The More Things Change, the More They Stay the Same
Already in 2016, the Supreme Court issued yet another ERISA opinion in Montanile v. Board of Trustees. This one should send shivers down the spines of health plan administrators everywhere. The subject was the ability of health plans to recover amounts paid to injured participants who subsequently recover from third parties in a personal injury claim. Such recovery actions are called subrogation liens, and are a familiar feature in both fully-insured and self-funded health plans sponsored by employers.
Of course, being employer-sponsored means that terms of the plan, including its subrogation language, is subject to ERISA. That’s where the fun begins. Montanile is the fourth time the Supreme Court has addressed subrogation rights under ERISA and its record is, shall we say, somewhat mixed. Subrogation claims in ERISA travel a slippery path via a claim for equitable relief under section 502(c). Equitable relief typically means relief in a form other than money. A money judgment is legal relief.
Here’s a bare bones summary of what the Supreme Court has done with these claims. First, it established a narrow reading what “equitable relief” means under ERISA, a conclusion that has been subject to much scholarly debate, but nonetheless seems to have been firmly established in subsequent Supreme Court’s decisions.
Next, in a case where the tort recovery was placed in a trust and therefore no longer under the control of the injured party, the Supreme Court held that a health plan could not enforce its subrogation lien in the form of a money judgment against the injured party himself because that would be legal relief, not equitable relief.
Next, the Supreme Court backed off this stance in a case where the injured participant still had his tort recovery funds in a bank account. The Supreme Court held that the plan could get this money under an “equitable lien by agreement” theory because it was still an identifiable “pot” and therefore more like a “thing” that was typically recoverable as equitable relief.
In yet another case in which the injured party was limited in his recovery due to insurance limits worth only about 10% of the value of his personal injury claim, the plan’s subrogation lien consumed all of the participant’s recovery after he paid his attorney. Nevertheless, that was the subrogation deal as spelled out in the plan document, and the plan got to recover its lien—with one twist. The plan was silent on whether it had to contribute to the cost of the recovery (i.e., what would have been its attorney’s fees if it had pursued the claim), and the Supreme Court reduced the subrogation lien recovery by 40% to mirror the contingent fee agreement that the participant had with his attorney.
This brings us to Montanile. Same facts as the other cases, except here, the injured participant spent all the tort recovery funds before the plan got around to suing to enforce its subrogation lien. The result: the plan went away empty-handed because, like the first case, the Supreme Court held that an equitable claim cannot include a personal judgment against an individual once the “pot” is gone.
What does all this mean for health plans (and why should they be shivering)? There are several lessons to be learned if a plan wants to maximize its chances of recovering on a subrogation lien:
- Make sure the plan’s subrogation language is airtight: the plan gets a 100% reimbursement from money it has paid to the injured participant, with no contribution to attorney’s fees or other offset.
- Follow up on potential subrogation claims. Most plans are getting pretty savvy about identifying potential claims, but they also must be persistent in communicating with the participant, his attorney, and the insurance company that will provide the source of recovery. Plans must put themselves in a position to know the status of a case—and its settlement posture, which is not always easy to do.
- When a deal is struck, either through settlement or a trial, act immediately before the “pot” can be dissipated.