Major Subrogation Case Before U.S. Supreme Court

Injured victims of motor vehicle collisions who file their medical bills on their health insurance are always shocked to learn that they have to repay their own company if they receive a recovery from the other driver.

The concept, called subrogation, has unfortunately been around since the Employee Retirement Income Security Act (ERISA) law was enacted by Congress in 1972.

However in a recent ERISA decision, an appellate court ruled that ERISA liens are not always valid. In the case of US Airways, Inc. v. McCutchen, the plaintiff was seriously injured in an
automobile accident and required medical treatment costing $67,000. His bills were paid by his US Airways self-funded ERISA plan. Because of limited insurance coverage, McCutchen’s recovery was limited to $10,000 from the at-fault driver and $100,000 from his own underinsured motorist coverage.

US Airways refused to eliminate or reduce its subrogation lien and when it was not repaid, sued its employee in federal court in Pennsylvania. The trial court sided with the employer. On appeal, a unanimous panel of the Third Circuit reversed in favor of the injured victim. US Airways appealed to the Supreme Court. Oral arguments were just heard.

At stake is the Court’s pro-plan ruling in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (U.S. 2006). The Sereboffs had been injured in an car accident in California and their plan paid their medical expenses of $75,000.00. When the case settled, the plaintiffs refused to repay their plan and they were sued under § 502(a)(3) of ERISA in federal court. The plaintiffs lost at the trial and appellate levels and the Supreme Court, in an opinion written by the conservative Chief Justice John Roberts and supported by the Court’s conservative bloc, ruled in favor of the plan fiduciaries.

In the new case, the insurance plan’s attorney argued that the plan had satisfied the requirements set forth in Sereboff because it was not seeking personal liability, had specified a particular fund traceable to the settlement; and had an equitable lien by agreement.The plaintiff argued that the plan would be unjustly enriched if he repaid it, given the amount of the settlement, and that he should prevail under the common-fund doctrine and equitable reasons.

Two justices (Sotomayor and Breyer) criticized the argument that the plan should prevail over the common fund doctrine and said that an accident victim should not be required to pay for litigation to generate a fund, only to turn it over to the plan. Other justices (Ginsburg and Kennedy) stated that US Airways did not have adequate language in the plan document to give its lien precedence over McCutchen’s attorney’s lien.

I have to deal with these horrible subrogation liens on a daily basis. I fight these plans to make sure that my clients receive the money they deserve.

Please contact me if you have been injured in a motor vehicle collision and have any questions about this or anything else.

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