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ERISA Subrogation

Fairfax Injury Lawyer Brien Roche Addresses Erisa Subrogation

Brien Roche

Understanding ERISA and ERISA Subrogation

ERISA is a federal statute that was initially designed to prevent diluting of pension plans.  ERISA however now applies to all employee benefit plans. It becomes most troublesome for plaintiffs in regards to ERISA subrogation.

Your remedies under ERISA are somewhat limited.  You can only get the benefits that are owed.  Plus you can get reasonable attorneys’ fees.  You cannot recover consequential damages.  There is no recovery for emotional distress.  Punitive damages are not allowed.

You must exhaust your administrative appeal remedy within the deadline required.  If you don’t, your claim is dead.  There is no right to a jury trial.  ERISA does not allow for state insurance bad faith claims.  Likewise ERISA does not allow for consumer protection claims.

Is there a Plan?

The first thing you have to do is find out whether or not there is a plan, fund or program which was established or maintained by an employer or an employee organization or both.  An employee organization could be a union.  Under the plan, benefits are provided for sickness, accident, disability, death or unemployment.  The insurer has the burden of proving the existence of the plan.  ERISA does not apply where the employer does not endorse the program.  Likewise it does not apply where employee involvement is completely voluntary.  Also if the premiums are paid entirely by the employee, then ERISA does not apply.  If the employer’s sole function is to permit the insured to publicize the program, collect premiums and then pay the premium to the insurer, then ERISA does not apply.  Also if the employer receives no consideration, then ERISA does not apply.

ERISA does not apply to government and public agencies.  It likewise typically does not apply to churches unless the employer elects to have it apply.  ERISA does not apply to sole proprietors, partners and their spouses.  An independent contractor is not an employee.  Therefore that person is not subject to ERISA.  ERISA does not apply to individual policies, even though they may be obtained as part of an ERISA plan.

If an ERISA plan’s benefits are fully paid by an insurance carrier, then federal preemption does not apply to state insurance laws.  That means that the Virginia anti-subrogation law would stand.  However if the carrier is acting as a third party administrator for the plan, then the anti-subrogation law would be preempted.  A fully insured plan shifts the claim risk to the insurance carrier and guarantees payment of claims in return for the premium.  That type of plan does not carry with it federal preemption.

ERISA Subrogation

In U.S. Airways, Inc. v. McCutchen, the U.S. Supreme Court dealt with the issue of ERISA subrogation. ERISA stands for Employee Retirement Income Security Act.  That law sets forth a number of rules as to employer/employee-related compensation. The right of subrogation exists as to those health benefit plans established or maintained by an employer or employee organization. The plan must be fully or partially funded by the employer. In other words the employer pays the benefits. If the coverage is through a health insurer then it must be paid by the employer. To find out the status of the plan a site to go to is https://www.efast.dol.gov/portal/app/disseminatePublic?execution=e1s1. On that site use the employer identification number (EIN) to find the employer.

ERISA Subrogation and McCutchen

McCutchen arose out of an automobile crash in 2007.  James McCutchen was a U.S. Airways employee. His injuries were serious. His employer-sponsored health plan paid his medical bills. They came to $66,866.00.  As a result the plan requested that these bills be paid back.  Most health insurance policies have such a subrogation clause. This clause allows the insurer to recoup the money paid out for their insured. Furthermore this pay back clause only applies where a third party caused the injury. McCutchen’s case had settled for $110,000.00.  After the payment of attorney’s fees that left him with $66,000.00.

McCutchen’s defense to the claim asserted by U.S. Airways seeking to recoup the money paid for his bills was two-fold.  First of all was that the plan’s recovery should be limited to that part of the settlement that was marked for such bills. That is the settlement document identified what amount of money went to pain and suffering, lost income and medical bills. In addition a second defense was based on the common fund doctrine.  That doctrine says that the plan’s recovery should be reduced to cover reasonable legal fees.  In most cases the legal fees are one-third (1/3).  As a result that would reduce the amount going to the plan by 1/3.

