U.S. Supreme Court Decision Strongly Supports Health Plan's Right to Reimbursement/Subrogation

In a long awaited decision, McCutcheon v U.S. Airways, the U.S. Supreme Court  ruled that a participant must reimburse a Health Plan for the payments the Health Plan made for the participant's care, if the participant recovers money from other third parties because of the injuries suffered.

The U.S. Airways Health Plan paid out $66,866 in benefits on behalf of participant, McCutchen, for health care for injuries he suffered in a serious car accident.  The Health Plan documents stated that U.S. Airways was entitled to full reimbursement if McCutchen later recovered money from a third party.  McCutchen  sued the responsible third parties and recovered $110,000: $10,000 from one of the drivers and $100,000 from his underinsured motorist coverage.  U.S. Airways sued McCutchen to recover the  $66,866 in benefits it paid out and McCutchen refused to pay. The District Court ruled in favor of U.S. Airways.  On appeal, the Third Circuit, in conflict with other Circuits (including the Ninth Circuit), held equitable principles stopped the Plan from recovering  from McCutchen.

The Supreme Court’s decision has two parts: one part of the decision favored U.S. Airways and the other McCutchen.  First, the Supreme Court held that in an action based on an equity lien by agreement (under Section 502(a)(3) of ERISA), the terms of the Health Plan govern -- if the terms call for reimbursement/subrogation, the reimbursement must be made.  The U.S. Airways Plan said that it had first claim on  any monies recovered from the third party, so the Supreme Court ruled the Plan is entitled to reimbursement.  But the Supreme Court also held that since the Plan did not say anything about attorney's fees,  the Plan could be required to pay a portion of McCutcheon's attorney's fees, under the so-called "common fund" doctrine. So, in this case, the Health Plan will not get the whole $66,866 reimbursed -- some portion of McCutcheon's attorney's fees will be deducted from this.

In light of this ruling, Health and Welfare Trust Funds should review their reimbursement/subrogation provisions to make sure all terms for reimbursement are fully spelled out in the Plan Document.  For more information, contact Fund Counsel.

By Linda Baldwin Jones

Legal Developments