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November 2011 ERISA Update

November 16, 2011 – The Third Circuit Court of Appeals in U.S. Airways v. McCutchen, ___ F.3d ___,  2011 WL 5557411 (3d Cir. 2011), has held that an ERISA lien must be reduced by attorneys fees on the grounds that to permit the ERISA plan to recover otherwise would violate the equitable principle of unjust enrichment.  In McCutchen, the plaintiff was an aircraft mechanic who suffered serious injuries in an automobile crash and exhausted his first party no-fault benefits.  Upon exhaustion, his personal health insurance, which is an ERISA plan provided by his employer U.S. Airways, asserted a lien seeking to recover $66,866 it had paid for his medical expenses out of the proceeds of his personal injury settlement. The total of his settlement totaled $110,000.00, comprising of liability and UIM settlements.  After the plaintiff paid his attorney for securing the settlement, he was left with $66,000.  Thus, the ERISA plan was seeking to recover all of his settlement proceeds via subrogration, leaving him with nothing to compensate him for a hip replacement that has rendered him completely disabled.  For a brief discussion of subrogation principles please see our June 2011 Lien Update in the Updates on New York Law section of our website.  Although that update deals with Medicare Advantage plans, some of the same principles apply here.

To be clear, the ERISA plan sought 100% reimbursement and was not willing to reduce its claim by any amount.  The ERISA plan felt this was appropriate as its Summary Plan Description says that it is entitled to "any monies recovered" from a third party or the beneficiaries own insurance policy.."

The trial court in the Western District of Pennsylvania had previously held that the lien had to be paid without a reduction for fees and costs.  The Third Circuit reviewed, and thankfully reversed the trial court by finding that the equitable principles established under § 502(a)(3) of ERISA (Employee Retirement Income Security Act) prevent such a result under the "appropriate equitable relief" standard developed in Sereboff v. Mid Atlantic Medical Services, 547 U.S. 356 (2006) and its progeny.  The Third Circuit noted that US Airways’ claim “from McCutchen’s pocket” is unprecedented and noted that although Congress did intend to make sure that the integrity of ERISA plans is maintained, Congress also tempered that purpose by limiting ERISA plans to appropriate equitable relief.  The case is remanded to the trial court to determine the equities, and decide what attorney’s fees and costs should be deducted from US Airway’s ERISA lien.  This is what is believed to be the first court in the country to place this type of limit on an employer's ability to recover from a personal injury settlment.  To read the entire opinion, click here.

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