Alert June 27, 2013

In McCutchen, Supreme Court Vacates and Remands Case Concerning Enforcement of Plan Reimbursement Provision

Summary

The U.S. Supreme Court ruled that a participant who receives medical payments from an ERISA health benefit plan may not avoid the reimbursement requirements of that plan by arguing that such reimbursement is "inequitable." The Court also found, where a plan is silent on attorney’s fees, equitable principles could inform how fees should be allocated among the parties.

In U.S. Airways, Inc. v. McCutchen, No. 11-1285 (Apr. 16, 2013), the U.S. Supreme Court vacated judgment and remanded the case in a matter seeking to enforce a reimbursement provision in a health benefit plan.

Background

The case involved a self-funded group health plan. The plan provided coverage for medical expenses that were not covered by a third party. Under the plan, if benefits were paid on a claim resulting from the actions of a third party, the participant would be required to reimburse the plan for amounts paid for claims out of any monies recovered from any third party (including an insurer).

McCutchen was injured in a car accident caused by another driver. The plan paid $66,866 in healthcare benefits in connection with McCutchen’s injuries. McCutchen pursued claims against his automobile insurer and the other driver and ultimately recovered $110,000 by way of settlement. After attorney’s fees, McCutchen recovered $66,000. The employer demanded reimbursement of 100% of the benefits paid under the plan. When McCutchen refused, the employer brought suit under ERISA § 502(a)(3), seeking equitable relief in the form of a lien on the $66,866 it demanded.

District and Appeals Court Decisions in McCutchen

The U.S. District Court for the Western District of Pennsylvania found for the employer on the ground that the plan "clear[ly] and unambiguous[ly]" provided for full reimbursement of medical expenses paid, and ordered McCutchen to pay the employer $66,866.

On appeal, the Third Circuit vacated. Reasoning that traditional "equitable doctrines and defenses" applied to § 502(a)(3) suits, the Third Circuit held that the principle of unjust enrichment overrode the plan’s reimbursement provision because it would be a windfall for the employer to recover its entire lien amount without paying a share of attorney’s fees. The appeals court stated that Congress’s use of the term "appropriate equitable relief" in the statute was intended to allow defenses typically available in equity, such as unjust enrichment.

Equitable Defense vs. ERISA Plan Reimbursement

The Supreme Court granted certiorari to resolve a circuit split on whether equitable defenses can override an ERISA plan’s reimbursement provision. The Court vacated the Third Circuit’s decision, ruling that a participant who receives medical payments for an injury pursuant to an ERISA health benefit plan may not avoid the reimbursement requirements of that plan by arguing that such reimbursement is "inequitable."

In so ruling, the Court pointed to its decision in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), in which the Court permitted a health plan administrator to bring suit under § 502(a)(3) to enforce a reimbursement clause. The Court held that, under Sereboff, the equitable doctrine of unjust enrichment could not override the terms of the plan, which afforded the employer an "equitable lien by agreement" on amounts recovered by the participant from a third party.

The Court stated that enforcing such a lien means holding the parties to their mutual promises and declining to apply equitable principles that are at odds with the parties’ expressed commitments. Rejecting McCutchen’s argument that § 502(a)(3) authorizes broad equitable relief, the Court held that the statute does not "authorize ‘appropriate equitable relief’ at large," but provides only such relief as will enforce "the terms of the plan" or the statute.

Nonetheless, while the Court held that equitable principles could not trump the plan’s reimbursement provision, it also concluded that – where the plan was silent on the allocation of attorney’s fees – equitable principles could inform how attorney’s fees expended by McCutchen should be allocated among the parties. Accordingly, the Court remanded the case for further proceedings on the attorney’s fee issue.