Erisa Subrogation After Montanile

• Publication year: 2021

95 Nebraska L. Rev. 603. ERISA Subrogation After Montanile

ERISA Subrogation After Montanile

Colleen E. Medill and Alyssa M. Stokes(fn*)

TABLE OF CONTENTS

I. Introduction .......................................... 604

II. ERISA Subrogation Claims ............................ 608
A. The Fiduciary Duties of Plan Administrators ....... 610
B. Reimbursement Claims Against Plan Participants. . 611
1. Great-West Life and Annuity Insurance Co. v. Knudson ...................................... 612
2. Sereboff v. Mid Atlantic Medical Services, Inc. . . 615
3. US Airways, Inc. v. McCutchen ................ 618
4. Montanile v. Board of Trustees ................. 620
C. The Plan Administrator's Reaction to McCutchen and Montanile ..................................... 623

III. Post-McCutchen and Montanile Problems .............. 625
A. Disincentives to Litigate Personal Injury Claims or Cooperate with Plan Administrators ............... 625
1. Screen and Decline Borderline Cases ........... 626
2. Attempt to Pre-Negotiate a Set Reimbursement Amount ....................................... 627
3. Ignore Reimbursement Demand Letters or Provide a Non-Binding Response ............... 629
4. Distribute and Dissipate the Recovered Funds to Avoid an Equitable Lien ....................... 632
B. Obstacles to Reimbursement Clause Enforcement . . 632

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1. Heightened Monitoring (the "letter writing campaign").................................... 632
2. Intervention in the Participant's State Court Tort Action .................................... 633
3. Injunctive or Declaratory Relief in Federal Court ............................................... 636
4. Equitable Relief in Federal Court Under Section 502(a)(3)...................................... 641
C. Conclusion: An Arbitrary and Inefficient Enforcement System .............................. 642

IV. A Targeted Statutory Amendment Solution ............ 643
A. The Proposed Amendment ......................... 645
B. Policy Analysis of the Amendment ................. 647

I. INTRODUCTION

Health insurance coverage matters to everyone. It particularly matters to employees, who view employer-sponsored health care insurance as their most important employee benefit.(fn1) For persons who are not eligible for Medicare, 61% of individuals with health insurance obtain their coverage through a group health plan that is either partially or fully insured by an employer rather than by an insurance company.(fn2) These so-called "self-insured" plans universally contain a provision, known as a reimbursement clause, that requires a plan participant to repay medical expenses paid by the plan that are later recovered by the participant from a third party as damages in a personal injury action. The plan document language at issue in Montanile v. Board of Trustees,(fn3) the Supreme Court's 2016 decision involving enforcement of a reimbursement clause, is typical:

Amounts that have been recovered by a [participant] from another party are assets of the Plan . . . and are not distributable to any person or entity without the Plan's written release of its subrogation interest. . . . '[A]ny amounts' that a participant 'recover[s] from another party by award, judgment, settlement or otherwise . . . will promptly be applied first to reimburse the Plan in full for benefits advanced by the Plan . . . and without reduction for attorneys' fees, costs, expenses or damages claimed by the covered person.'(fn4)

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By enforcing such a reimbursement clause, the plan is able to recover amounts expended for what are usually very large medical bills, thereby helping to keep the cost of coverage under the plan more affordable for the plan's sponsoring employer.(fn5)

Part II of the Article explains the civil enforcement system for plan reimbursement clauses under the Employee Retirement Income Security Act of 1974(fn6) (ERISA), the federal law that exclusively governs reimbursement claims brought by group health plans that are sponsored by private industry employers.(fn7) Attempts by ERISA plan administrators to enforce plan reimbursement clauses (known as "ERISA subrogation claims") have resulted in no less than four United States Supreme Court decisions, beginning with Great-West Life and Annuity Insurance Co. v. Knudson in 2002,(fn8) and ending most recently with Montanile v. Board of Trustees.(fn9) Part III of the Article analyzes the enforcement problems created by these Supreme Court decisions for injured plan participants, the plaintiffs' personal injury bar, plan administrators, and the state and federal courts. The Article's first claim, presented and developed in Part III, is that all of the players who are involved in ERISA subrogation claim litigation are ill-served by the current enforcement system. Injured plan participants are discouraged from pursuing legitimate damages claims against tortfeasors because the net recovery-after first fully reimbursing the victim's health care plan-may be so minimal that filing a personal injury action is futile.(fn10) The plaintiffs' personal injury bar is discouraged from providing legal representation to tort victims whose health insurance coverage is provided through an employer's self-insured plan because today's well-drafted plan document will require that the plan must be reimbursed first out of any recovery, in full, for all medical expenses paid by the plan that resulted from the tortfeasor's conduct, without sharing in the litigation costs expended to achieve the

