ERISA Reimbursement: the Hidden Barrier to Access to Justice
By Public Justice Senior Attorney Leslie Brueckner and Budd-Kazan Attorney Matthew Wessler
When it comes to adding insult to injury, this takes the cake.
Imagine you’ve been in a terrible car crash. You suffered life-threatening injuries yet lived to tell the tale. You even managed to recover some of your damages in a lawsuit against the person who ran into you -- money that you and your family will need to survive, given that you can no longer work for a living due to your chronic pain and debilitating injuries.
But then, just when you thought you were out of the woods, you are hit with a federal lawsuit from your employer’s insurance plan, seeking 100% repayment of all the medical expenses it covered after you were hurt. You try to fight, but the plan ends up walking away with both the premiums you paid over the years and a good chunk, if not all, of your damages, leaving you even worse off than if you had never sued the person at fault in the first place.
Sound unfair? You bet it is. But this exact scenario is playing out all across America. In case after case, self-funded ERISA health-insurance employee-benefit plans have been asserting first priority liens over the proceeds of third-party lawsuits, even where the injury victim has recovered only a fraction of her damages. This practice, known as "ERISA reimbursement," has become one of the biggest threats to access to justice in this country. And it’s only getting worse.
Public Justice is fighting this practice on two different fronts. In U.S. Airways v. McCutchen, we are asking the United States Court of Appeals for the Third Circuit to reject an insurer’s bid to strip an employee of compensation recovered in a third-party lawsuit against a tortfeasor. And in CGI v. Rose, we represent a single mother who was seriously injured in an auto accident, later recovered only a fraction of her total damages in a lawsuit against the tortfeasor, and is now fighting off her insurer’s effort to recover 100% of its advanced medical expenses -- without even contributing a penny to her collection costs. And oh yes – the insurance plan sued her lawyer too, for holding the money in trust pending the outcome of the litigation.
In each case, we are asking the court to enforce ERISA’s statutory requirement that reimbursement is only permitted to the extent that it constitutes "appropriate" equitable relief. In our view, fair-minded people would not find it "appropriate" for insurers to strip undercompensated personal injury victims of their tort recoveries, and we aim to get the courts to agree.
The Legal Issue
The precise question presented in each case is whether, under Section 502(a)(3) of ERISA, a seriously injured tort victim who recovers damages from a third-party tortfeasor must pay 100% of a reimbursement claim made by a health insurance plan sponsored through her employer simply because the plan language so provides, or whether the insurance plan is limited to seeking "appropriate equitable relief" within the meaning of Section 502(a)(3).
In each case, we argue that this statutory provision requires that courts, when faced with an equitable claim for reimbursement, must embrace traditional principles of equity when fashioning relief, and that, under these equitable principles, the appropriate measure of any award is the amount of a recovery that has “unjustly” enriched the defendant, which only occurs to the extent she has recovered twice for the same injury. When an insurer seeks equitable reimbursement, therefore, it is entitled only to recover that portion of a beneficiary’s underlying recover that is reasonably allocable to the medical expenses it paid.
The insurers in each case have argued that, notwithstanding the language of the statute, they are entitled to an award based upon rules of contract law, and that a court must simply enforce the terms of the plan as written, even if that means that an insurer will recover for medical expenses that a beneficiary did not herself recover in her third-party lawsuit and does not currently possess. Our briefs explain that this approach contravenes the plain language of the statute and ignored the structure and purpose of ERISA.
The Real World Consequences
That’s the dry legal explanation for why we think unfettered ERISA reimbursement should be disallowed. But there are also very important public policy considerations at stake in these cases. Among other things, permitting 100% reimbursement radically limits the ability of injury victims to obtain adequate compensation for their injuries.
This time, imagine that you’re a personal injury attorney faced with deciding whether to take on the tort case of a seriously injured employee. Although the case has the potential for yielding high damages, the employee tells you that her medical expenses were covered by her self-funded ERISA plan, which contains a provision that gives the plan the right to seek 100% reimbursement of all its advanced medical expenses in the event of a third-party tort recovery. Should you take the case despite the risk that most -- or even all -- of any recovery might be grabbed by the insurer, thereby possibly cutting your fee? Or should you walk away and save yourself the trouble?
Sadly, a lot of lawyers have taken the second route. The truth is that the risk of ERISA subrogation creates a powerful economic disincentive to take on the representation of a client who received anything more than a trivial amount of medical insurance from an ERISA plan or whose injuries were so severe that any recovery would dwarf actual medical expenses. By chilling injury victims' ability to obtain representation, this approach exculpates tortfeasors from liability and prevents injury victims from seeking just compensation for their injuries.
This threat to access to justice is the reason why Public Justice has taken on the battle against ERISA reimbursement. Two federal Courts of Appeals have already ruled in favor of insurers, permitting 100% reimbursement simply because the plan language says so. By fighting this battle in two other federal appellate courts, we seek to turn the tide against insurer greed and in favor of victims' rights.
Stay tuned for more news on this front. McCutchen has already been argued, and we await a decision. CGI is still being briefed, and oral argument has not been set. We will of course keep you posted. Hopefully we will soon have some good news to report in this importance battle to preserve access to justice.
About the Authors
Leslie A. Brueckner is a Senior Attorney at Public Justice. She received her A.B. degree summa cum laude from U.C. Berkeley in 1983, where she was awarded the University Medal for the Most Distinguished Graduating Senior. Leslie is also a 1987 magna cum laude graduate of Harvard Law School. In December 1993, she joined Public Justice.
Matt Wessler is the Kazan-Budd Attorney at Public Justice. Before joining Public Justice, Matt was an associate at Williams & Connolly LLP where his work encompassed civil and criminal matters, with an emphasis on post-conviction litigation, ethics, and intellectual property. He also carried a significant pro bono caseload.