The Express Terms Matter

The Supreme Court rejected the first argument. The express terms of the plan said it can go against the entire settlement amount.  In contrast the Court accepted the second point on the theory that the plan did not address allowing legal fees.  In other words the Court held that the common fund doctrine applied in the absence of an express statement to the contrary.

The Supreme Court said that if a plan does not wish to bear the legal fees, there is a way to avoid that.  In other words they need to state what they will pay towards the cost of suit. Call, or contact us for a free consult.

Factors To Consider In regards To ERISA Subrogation

The analysis of subrogation rights is needed because Virginia bars subrogation in health insurance policies issued in this state. Therefore if the plan is not an ERISA plan then the insurer may have no right to seek to get back the moneys they have paid out in medical bills.

Don’t confuse ERISA plans with federal employee health benefit plans. These are plans offered to U.S. employees through private carriers. These plans have subrogation rights. In addition they supersede the state anti-subrogation laws.  Also consider LEO 1865 which says that if the client wants no investigation, then you do not investigate.

In looking at ERISA subrogation issues, there are several factors that need to be reviewed:

Is there a Duty to Investigate?

Sometimes an issue arises as to whether or not the attorney has an obligation to investigate the merits of a subro claim in order to measure what exposure the attorney may have or the client may have.  LEO 1865 says that if the client wants no investigation then no investigation should be done.  In spite of that LEO, I think the better practice is to:

  • Investigate.
  • Determine the merits of the subro claim.
  • Measure what your exposure is if you fully disburse.
  • Make a full disclosure to the client including that full disbursement could put them in breach of their insurance contract.
  • Then make a decision about full disbursement or retaining funds to cover the subro amount, less any offsets

Plan Documents Are Key

  • First of all define what are the documents that may contain the right to reimburse.
  • McCutchen was premised on allowing the plan to assert an equitable lien.  This is vital.  In other words every plan must be looked at to determine if it has a reimbursement clause. The ERISA subrogation claim that is brought must be one to enforce a term within the plan.  Therefore if there is no reimbursement clause then there is no term to enforce. Prior to settling your case or filing suit you must obtain several documents. You need to find out which of these are the plan documents:(a)Form 5500; (b)summary of plan description; (c)summary of material modifications; (d)trust agreement; (e)appointment of fiduciary; (f)agreement between the plan and the insurance company; (g)any documents that may be plan documents. In addition the plan documents that you want are the ones in existence at the time that the bills were paid. This means you need a copy of the documents for each year since the date of crash. In addition you need to make sure you get the current plan.
  • Proper notice must be given to the beneficiaries’ lawyer
  • The plan’s fiduciary must bring the lawsuit against the employee.  So that plan’s fiduciary must be expressly named within the plan.

Only Equitable Relief

  • The only relief that can be sought under ERISA is in equity.  In other words the claim must be in the form of a constructive trust or an equitable lien.  That trust or lien must be against funds or property the employee received.  If the plan seeks to impose personal liability on the employee, that is not allowed.  What is allowed is to seek a trust or a lien against the funds.

Private Insurance Only

  • ERISA only governs private insurance plans that are funded entirely by the employer. It does not govern individual health insurance plans. Being funded by the employer means the benefits are paid for by the employer. The coverage may be through a policy of insurance. It may involve co-pays and deductibles just like many policies.

You Must Have All of the Documents

With all of those papers in hand, you can then do your analysis. In other words do you have a basis for contesting the ERISA subrogation claim.

Future Medicals

Keep in mind that there may be liability for future medicals.  Therefore you need to be careful how much you set out to prove in terms of future medicals.

Call, or contact us for a free consult. Also for more information on Personal Injury Claims, see the other pages on this site. Also see the pages on Wikipedia for information about ERISA.

