of subrogation to the person or organization named in the initial contract. Insurance companies vary on the amount of premium they charge for this. Insurance companies sometimes make no charges at all.

2. Standard Business Auto Insurance Policy:

The standard business auto insurance policy has many similarities to the general liability policy. One major difference is that unlike General Liability insurance, there is no standard waiver of subrogation endorsement for auto insurance. Some insurance companies may offer their own versions of such an endorsement. Again, premium charges will vary.

3. Worker’s Compensation Policies:

Workers’ compensation policies require an endorsement whenever a waiver of subrogation is desired. This endorsement may apply on a blanket basis to all parties with whom the insured has written contracts requiring waivers. It also can apply only to the party listed on its schedule. The insurance company may charge up to two percent of the policy premium for blanket coverage or two to five percent of the project’s premium for individual coverage.

4. Commercial Property and Inland Marine Insurance Policies:

These types of policies vary as to whether they permit waivers of subrogation even before a loss. This type of coverage is imperative if you plan to transport high-value products or materials, which are often excluded from basic property coverage.

When working with a contractor, it is wise to have a contractor or building tenant who is required by contract to check the relevant insurance policies and waiver before agreeing to working together. This is when it is wise to have a lawyer such as Stephen Barker to work with you to complete the best waiver for you and your contractor that protects you for incidental charges and recoveries. Accidents happen, and it is best to protect yourself from the unexpected and to ensure that the proper coverage is in place. Call Stephen Barker Law today to create the best waiver for you and your contractor!