Erisa and Disability Benefits Law Blog

Attorney Brian King, a friend of mine from Utah, shared his thoughts about the recent Sereboff decision on his ERISA blog.  Among other things, Brian commented as follows:

Unfortunately, as with so many ERISA decisions, the analysis is muddled, almost incoherent in spots.  Sereboff raises many questions.  Its purpose was to clarify the law relating to ERISA’s equitable remedies provision but it offers little assistance on that point.  It is clear that insurers will be happy with this result.  But I pity the circuit and district courts across the country that will try to obtain specific guidance from its language.

I invite you to read his views on this and other ERISA topics here.

A recent article posted on Marketwatch details a push by House republicans to add a provision to the current pension bill that would guarantee insurers a right to seek reimbursement based on an insured's recovery from a third party. As we have previosly discussed on this blog, this issue came to the forefront of debate following the United State Supreme Court's 2002 decision in Great West v. Knduson. In Knudson, the Court interpreted the civil enforcement provision of ERISA as only allowing insurers to seek reimbursement through equitable remedies. Subsequent lower court cases have diverged with regard to what reimbursement vehicles remain available under Knudson.

The progress of the House GOP proposal will be an important story to follow.

Another federal court has addressed the divisive issue of whether plans may sue their participants under ERISA for subrogation or reimbursement. In Great-West Life & Annuity Co. v. Knudson, 534 U.S. 204 (2002), the Supreme Court ruled that ERISA plans may sue participants for equitable, but not legal, relief. Various circuit courts are split on whether a suit filed by an ERISA plan for subrogation or reimbursement is equitable in nature and thus allowed. Click here to read my earlier posting on this topic.

In Scholastic Corp. v. Kassem, the U.S. District Court in Connecticut took the position that suits by ERISA plans for subrogation are equitable in nature, thus clearing the way for the Scholastic Corp. plan to recover its subrogation interest. The Court engaged in a lengthy analysis of Great-West and its progeny. The site for the yet-unpublished Connecticut decision is Scholastic Corp. v. Kassem, 2005 WL 2276042 (D. Conn. Sept. 19, 2005).

In this subrogation case, State Farm Mutual Automobile Insurance Company filed suit in state court against Blue Care Network of Michigan. After an automobile wreck, State Farm paid benefits to its underlying insured, Fred Owen. State Farm sought to recover these amounts from Owen's ERISA health plan. The ERISA plan was administered by Blue Care. In response to the complaint, Blue Care removed the case to federal court.

The dispute centered on whether ERISA preempted the state court action. The federal district court in Michigan concluded that State Farm's subrogation claim was not preempted by ERISA. State Farm's subrogation claim was based on the Michigan No-Fault Act. The court found that this statute "regulates" insurance under ERISA's savings clause (29 U.S.C. § 1144(b)(2)(A)). Further, the court found that the plan was not self-funded. As a result of these two factors, the court reasoned that State Farm's subrogation claim under the Michigan No-Fault Act was not preempted. Removal was thus improper, and the court remanded the case to state court. This opinion can be found at 2005 WL 2123730 (E.D. Mich. August 31, 2005).

There is a conflict among the federal circuit courts concerning the rights of ERISA plans to sue their plan participants for subrogation or reimbursement. This issue typically arises when an ERISA health plan pays medical bills for an injured participant. If the participant recovers from a third-party tortfeasor, the plan often seeks to recover the amount of its claimed subrogation or reimbursement interest from the participant.

It is now clear, in light of the U.S. Supreme Court's holding in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), that ERISA plans may sue plan participants for equitable relief but not legal relief. The distinction arises from the wording of the ERISA statute itself (see 29 U.S.C. § 1132(a)(3)). Thus, the basic question is whether a suit filed by an ERISA plan to recover a claimed subrogation or reimbursement interest is equitable, or legal, in nature.

So far, in the wake of Great-West, the Ninth and Sixth Circuits hold that ERISA plans may not sue their participants, holding that the claim for subrogation or reimbursement is one for legal relief. However, the Fourth, Fifth, and Tenth Circuits adopt the contrary view. (Click on the links to read the divergent opinions from these circuits.) In the end, it is likely that the Supreme Court (or Congress) will resolve this issue.

Given the complexity of the issues and the specific facts involved, it is difficult to summarize the case holdings succinctly. I suggest that you read each opinion (starting with Great West) to gain a good understanding of the issues. These opinions can be quite useful during negotiations with ERISA plans over subrogation claims.

In personal injury cases, many ERISA health plans are asking their injured participants to sign so-called subrogation agreements. These "agreements" almost always require the participant to promise to re-pay the claimed ERISA subrogation or reimbursement lien on a priority basis from the proceeds of the personal injury case. More and more ERISA plans are refusing to pay the injured participant's health benefits until the subrogation agreement is signed.

Given the recent wave of cases holding that ERISA plans cannot sue plan participants under ERISA to recover plan payments (due to a lack of jurisdiction), the plans are apparently seeking another avenue to recover the amount of their health benefit payments.

Plaintiffs' lawyers should view these "subrogation agreements" with suspicion. The injured client should not have to sign a purported "contract" when no additional consideration is provided. Moreover, the injured client should not be faced with obligations that are not set forth in the plan itself. A recent decision of the Tenth Circuit illustrates this point.

In Gorman v. Carpenters' & Millwrights' Health Benefit Trust Fund, 2005 WL 1349955 (June 8, 2005), the Court held that an ERISA plan could not require the plan beneficiary to sign a subrogation agreement when the applicable plan language did not require him to do so. Among other things, the Court held that the plan was attempting to impose a new requirement on the beneficiary as a condition to receive benefits.

The next time your personal injury client is faced with a "subrogation agreement," you may want to send the ERISA plan a copy of the Gorman decision.