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Contact Us For A Free Consultation

ERISA Subrogation

Fairfax Injury Lawyer Brien Roche Addresses Erisa Subrogation

Brien Roche

Understanding ERISA and ERISA Subrogation

ERISA is a federal statute that was initially designed to prevent diluting of pension plans.  ERISA however now applies to all employee benefit plans. It becomes most troublesome for plaintiffs in regards to ERISA subrogation.

Your remedies under ERISA are somewhat limited.  You can only get the benefits that are owed.  Plus you can get reasonable attorneys’ fees.  You cannot recover consequential damages.  There is no recovery for emotional distress.  Punitive damages are not allowed.

You must exhaust your administrative appeal remedy within the deadline required.  If you don’t, your claim is dead.  There is no right to a jury trial.  ERISA does not allow for state insurance bad faith claims.  Likewise ERISA does not allow for consumer protection claims.

Is there a Plan?

The first thing you have to do is find out whether or not there is a plan, fund or program which was established or maintained by an employer or an employee organization or both.  An employee organization could be a union.  Under the plan, benefits are provided for sickness, accident, disability, death or unemployment.  The insurer has the burden of proving the existence of the plan.  ERISA does not apply where the employer does not endorse the program.  Likewise it does not apply where employee involvement is completely voluntary.  Also if the premiums are paid entirely by the employee, then ERISA does not apply.  If the employer’s sole function is to permit the insured to publicize the program, collect premiums and then pay the premium to the insurer, then ERISA does not apply.  Also if the employer receives no consideration, then ERISA does not apply.

ERISA does not apply to government and public agencies.  It likewise typically does not apply to churches unless the employer elects to have it apply.  ERISA does not apply to sole proprietors, partners and their spouses.  An independent contractor is not an employee.  Therefore that person is not subject to ERISA.  ERISA does not apply to individual policies, even though they may be obtained as part of an ERISA plan.

If an ERISA plan’s benefits are fully paid by an insurance carrier, then federal preemption does not apply to state insurance laws.  That means that the Virginia anti-subrogation law would stand.  However if the carrier is acting as a third party administrator for the plan, then the anti-subrogation law would be preempted.  A fully insured plan shifts the claim risk to the insurance carrier and guarantees payment of claims in return for the premium.  That type of plan does not carry with it federal preemption.

ERISA Subrogation

In U.S. Airways, Inc. v. McCutchen, the U.S. Supreme Court dealt with the issue of ERISA subrogation. ERISA stands for Employee Retirement Income Security Act.  That law sets forth a number of rules as to employer/employee-related compensation. The right of subrogation exists as to those health benefit plans established or maintained by an employer or employee organization. The plan must be fully or partially funded by the employer. In other words the employer pays the benefits. If the coverage is through a health insurer then it must be paid by the employer. To find out the status of the plan a site to go to is https://www.efast.dol.gov/portal/app/disseminatePublic?execution=e1s1. On that site use the employer identification number (EIN) to find the employer.

ERISA Subrogation and McCutchen

McCutchen arose out of an automobile crash in 2007.  James McCutchen was a U.S. Airways employee. His injuries were serious. His employer-sponsored health plan paid his medical bills. They came to $66,866.00.  As a result the plan requested that these bills be paid back.  Most health insurance policies have such a subrogation clause. This clause allows the insurer to recoup the money paid out for their insured. Furthermore this pay back clause only applies where a third party caused the injury. McCutchen’s case had settled for $110,000.00.  After the payment of attorney’s fees that left him with $66,000.00.

McCutchen’s defense to the claim asserted by U.S. Airways seeking to recoup the money paid for his bills was two-fold.  First of all was that the plan’s recovery should be limited to that part of the settlement that was marked for such bills. That is the settlement document identified what amount of money went to pain and suffering, lost income and medical bills. In addition a second defense was based on the common fund doctrine.  That doctrine says that the plan’s recovery should be reduced to cover reasonable legal fees.  In most cases the legal fees are one-third (1/3).  As a result that would reduce the amount going to the plan by 1/3.

