ERISA Subrogation and Reimbursement: A Step-by-Step Approach

By Eric L. Buchanan

Step 1:  Deal with subrogation and reimbursement issues at the beginning.

A. Make dealing with subrogation part of your checklist when you first open the file.

  1. Plan on discussing the issue with your client, ensure that your contract explains whether the fee is out of the gross recovery or net after health care reimbursement.
  2. Set a to-do to get the information about health benefits.

Step 2:  Determine what type of health insurance are you dealing with:

  1. ERISA
  2. private
  3. non-ERISA group
  4. Medicaid
  5. Tenncare
  6. Affordable Care Act/Obamacare

A. Does your client get health insurance through a private employer so that it might be ERISA?

  1. If so, follow this checklist. If not, follow the rules for that type of claim.
  2. If you are not sure if ERISA applies, see the article on my website that discusses how to tell if an insurance claim falls under ERISA.

Step 3:  Once you have determined it is ERISA (or even that the claim is likely ERISA):

A. Get a copy of Plan Documents from your clients’ employer/Plan Administrator.

  1. Remember that the official source of plan documents is the Plan Administrator, and the plan documents must be provided in 30 days of a written request or the Plan Administrator can be sued for up to $110 per day under ERISA § 502(c), 29 U.S.C. § 1132(c).
  2. Under ERISA § 3(16), 29 U.S.C. § 1002(16) the Plan Administrator is either the person specifically designated in the plan or, if no one is named, it is the plan sponsor (the employer or union that offers the benefits).

B. Ask Plan Administrator and insurance company for all the documents related to any claims that have been made.

  1. This should include the payments made, the medical treatment paid for, and the amount the insurance company paid for the services. The other documents related to the claims other than the plan documents should come from the insurance company or healthcare plan.

C. Consider making a deal to protect your fees and part of the client’s money early.

  1. If they won’t deal and the subrogation would eat the recovery, decline the case or be prepared to fight the whole ERISA subrogation/reimbursement fight.
  2. In negotiating, it helps to have the plan documents to see just how strong their reimbursement right is, as discussed below.

Step 4:  Review information about the claims that should be provided.

A. Review medical expenses and what was paid for: is the insurance company trying to recover for medical payments not related to the injuries in the case?

B. Have they already paid all the bills, or are there more to be paid?

C. Use this as cheap discovery to make sure you have all the medical treatment and medical bills.

Step 5:  Review the ERISA plan documents/policy when you get them.

Remember that if the Plan Administrator does not provide a complete copy of the plan, you can sue under ERISA § 502(c), 29 U.S.C. § 1132(c) seeking penalties for failure to provide plan documents.

A. Did you get a complete copy of the ERISA plan?

  1. Did they try to send you just one page?
  2. Are there both an insurance policy and an overarching plan document, and did you get both?
  3. Ensure you are asking the Plan Administrator for all the documents related to the health plan.
  4. Ensure that you are looking in the plan, and not the Summary Plan Description (SPD). The SPD is not a controlling plan document unless incorporated into the plan, because it is supposed to be merely a summary.

Remember that a plan’s right to recovery under ERISA is limited to enforcing the terms of the plan or of ERISA under ERISA § 502(a)(3), above, and because ERISA has no general right of subrogation or reimbursement, the right to recover must be in the plan. For a long time, it was assumed that such a right could be found in either the formal plan document of the summary plan description, or “SPD.”

However, the Supreme Court in Cigna v. Amara, 131 S.Ct. 1866 (2011), explained that “the summary documents, important as they are, provide communication with beneficiaries about the plan, but . . . their statements do not themselves constitute the terms of the plan.” Therefore, it is worth checking to make sure that the subrogation or reimbursement language is actually in the plan, and not just an SPD.

B. Does the plan address subrogation, reimbursement, exclusion, or none?

  1. Remember they can only enforce what is in the plan.
  2. Remember that subrogation, reimbursement and exclusion are three different things.

Step 6:  If the plan allows for subrogation, ask the insurance company or Plan Administrator if they are going to participate in the case and help with expenses, litigation costs, and have their attorney appear.

