Justices Hear ERISA Reimbursement Case


By Joanne Deschenaux November 11, 2015

The U.S. Supreme Court on Nov. 9, 2015, heard oral arguments in an Employee Retirement Income Security Act (ERISA) case asking whether a man injured by a drunk driver, who received a settlement from that driver, is required to reimburse his health plan administrator for medical expenses. (Montanile v. Bd. of Trs. of Nat’l Elevator Industry Health Benefit Plan, U.S., No. 14-723).

The high court was reviewing a decision of the 11th U.S. Circuit Court of Appeals upholding a lower court’s opinion that Robert Montanile must pay back more than $120,000 to the Board of Trustees of the National Elevator Industry Health Benefit Plan after a 2008 accident in Florida. Montanile had reached a six-figure settlement with the driver at fault in the accident but had spent much of the settlement money on legal fees and caring for himself and his daughter. The appeals court ruled that the summary plan documents gave the health plan a first-priority claim to the settlement payment and that the plan could therefore recover the money paid out, even if Montanile had already spent it on everyday living expenses.

The question at the core of this case is whether a health plan can recover payments made if the recipient has received a recovery from a third party and spent that recovery before the plan seeks to recoup its payments, Scott Stitt, a benefits attorney with Tucker Ellis in Columbus, Ohio, told SHRM Online. Stitt, who attended the oral arguments, said that the justices were debating the practical impact of any decision that they might reach in the case. “The justices were concerned with who should bear the risk. Should it be participants or plans?” If the plan participant in this case wins, he said, “There will be a strong incentive for benefit recipients to hire a lawyer, dispute the plan’s claim and just spend the money.”

Outcome May Impact Pension and Disability Plans

The case may have implications beyond the payment of medical benefits by health insurers, according to Russ Hirschhorn, a benefits attorney in Proskauer’s New York office.

The attorneys for both parties discussed at oral argument whether whatever the court rules might be extended to apply to workers who receive overpayments from pension or disability plans, he noted.

Neal K. Katyal, a Washington, D.C.-based lawyer with Hogan Lovells who represented the insurer, argued for a limited ruling applicable only to health plans. Katyal said that ERISA allowed these types of lawsuits only when a participant engaged in “knowing dissipation” of a personal injury settlement. The ruling wouldn't create hardship for workers with disabilities or retirees who receive an overpayment of benefits because of an error made by their ERISA-governed plan, Katyal said.

Arguing for the plan participant, Peter K. Stris, a lawyer with Los Angeles-based Stris & Maher, cautioned the justices that their eventual ruling would necessarily affect workers receiving pension or disability benefits.

Participants in these plans, Stris said, likely wouldn't be unduly harmed if plans act promptly in seeking reimbursement. However, a disability or pension plan that waits years or decades before attempting to collect a mistaken overpayment could create a heavy burden for an unwitting plan participant, particularly a typical participant of “limited means.”

“In the pension or disability context, the recipient may not know they have been overpaid,” Hirschhorn said, making this a different situation than the one before the court. And the court’s decision may not address this issue at all, he noted. “Just because something is discussed at argument” does not mean it will figure in the court’s eventual decision, he said.

Court Can Resolve Circuit Split

The case specifically centers on ERISA’s equitable remedies provision, found at Section 502(a)(3). This provision places limits on plan fiduciaries who attempt to sue participants who received erroneous benefit payments or who received plan benefits for injuries later compensated by third-party settlements, as is common in cases involving vehicle accidents.

The circuit courts have split on whether this provision—which requires that any lawsuits by plan fiduciaries seek only “equitable relief”—allows a fiduciary to sue a participant who is no longer in possession of the disputed benefit payments. This is sometimes referred to as ERISA’s “tracing requirement,” with the courts that impose such a requirement ruling against fiduciaries in cases where participants are no longer in possession of the sought-after funds.

The majority of courts that have considered this issue have agreed with the 11th Circuit and allowed plans to bring these kinds of lawsuits. In particular, the 1st, 2nd, 3rd, 6th and 7th circuits have all rejected the notion of a tracing requirement, instead finding that ERISA plans can recover overpaid benefits even if those benefits didn’t remain in possession of the defendant participant or beneficiary.

The 8th and 9th circuits have rejected attempts by ERISA plans to recover benefits no longer possessed by the participant or beneficiary. Those courts have found that these lawsuits didn’t seek appropriate equitable relief as required by ERISA Section 502(a)(3).

The 5th Circuit has gone its own way and drawn a distinction between cases where the plan terms allowed the plan to seek recovery and cases without such plan language.

The Supreme Court now has a chance to resolve this difference of opinion among the federal courts of appeals. “I don’t think it is clear which way the court will go,” Stitt said. “The justices will struggle with the practical implications. The final decision will not be driven by the law, but by what the least harmful result would be,” he concluded.

Joanne Deschenaux, J.D., is SHRM’s senior legal editor.


Job Finder

Find an HR Job Near You
Search Jobs
Post a Job

HR Professional Development Programs Right For You

Find SHRM Education Programs Across the U.S. and Virtually

Find SHRM Education Programs Across the U.S. and Virtually

Find a Seminar


Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 10,000 companies

Search & Connect