Reimbursement Provisions

Video: ERISA claims process overview and sub-topic on reimbursement provisions

Reimbursement Provisions in ERISA Disability Policies

Alesia v. Raybestos-Manhattan, Inc., 451 U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981). New Jersey state law preempted allowing enforcement of plan language offsetting workers' compensation benefits from vested pension benefits. Not contrary to ERISA because vested benefits were not "forfeited" only the amount of the vested benefit was reduced. Case allowed broad pre-emption of a state law that prohibited offset of workers' compensation from vested pension benefits.


Massachusetts Mutual Life Insurance Company v. Russell, 473 U.S. 134 (1985).


Mertens v. Hewitt Associates, 508 U.S. 248 (1993). (Scalia)


Great-West Life &Annuity Insurance Company v. Knudsen, 534 U.S. 204 (2002). (Scalia). Plan attempted to enforce an equitable lien by obtaining a money judgment, however, the Defendants had never come into possession of a fund. The third party settlement went to the defendants' attorneys and to a restricted trust. (Claim and remedy were equitable therefore plan could not recover under section 502(a)(3)).  [502(a)(3) authorizes a civil action for other appropriate equitable relief.  Court says it must mean something less than all relief.  Says in Mertins it must refer to categories of relief typically available in equity.  Here the plan sought an amount of money owed from the participant but the participant’s settlement had gone into a trust.  Court said the plan was therefore seeking money owed which is an action at law.  Plan said it was seeking restitution.  Court said restitution actions can be at law or in equity.  Depends on the basis of the claim and the remedy sought.  Actions in which plaintiff cannot assert a right to possession of particular property are essentially viewed as actions at law for breach of contract.  But where money or property in defendant’s possession can be identified as belonging to plaintiff, the action is in equity.  What is sought is to restore to plaintiff the particular funds in defendant’s possession.  Since here the plan was seeking money to which they were contractually entitled, not some particular funds held by the participant, their claim was a law and therefore not available under 502(a)(3).


(Line of cases read by lower courts to preclude remedy under ERISA in situations where wrongful plan administration in violation of ERISA fiduciary obligations causes so-called extra-contractual damage such as physical harm, expense or other suffering. E.g., Bast v Prudential Ins. Corp. of Am., 150 F.3d 1003 (9th Cir. 1998). Holding ERISA section 502 (a)(3) prevents recovering damages as "appropriate equitable relief." Delay in approving medical treatment caused death.)


See, Langbein, What ERISA Means by "Equitable": The Supreme Court's Trail of Error in Russell, Mertens, and Great-West, 103 Columbia L. Rev. 1317 (2003).


Sereboff v. Mid Atlantic Medical Services, Inc. 547 U.S. 356, 126 S.Ct. 1869, 164 L.Ed.2d 612 (2006). Reimbursement claims by Heath-care benefit plans are analogous to enforcement of attorney lien claims, and the right to reimbursement attaches to settlement funds prior to distribution. Claims were equitable because the beneficiaries agreed to reimburse funds from third party settlement and funds were held in a separate account.  (Fund becomes a "thing"). The fund was an identifiable thing within the possession and control of the beneficiaries and not recoverable from "assets generally."  Court looks for an action typically available in equity, and to do that looks at both the basis and the remedy sought.  The problem with Great-West/Knudson – attempting to recover a sum of money instead of a specific fund, which made the remedy legal and not equitable – was not present here.  The bigger question was whether the basis for the claim was equitable.  The Court cited the equitable rule that a contract to convey a specific object even before it is acquired will make the contractor a trustee as soon as he gets title to the thing.  Here the plan terms specified a particular fund and a particular share thereof, so the plan could follow that into the hands of the participant.  The Court construed this to be an equitable lien by agreement, not a lien for equitable restitution (where defendant wrongly obtains the fund), and therefore strict tracing rules did not apply.  Court also addressed the participant’s argument that it should have equitable defenses arising from principles of subrogation.  The Court said since this action qualified as an equitable remedy because it was to enforce an equitable lien by agreement and not a subrogation lien, which is a lien impressed on moneys on the ground that they ought to go to the insurer, subrogation defenses did not apply.


CIGNA Corp. v. Amara, 563 U.S. 421 (2011).




US Airways, Inc. v. McCutchen, 569 U.S. ....., 133 S.Ct. 1537 (2013). (Kagan, Scalia dissenting). Inter-Alia, absent specific language in the plan, the plan pays its proportionate share of fees and costs. This is the "common fund" rule and is the default rule. This was another equitable lien by agreement enforced against a third party automobile accident injury settlement in which the Court held the make-whole doctrine not applicable and that the plan had a right to enforce its lien against the fund even though the amount was wholly inadequate to compensate for the injury.  The attorney took the third party settlement, took attorney fees and put the rest in escrow.  The suit sought a lien on the escrow money and the attorney fee amount ‘in the participant’s possession’ (which is weird b/c it was in the attorney’s possession).  The plan called for full reimbursement.  The Court said that this was an equitable lien by agreement just like in Sereboff, because in both cases they claimed specifically identifiable funds – a portion of the third party settlement.  The court skipped over the fact that the attorney funds were no longer identifiable and were never in the participants’ possession.  It went on to address equitable defenses of unjust enrichment (or double recovery) and the common fund doctrine which says an attorney who recovers a common fund for persons other than his client is entitled to a reasonable attorney fee from the fund as a whole.  In Sereboff the participant did not argue that although the relief was equitable it was not appropriate because it contravened principles like the make whole doctrine.  The Court explained that enforcing a lien by agreement arises from and carries out a contract’s provisions, and these equitable rules do not trump the agreement.  But in this case the plan was silent on the allocation of attorney’s fees, and in such a case the common-fund doctrine provides the best indication of the parties’ intent. 


Montile v. National Elevator, 577 U.S. __, (2016).  Thomas.  Montanile got a third party settlement for $500,000, the health plan had a subrogation provision, attorneys took $260,000, put the rest in escrow, negotiations broke down, they distributed it to the participant after a 14 day notice, plan sued to enforce an equitable lien.  Participant still had some of the settlement funds.  Held that the plan cannot enforce an equitable lien against participant’s general funds.  The lien was equitable but the remedy is not. The treatises re equity treatises establish that plaintiffs can enforce an equitable lien only against specifically identified funds that remain in defendant’s possession or against traceable items purchased with the fund.  All that plaintiff has here is a personal claim against the wrongdoer – an action at law.  So Montile differes from Sereboff in that the participant dissipated some of the funds.  In Sereboff the Court said strict tracing rules do not apply to liens by agreement.  But they were responding to an argument by the participant.  In Montile they seemed to hold that strict tracing rules do in fact apply to liens by agreement.  I think it’s clear that where the participant stipulates that there is an identifiable amount that is the fund or part of the fund, then it is.  It must be traced at least that far.  Montile holds that once comingled or dissipated it is general assets and cannot be subject to the lien.