Leave a comment

ERISA Liens – Plaintiffs’ Attorneys: What You Need to Know

There are three new cases in the ERISA subrogation world (and one pending decision) that you need to be aware of when settling a personal injury lawsuit.  As if the ERISA arena isn’t complicated enough, you need careful analysis to determine if these new cases help or hurt your case. 


New, Favorable Cases for Plaintiffs’ Attorneys 

CIGNA Corp. V Amara, 131 S. Ct. 1866 (2011)

The new line of ERISA subrogation case law begins with Cigna v. Amara.  This case involved the CIGNA Corporation’s Pension Plan and 1998 changes made to it affecting 25,000 beneficiaries.  The plan beneficiaries filed a class action suit against CIGNA under Section 502(a)(1)(B) of ERISA.  The district court concluded that CIGNA’s descriptions of the new plan violated disclosure requirements and reformed the contract.  The second circuit affirmed the decision, even though the district court did not require the beneficiaries to show they suffered harm as a result of the changes that were made.  The Supreme Court granted certiorari and provided:

Section 502(a)(1)(B) did not authorize the relief granted by the district court.  Instead, relief would be authorized by Section 502(a)(3) which allows a plan beneficiary to obtain other appropriate equitable relief for violations of ERISA.  The court provided that the district court’s relief resembled traditional equitable remedies such as reformation of contract, estoppel, and surcharge.

The key to Cigna is that it cites to Section 502(a)(1)(B) providing a great deal of latitude in determining appropriate equitable remedies.  This is significant to personal injury attorneys when attempting to resolve ERISA subrogation interests. 

U.S. Airways v. McCutchen, ___ F.3d ___, 2011 WL 5557411 (3d. Cir., 2011)

Next, in US Airways v McCutchen, the Third Circuit ruled that James McCutchen can assert certain equitable defenses to avoid payment to US Airways’ Health Benefit Plan. 

The underlying claim stems from a car accident where a young driver lost control of her car and struck 51 year old James McCutchen.  Mr. McCutchen survived after emergency surgery, however, he required care resulting in $66,866 in payments by the US Airways Health Benefit Plan for medical expenses.  McCutchen recoverd a total of just $110,000.00 due to various limitations in the defendant’s automobile insurance limits.  After attorneys’ fees and expenses, his net recovery was less than $66,000.00.  The US Airways plan demanded reimbursement for the entire amount of $66,866. 

The Plan language provided that a “beneficiary is required to reimburse the Plan for any amounts it has paid out of any monies the beneficiary recovers from a third party.” The lower court awarded the plan the entire amount it was claiming without taking into consideration the attorneys’ fees or expenses.  Basically, the court ignored the time and effort McCutchen expended in bringing the lawsuit and refused to recognize equitable defenses that McCutchen was asserting. 

On Appeal, the circuit court vacated the district court’s ruling based on equitable principles that the plan would be unjustly enriched by taking the entire amount left for McCutchen.  The court based its decision on the Cigna v. Amara holding and whether Sec. 502(a)(3)’s requirement that equitable relief be appropriate allows McCutchen to utilize equitable defenses.

What does this mean to your case?  Once you obtain a copy of the summary plan description and you believe that you have no way around the lien being asserted think again of equitable principles.  The court looked at the unjust enrichment aspect of this case and examined what would be appropriate under these circumstances.  It looked at the definition of “appropriate” using words as “specially suitable” and “belonging particulary to” in order to arrive at its conclusion. The court concluded that although contract provisions were meant to be enforced they were not sacred in courts of equity. 

The McCutchen court specifically stated,

On remand, the District Court should engage in any additional fact-finding it finds necessary.  In addition to the considerations discussed above, factors such as the distribution of the third-party recovery between McCutchen and his attorneys at Rosen Louik & Perry, the nature of their agreement, the work performed, and the allocation of costs and risks between the parties to this suit may inform the Court’s exercise of its discretion to fashion ‘appropriate equitable relief.’ (Emphasis Added).

Furthermore, it reasoned that based upon equitable principles, modification and even equitable reformations to the Plan language can be recognized and acceptable.  The new bottom line is that the plan language is not always final!  The courts are beginning to look beyond the language to determine what is fair under the circumstances to avoid you and your client becoming the collection agency for the ERISA plan.

ERISA Case NOT Favorable for Plaintiffs’ Attorneys


Zurich v. O’Hara, 604 F. 3d 1232 (11th Cir. 2010)

Zurich v. O’Hara was decided before both Amara and McCutchen, but it deserves attention as the current negative case on the “equitable defenses” arguments those other cases allow.  In Zurich, the district court found forZurich by way of summary judgment whereZurich filed suit against O’Hara for benefits it paid after O’Hara’s 2005 motor vehicle accident. 

Zurich paid $262,611.92 for medical expenses relating to that event.  O’Hara sued the driver of the car and recovered $1,286,457.11. Zurich then attempted to collect the $262,611.92 relying on the subrogation sections of the Plan.  When O’Hara refused to repay the plan,Zurich filed suit under ERISA Section 502(a)(3)(B) seeking all appropriate equitable relief.  The district court granted summary judgment in favor ofZurich finding thatZurich had a clear and unambiguous contractual right to reimbursement under the plan.  O’Hara appealed the decision.

The plan language provides for reimbursement regardless of whether O’Hara was made whole by his third-party recovery.  Although O’Hara attempted to use equitable principles to override the plan language the court would not ignore the direct provisions disallowing the make whole doctrine in the Plan and upheld the decision.  Its rationale included consideration for the plan as a whole and all of the participants in the plan.  In other words, the court looked at the fact that if they allowed O’Hara to avoid reimbursing the plan then plan expenses would increase to the remaining participants and beneficiaries. 

Although this case is not favorable to plaintiffs’ attorneys and their clients, there still may be plan language that provides for the make whole doctrine as well as the common fund doctrine.  It is always important to scrutinize plan language and review the current federal law and how it has been applied in the circuit where the case would be decided. 

What do Benefits Providers and Subrogation Companies think of McCutchen?

The best way to see how the other side thinks of McCutchen is a quick Google search: They don’t agree.  Many subrogation attorneys blog on the use of the term “appropriate” in the McCutchen decision.  They argue that the panel stretches the term appropriate too far (when placed in front of equitable relief).  But we’d like to know their response to this: How can equitable relief be allowable without equitable defenses?  And keep in mind that contracts are generally to be construed in favor of the non-drafting party.

The Future of Equitable Defenses in ERISA

As it stands today, we have Amara as the “mother case” to equitable defenses in ERISA subrogation, McCutchen as the plaintiffs’ case, and O’Hara as the Plans’ case.  The 9th Circuit (California and its neighbors) just heard a similar case in its Seattle courtroom.  The general expectation from 9th Circuit attorneys seems to lean more toward a pro-plaintiff decision. 

Once the 9th Circuit decision comes down the Supreme Court will have a chance to hear any of these cases on Certiorari.  Will the Supreme Court follow McCutchen? Or will it find a way to follow O’Hara

The trends are favorable for plaintiffs – but expect a few years before SCOTUS sorts this all out.


Marcy B. Spitz and Ryan J. Weiner

Co-Founders Lien Resolution Services



Twitter: @LienResolve

mspitz@lienresolutionusa.com and rweiner@lienresolutionusa.com

This Blog/Web Site is made available by the publisher for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: