ERISA Reimbursement

On January 20, 2016, the United States Supreme Court decided the case of Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan.  The Court held as follows:  “When an ERISA-plan participant wholly dissipates a third party settlement on nontraceable items, the plan fiduciary may not bring suit under 502(a)(3) to attach the participant’s separate assets.”  The Court reasoned that Plan fiduciaries are limited per 502(a)(3) to “equitable relief.”  Montanile involved a individual (beneficiary) who was injured through the negligence of a third party.  The beneficiary was a participant in a health benefits plan governed by ERISA.  In other words, the injured beneficiary was covered by health insurance.  The health insurance plan paid for some of the injured beneficiary’s medical bills. The injured beneficiary was severely injured as the result of being struck by a vehicle operated by a drunk driver.  The medical expenses exceeded $120,000.00.

The injured beneficiary obtained a settlement totaling $500,000.00.  The lawyer fees were $200,000.00 (40%), and apparently said lawyers advanced about $60,000 in legal expenses.  The remaining balance of $240,000 was held in the attorney’s trust account while negotiations took place with the health insurer, who asserted a claim for reimbursement under the terms of the policy.

Eventually, the attorney for the injured beneficiary sent a letter to the health insurance plan advising that he was going to disburse the remaining funds to the client unless the plan objected within 14 days.  Receiving no response within 14 days, the attorney disbursed the remaining funds to his client.

Six months later, the plan brought suit in federal court against the plan beneficiary seeking over $120,000 for money spent on his medical care. The plan sought to enforce an “equitable lien upon any settlement funds” of the plan beneficiary.

The issue for the Court was simple: “whether an ERISA fiduciary can enforce an equitable lien against a defendant’s general assets under these circumstances.”  The Court answered in the negative: “We hold that it cannot, and accordingly reverse the judgment of the Eleventh Circuit and remand for further proceedings.”

The Montanile case will undoubtedly cause ERISA plans to be much more diligent in tracking and enforcing equitable liens. The Court made specific reference to the failure of the plan to object within 14 days of receiving the letter of the beneficiary’s lawyer, and also in failing to file suit until six months after the funds had been disbursed.

 

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