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successful monetary recovery.(fn11) Under current Supreme Court precedent, these plan terms (which may seem inequitable) are enforceable as "appropriate equitable relief" against the plan participant under section 502(a)(3) of ERISA.(fn12) As a result, the fund recovered from the tortfeasor-either through a pretrial settlement or a jury award-may not even be sufficient to pay the contingency fee earned by the plaintiff-participant's tort attorney, let alone make the participant whole for her injuries.(fn13)

As frustrating as ERISA subrogation claims may be for injured plan participants and the plaintiffs' personal injury bar, the legal labyrinth that plan administrators must navigate to enforce a plan reimbursement clause is equally frustrating. The current civil enforcement system presents numerous practical and procedural obstacles to efficient enforcement.(fn14) The required monitoring of personal injury claims brought by plan participants against third parties, coupled with uncertain and cumbersome litigation in the federal courts, increase the administrative costs to the employer of sponsoring the health care plan for its employees.(fn15) For the plan's administrator, these enforcement actions are not optional. Rather, vigilance is mandated by ERISA's fiduciary duty standards, which require the plan administrator to act in the best interests of all of the plan's participants and to prudently administer the plan document according to its terms, including a plan reimbursement clause.(fn16)

Finally, the current enforcement system for ERISA subrogation claims results in the unnecessary waste of state and federal judicial resources.(fn17) Under ERISA, the federal courts have exclusive jurisdic-

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tion over a plan administrator's claim to enforce a reimbursement clause.(fn18) As a result, it is impossible to adjudicate an ERISA subrogation claim together with what (in the absence of diversity subject matter jurisdiction)(fn19) is usually a state court tort action. The result is bifurcated litigation, with the plan participant's personal injury claim typically being litigated in state court, and the ERISA subrogation claim to enforce the plan's reimbursement clause against the participant being litigated in federal court.

The Article's second claim, presented in Part IV, is that Congress can resolve these myriad problems through a targeted statutory amendment to ERISA's civil claims and remedies provisions. Such an amendment would reject the Supreme Court's 2013 decision in US Airways, Inc. v. McCutchen(fn20) by requiring application of the equity-based common-fund doctrine to ERISA subrogation claims and rendering void as a matter of public policy plan terms to the contrary. The result would be to incentivize personal injury actions by plan participants and to more fairly allocate litigation costs between the injured plan participant and the plan. In return, the proposed amendment would reduce the administrative costs of enforcement for employers by giving state courts concurrent jurisdiction over ERISA subrogation claims and prohibiting removal of ERISA subrogation claims to the federal courts so that such claims could be adjudicated in a single state court forum together with the participant's underlying tort claim. The impact would be to significantly streamline and simplify the enforcement procedure for reimbursement clauses.

Section IV.C of the Article analyzes the policy implications of the proposed statutory amendment. We contend that the many policy benefits of changing the status quo far outweigh the policy objection that a change would undermine ERISA's goal of providing for national uniformity through exclusive federal court subject matter jurisdiction over ERISA subrogation claims. The Article concludes by urging Congress to act in a bipartisan fashion to resolve the problems with ER-ISA subrogation claims described in Part III of the Article. In light of Congress's failed attempt to repeal the Patient Protection and Affordable Care Act(fn21) (Affordable Care Act or ACA), the need for reform in this highly technical area of the law has become more pressing. Notwithstanding the ACA's employer mandate to provide health care in-

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surance,(fn22) an employer's decision to offer coverage under a group health plan remains a voluntary decision. Given the voluntary nature of...