By Bill Wright
The Supreme court returned today to the “equitable” enforcement of an employee welfare benefit plan. A health plan participant had a car accident and the Plan spent $66,866 on his benefits. The participant recovered $110,000 from other parties, but 40% ($44,000) went to his attorney; the participant received only $66,000. Citing ERISA and the reimbursement provision of the plan document, the Plan sued to recover the full $66,866 ($866 more than the participant received).
Six years later, the Supreme Court has ruled that the terms of the plan document control: if the plan document says the Plan re-collects its full payment, then it re-collects the full payment. Here, however, the plan document did not clearly state whether the Plan’s recovery should be before or after attorney fees, and the Court ruled that – if the plan document is silent, default rules of equity inform its application. That means that the Plan has to pitch in to cover the 40% attorney fee and the most the Plan may recover is $66,866 minus 40% = $40,119.60. The participant gets to keep $25,880.40. US Airways, Inc. v. McCutcheon, No. 11-1285 (U.S. April 16, 2013).
Under ERISA, the plan document trumps even traditional rules of fairness, but if you leave part of the plan open to interpretation, the courts try to be fair. Everyone should contribute to the costs of collecting the reimbursement funds.