Supreme Court Will Review An Insurance Carrier’s Right To Reimbursement Under ERISA

On June 25, 2012, the United States Supreme Court granted certiorari review in the case US Airways, Inc. v. McCutchen, which will greatly impact the landscape of employee benefits law, which is largely governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).   In granting the writ of certiorari, the Supreme Court explained:

“Employee benefit plans often cover a participant’s medical bills in the event of injury but require that, if the participant obtains compensation from a third party for that injury, he or she reimburse the plan in full. Under Section 502(a)(3) of the Employee Retirement Income Security Act (“ERISA”), plans may enforce these reimbursement provisions in court by seeking “appropriate equitable relief” to enforce “the terms of the plan.” 29 U.S.C. § 1132(a)(3).

Twice in recent years this Court has resolved disputes about how Section 502(a)(3) works in reimbursement actions. In the more recent case, Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), the Court expressly reserved a third question about the provision. The Third Circuit, in its words, has now “squarely” answered “the question that Sereboff left open,” Pet. App. 9a, and has done so in a way that, as it acknowledged, splits the circuits.

The question presented is: Whether the Third Circuit correctly held-in conflict with the Fifth, Seventh, Eighth, Eleventh, and D.C. Circuits-that ERISA Section 502(a)(3) authorizes courts to use equitable principles to rewrite contractual language and refuse to order participants to reimburse their plan for benefits paid, even where the plan’s terms give it an absolute right to full reimbursement.”

The Supreme Court’s grant of writ of certiorari to review the McCutchen case is significant. Whether or not an employee benefits plan (many times an insurance carrier) has a right to recover monies a claimant received for other reasons in cases governed by ERISA hugely impacts the landscape of employee benefits law.  ERISA is a federal law that governs most employee benefits cases.  Thus, if you receive an employee benefit, such as health, disability, life, or long-term care insurance, through your employment any benefit claim that you file under those plans or insurance policies will likely be governed by ERISA.  The Supreme Court’s decision in McCutchen will be significant to the specific type of case involved in that case, but also in other cases involving an insurance company attempting to recoup what it will refer to as an “overpayment.”

McCutchen involved a health benefit plan where Mr. McCutchen received $66,866 to cover medical expenses and the health benefit plan demanded that Mr. McCutchen pay back the entire $66,866 following his recovery of $110,000 from third parties (with the assistance of an attorney).  However, the health benefit plan did not allow for consideration to be given to the 40% contingency fee and expenses that were deducted out of the $110,000 by Mr. McCutchen’s attorneys which caused Mr. McCutchen to recover less than $66,866 in his case.  Despite this fact, the district court granted summary judgment for US Airways and allowed for US Airways to require Mr. McCutchen to repay the full $66,866.  The Third Circuit Court of Appeals reversed this decision and determined that it was inequitable for US Airways to be permitted to require Mr. McCutchen to repay the $66,866, and that US Airways rights were significantly more limited by equitable principles under ERISA.

Not only will the Supreme Court’s decision in McCutchen impact the type of case involved in McCutchen, but it will impact an insurance carriers right to file a lawsuit or counterclaim based upon a demand that an insured repay monies that he/she had already been paid by the carrier upon the insured’s receipt of certain other monies.  For example, in a disability insurance claim, many benefit plans require that a claimant also pursue Social Security Disability benefits.  However, under most group benefit plans, the insurance carrier is entitled to offset the benefit that is payable under the benefit plan by the benefit that a claimant receives from the Social Security Administration.  Thus, if a claimant is owed $2000 per month under a group disability insurance plan and the claimant also recovers a $1000 per month in Social Security Disability benefits, the insurance carrier is only required to pay $1000.  However, in many situations a claimant will first receive disability benefit payments from an insurance carrier under a group disability benefit plan, but not receive a decision in his/her Social Security Disability claim until much later.  This results in what an insurance carrier will characterize as an “overpayment” of disability benefits, and the insurance carrier will demand that it be paid back the monies received from the Social Security Administration for the same time period that it paid benefits under the disability plan.  What is decided in McCutchen will likely impact whether the insurance carrier will have a right to reimbursement in this instance, as well as many other instances where an insurance carrier asserts a right to be reimbursed due to a claimant being in receipt of certain monies or benefits.  This will depend upon the Supreme Court’s interpretation of the equitable principles of ERISA, and how a plan’s (or insurance carrier’s) rights to reimbursement (and subrogation) are impacted by ERISA.

The experienced attorneys at Disability Insurance Law Group are well versed in the ever changing landscape of ERISA law.  If you have questions about your rights under ERISA as it relates to your benefit claim, contact one of our attorneys for a free initial consultation.