A. Remember a true subrogation right is the right to step into the shoes of the plaintiff, and if the plan has that right, it should use it or lose it.

B. If the plan has both a right of subrogation and reimbursement, some courts allow reimbursement if the plan does not act on its subrogation right, but it doesn’t look good for the plan.

Step 7:  If the plan has a reimbursement clause, does it have sufficient language to really allow them to recover?

A. In ERISA cases, the made whole doctrine applies as the default rule unless the plan disavows it.

  1. Marshall v. Employers Health Insurance Co., 1997 WL 809997 (6th Cir. 1997).

B. For the plan language to “conclusively disavow the default rule” of the made whole doctrine, “it must be specific and clear in establishing both a priority to the funds recovered and a right to any full or partial recovery.”

  1. Copeland Oaks v. Haupt, 209 F.3d 811 (6th Cir. 2000). An ERISA plan may not recover when the plan language does “not establish in specific and clear terms that the Plan had either a priority over any funds recovered or a right to any full or partial recovery.”
  2. Qualchoice Inc. v. Williams, 2001 WL 856951

C. Where there is a partial recovery, the plan language must state that it allows for a recovery even if the plan participant makes a partial recovery.

  1. Phillips v. Humana Health Plans of Kentucky, 2000 WL 1872058 (6th Cir. 2000).

D. Unless the plan language allows an attorney to be paid for a recovery or otherwise has language protecting the attorneys’ fees, an attorney has no implied or common law right to be paid attorneys’ fees out of a subrogation recovery.

  1. Smith v. Wal-Mart Associates Group Health Plan, 2000 WL 1909387 (6th Cir. 2000) (where the court found that the language created a right of full reimbursement and did not address the right to have attorneys’ fees protected)
  2. But, see, US Airways, Inc. v. McCutchen, ___ U.S. ___, 2013 U.S. LEXIS 3156 (U.S. Apr. 16, 2013) (where the plan is silent on the issue of attorneys’ fees, equitable principle can be used, and the common-fund rule should be used, and the attorneys’ fees should be protected).

E. ERISA subrogation and reimbursement provisions are ambiguous if they fail to clearly establish a right to priority over a partial recovery from a third party. If the right of priority is ambiguous, and not clear, it cannot overcome the made-whole default rule.

  1. Hiney Printing Co. v. Brantner, 243 F.3d 956 (6th Cir. 2002).

F. If a plan participant who is injured agrees to sign a reimbursement agreement or a “subrogation agreement,” that may be binding, but the court can also look at the language in the agreement, and if it does not strictly disavow the made whole doctrine, then the made whole doctrine can still apply.

  1. Rodriguez v. Tennessee Laborers Health & Welfare Fund, 89 Fed. Appx. 949 (6th Cir. 2004) (unpublished) (Also again reading the language of an ERISA plan very strictly to determine the made-whole doctrine still applied.)

Step 8:  If the plan has language that specifically and clearly overrides the made whole doctrine, does it have language that identifies specific funds out of which a recovery can be made, such that it allows for an appropriate equitable remedy under ERISA § 502(a)(3)?

A. In Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S. Ct. 708, 151 L. Ed. 2d 635 (2002), the Court held that a claim by an ERISA plan to recover a subrogation claim allowed for only equitable remedies, not a judgment against general assets. Then the Court clarified in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 126 S. Ct. 1869 (2006) that this is not a general bar to recovery by a plan as long as it seeks a remedy to recover a specific fund.

B. Courts have further clarified that not only must a plan seek a remedy out of specific funds, but that the language found in the plan must identify a specific fund out of which recovery can be made, and some plans don’t have sufficient language.

  1. See, e.g. Popowski v. Parrott, 461 F.3d 1367, 1369 (11th Cir. 2006)(comparing the language of two plans, and finding a recovery available under one, but not under the other)
  2. (followed by at least one District Court in the Sixth Circuit in Fleetwood Enterprises, Inc. v. Taylor, 2007 WL 2826180 (W.D. Ky. 2007) (unpublished).)

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