The Express Terms Matter

The Supreme Court rejected the first argument. The express terms of the plan said it can go against the entire settlement amount.  In contrast the Court accepted the second point on the theory that the plan did not address allowing legal fees.  In other words the Court held that the common fund doctrine applied in the absence of an express statement to the contrary.

The Supreme Court said that if a plan does not wish to bear the legal fees, there is a way to avoid that.  In other words they need to state what they will pay towards the cost of suit. Call, or contact us for a free consult.

Factors To Consider In regards To ERISA Subrogation

The analysis of subrogation rights is needed because Virginia bars subrogation in health insurance policies issued in this state. Therefore if the plan is not an ERISA plan then the insurer may have no right to seek to get back the moneys they have paid out in medical bills.

Don’t confuse ERISA plans with federal employee health benefit plans. These are plans offered to U.S. employees through private carriers. These plans have subrogation rights. In addition they supersede the state anti-subrogation laws.  Also consider LEO 1865 which says that if the client wants no investigation, then you do not investigate.

In looking at ERISA subrogation issues, there are several factors that need to be reviewed:

Is there a Duty to Investigate?

Sometimes an issue arises as to whether or not the attorney has an obligation to investigate the merits of a subro claim in order to measure what exposure the attorney may have or the client may have.  LEO 1865 says that if the client wants no investigation then no investigation should be done.  In spite of that LEO, I think the better practice is to:

  • Investigate.
  • Determine the merits of the subro claim.
  • Measure what your exposure is if you fully disburse.
  • Make a full disclosure to the client including that full disbursement could put them in breach of their insurance contract.
  • Then make a decision about full disbursement or retaining funds to cover the subro amount, less any offsets

Plan Documents Are Key

  • First of all define what are the documents that may contain the right to reimburse.
  • McCutchen was premised on allowing the plan to assert an equitable lien.  This is vital.  In other words every plan must be looked at to determine if it has a reimbursement clause. The ERISA subrogation claim that is brought must be one to enforce a term within the plan.  Therefore if there is no reimbursement clause then there is no term to enforce. Prior to settling your case or filing suit you must obtain several documents. You need to find out which of these are the plan documents:(a)Form 5500; (b)summary of plan description; (c)summary of material modifications; (d)trust agreement; (e)appointment of fiduciary; (f)agreement between the plan and the insurance company; (g)any documents that may be plan documents. In addition the plan documents that you want are the ones in existence at the time that the bills were paid. This means you need a copy of the documents for each year since the date of crash. In addition you need to make sure you get the current plan.
  • Proper notice must be given to the beneficiaries’ lawyer
  • The plan’s fiduciary must bring the lawsuit against the employee.  So that plan’s fiduciary must be expressly named within the plan.

Only Equitable Relief

  • The only relief that can be sought under ERISA is in equity.  In other words the claim must be in the form of a constructive trust or an equitable lien.  That trust or lien must be against funds or property the employee received.  If the plan seeks to impose personal liability on the employee, that is not allowed.  What is allowed is to seek a trust or a lien against the funds.

Private Insurance Only

  • ERISA only governs private insurance plans that are funded entirely by the employer. It does not govern individual health insurance plans. Being funded by the employer means the benefits are paid for by the employer. The coverage may be through a policy of insurance. It may involve co-pays and deductibles just like many policies.

You Must Have All of the Documents

With all of those papers in hand, you can then do your analysis. In other words do you have a basis for contesting the ERISA subrogation claim.

Future Medicals

Keep in mind that there may be liability for future medicals.  Therefore you need to be careful how much you set out to prove in terms of future medicals.

Call, or contact us for a free consult. Also for more information on Personal Injury Claims, see the other pages on this site. Also see the pages on Wikipedia for information about ERISA.

Contact Us For A Free Consultation

Contact Us For A Free Consultation