Florida ERISA Blog

This is a weblog devoted to recent developments in ERISA and employee benefits law in Florida.

My Photo
Location: Clearwater, Florida

Marcus Castillo is a Florida Bar board certified labor and employment lawyer with substantial experience handling ERISA and related employee benefit cases. Mr. Castillo has extensively lectured on ERISA and, for a number of years, was the instructor for the ERISA component of the labor and employment law board certification review course sponsored by the Florida Bar. Mr. Castillo has handled a variety of ERISA and related claims including group short and long term disability insurance cases, accidental death and dismemberment and life insurance claims, group health insurance cases, disability pension and other pension benefit cases. To learn more about his practice visit www.haas-castillo.com

Thursday, January 17, 2013

ERISA Liens: Is the "800 Pound Gorilla" About To Go On A Diet?

Most personal injury attorneys undoubtedly view ERISA liens arising out of group health insurance payments as the “800 pound gorilla” that can gut a client’s recovery or indeed dissuade a lawyer from taking a case in the first place. The conventional wisdom, backed up by more than adequate authority, is that ERISA liens are so-called “super liens” entitled to precedence over a personal injury plaintiff’s own recovery. Whether ERISA liens will continue to be as “super” in the future is a question now before the U.S. Supreme Court. The outcome may change the landscape of personal injury litigation.

The case before the court, U.S. Airways v. McCutchen, is a case that originated in federal court in Pennsylvania and later was appealed to the Third Circuit Court of Appeals. The plaintiff in McCutchen pursued damages arising out of a motor vehicle accident ultimately recovering $110,000. McCutchen and his attorney agreed to a 40% contingency fee resulting in a $44,000 fee out of the gross recovery netting McCutchen $66,000. Here was the problem: McCutchen’s medical benefits plan paid $66,866 in medical expenses thereby eliminating any recovery to him whatsoever. When the plan sponsored by McCutchen’s employer, U.S. Airways, demanded payment of the full sum out of the tort recovery, McCutchen’s attorney refused arguing that it would be unfair and inequitable to reimburse the plan in full when McCutchen had not been fully compensated for his injuries and the plan, which made no contribution to attorney’s fees and expenses, would be unjustly enriched were it permitted to recover without any allowance for those costs.

U.S. Airways filed suit in federal district court seeking recovery of the full $66,866. In support of its argument for recovery U.S. Airways noted plan language specifically authorizing reimbursement in the amount of benefits paid out of “any recovery”. It also pointed to case authority that had previously rejected equitable theories for reducing a lien recovery. The district court ruled in the plan’s favor and entered judgment against McCutchen.

On appeal the equitable nature of ERISA liens was brought into sharper focus. Prior Third Circuit precedent had allowed health insurance plans seeking reimbursement to ignore equitable arguments in favor of reducing the lien amount. The McCutchen panel reviewed those cases against the backdrop of more recent Supreme Court authority clarifying the meaning of “appropriate equitable relief” in ERISA reimbursement cases. The Circuit Court reasoned that if the plan had the power to seek appropriate equitable relief then the full range of equity principles, including those favoring a plaintiff, were in play as well. It reversed the District Court’s judgment and remanded the case for the District Court to consider the application of such principles to the case.

In what will now be a string of Supreme Court pronouncements on what exactly “appropriate equitable relief” means the court took certiorari and recently heard oral argument in the McCutchen case. The exchange between counsel and the court at oral argument reflects three possible outcomes. First, the court could rule in blanket fashion that equitable principles such as unjust enrichment, the common fund doctrine or the make whole doctrine apply in all ERISA lien cases. Conversely, the court could rule that plaintiff-favorable principles never apply. The third approach would look to the specific language of the plan document to see if the equity principles in question were addressed. Several of the justices at oral argument noted that U.S. Airways’ plan language might not have been clear enough to give its lien precedence. That could be the basis for a holding limited to the facts that could be favorable for Mr. McCutchen but unfavorable where plan drafters have drafted broad lien rights. I personally view this as the most likely outcome.

In the next several months pending the court’s decision I think plaintiff’s attorneys have an opening in negotiations with ERISA lien holders to argue that the lien should be reduced at least by the amount of the contingent attorney fee. Counsel could suggest that a very plaintiff-favorable ruling in McCutchen could lead to “make whole doctrine” arguments that could serve to eliminate liens completely. Yes, it is just an argument, but one well-informed counsel trying to maximize their clients recovery should consider making.