SC Lawyer, Sept. 2005, #5. Subrogation rights under ERISA governed health plans.

AuthorBy Robert E. Hoskins

South Carolina Lawyer


SC Lawyer, Sept. 2005, #5.

Subrogation rights under ERISA governed health plans

South Carolina LawyerSeptember 2005Subrogation rights under ERISA governed health plansBy Robert E. HoskinsOne of the most frequently encountered situations where an attorney confronts the Employee Retirement Income Security Act of 1974 (ERISA) is when he or she just won or settled a personal injury case and the client's health insurer wants to be reimbursed out of the settlement proceeds for monies that the insurer previously paid to plaintiff's medical providers (i.e., a subrogation claim). Most health insurance policies are governed by ERISA, which can be tricky. The average practitioner may be forced to deal with ERISA on subrogation claims despite the fact that his or her practice has nothing to do with ERISA

This article is not intended to be exhaustive, and certainly each case will have its own unique facts. However, this article will describe in general terms how to analyze subrogation rights of an ERISA governed health plan.

When you learn of a subrogation claim, you should immediately obtain the entire plan document containing the subrogation term giving rise to the claim. (If the insurer or plan won't provide it, which most will, the employer who sponsors the plan is required by ERISA to provide the plan document within 30 days of a written request (29 U.S.C.S. § 1132(c)).) Never take for granted that because someone is asserting a subrogation right, that the person actually has one. Always review the actual plan document giving rise to the subrogation interest and the specific language contained therein. If the plan is an ERISA plan, then any subrogation right will be governed by the specific language of the plan. (See 29 U.S.C.S. § 1104; See also Lockhart v. UMWA 1974 Pension Trust, 5 F.3d 74 (4th Cir. 1993), "The award of benefits under an ERISA plan is governed in the first instance by the language of the plan itself. Citing Callahan v. Rouge Steel Company, 941 F.2d 456, 460 (6th Cir. 1991)."

In fact, the Fourth Circuit has recognized that employers and insurers have almost complete control over the substance of their plans or policies as they relate to subrogation provisions. In Kress v. Food Employers Labor Relations Association and United Food and Commercial Workers Health and Welfare Fund, et. al., 391 F.3d 563 (4th Cir. 2004), the court stated:

"We adhere to plan documents unless they contravene ERISA or other binding authority. But ERISA "does not mandate any minimum substantive content for [welfare benefit] plans." Stinnett, 154 F.3d at 172. "Employers have large leeway to design disability and other welfare plans as they see fit." Black & Decker Disability Plan v. Nord, 538 U.S. 822, 833, 155 L.Ed.2d 1034, 123 S. Ct. 1965 (2003).

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Indeed, ERISA neither requires a welfare plan to contain a subrogation clause nor does it bar such clauses or otherwise regulate their content." Ryan by Capria-Ryan v. Federal Express Corp., 78 F.3d 123, 127 (3d Cir. 1996). Subrogation clauses requiring reimbursement are, in fact, quite common. See Amber M. Anstine, Comment, ERISA Qualified Subrogation Liens: Should They Be Reduced to Reflect a Pro Rata share of Attorney Fees?, 104 Dick. L. Rev. 359, 360 (2000). ERISA allows plans broad discretion to draft such clauses. Plans could forego any reimbursement unless and until the participant is "made whole." They could provide for attorney fees to be paid in full before the plan is reimbursed at all. They could share the expense of legal fees in a pro-rata fashion, proportionally reducing their reimbursement to reflect the attorney fee. They could adopt a "reasonable fee" policy, meaning that they will subtract from the amount of the required reimbursement whatever they would have spent in legal fees to recover the advance they had paid. Or, as here, they may require that attorney fees be paid only after the Fund is reimbursed in full. See Sunbeam-Oster Co., Inc. Group Benefits Plan v. Whitehurst, 102 F.3d 1368, 1372-74 (5th Cir. 1996) (discussing different possibilities but recognizing that it is the language of the plan that determines which applies)."

When reviewing plan language and even after obtaining the plan document from the insurer or employer, always ask the client whether he or she has any other plan booklets or documents...

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