U.S. Airways v. McCutchen
This case is part of Public Justice’s campaign against employer-based health plans’ efforts to recover medical expenses from injury victims who have recovered damages for their injuries from a third-party tortfeasor. In U.S. Airways v. McCutchen, Public Justice defended a Pennsylvania man who had been sued by his self-funded employer-based health plan in Pennsylvania federal court for the money it paid to cover his medical expenses after he was seriously injured in an auto accident.
James McCutchen was driving when another vehicle slammed into him. He required emergency surgery and suffered serious injuries that left him permanently disabled. Under his employer-based health plan, administered by U.S. Airways, the plan paid $67,000 for Mr. McCutchen’s medical expenses.
Mr. McCutchen later recovered a small fraction of his total damages from the driver who caused the accident, who had only limited insurance. U.S. Airways then sued him for reimbursement of all of his medical expenses, claiming that, under the federal Employee Retirement Income Security Act (ERISA), insurers are entitled to enforce contractual provisions authorizing them to seek 100 percent reimbursement of medical expenses, regardless of how little in damages an injured employee recovers.
In a landmark ruling, the U.S. Court of Appeals for the Third Circuit became the first court in the country to reject an ERISA plan’s argument that it is entitled to 100 percent reimbursement of paid medical expenses simply because the governing plan says so. The Court ruled that ERISA limits insurers to seeking “appropriate equitable relief,” based on the principle of “unjust enrichment,” rather than the written terms of the plan.
The Court further ruled that, “[b]ecause the amount of the judgment exceeds the net amount of McCutchen’s third-party recovery, it leaves him with less than full payment for his emergency medical bills, thus undermining the entire purpose of the Plan. At the same time, it amounts to a windfall for U.S. Airways, which did not exercise its subrogation rights or contribute to the cost of obtaining the third-party recovery.” Concluding that “[e]quity abhors a windfall,” the appeals court remanded the case to the trial court to determine what equitable relief for U.S. Airways would be.
U.S. Aiways appealed, and Staff Attorney Matt Wessler argued McCutchen before the Supreme Court in November 2012. In April 2013, the Supreme Court issued a split decision in the case. The Court authorized U.S. Airways’ ERISA Plan to obtain its contractually-provided-for reimbursement of medical expenses from Mr. McCutchen. “If the agreement governs, the agreement governs,” the Court wrote, even where its reimbursement provision conflicts with long-standing principles of equity.
In the second half of its decision, however, the Court denied the Plan’s effort to recover 100 percent of its reimbursement claim by holding that the traditional equitable principle called the common fund rule required U.S. Airways to pay its proportionate amount of fees and costs associated with the lawsuit against the driver who caused the accident. As the Court explained, permitting U.S. Airways to avoid this rule not only would put Mr. McCutchen “in a hole,” but it would force him to “pay for the privilege of serving as U.S. Airways’ collection agent.” The Court refused to permit this result on the ground that U.S. Airways’ Plan did not expressly allow it to recover all expenses without paying its share of costs and fees.
Before Public Justice took on McCutchen, the federal courts of appeals were in agreement that ERISA plans could claim full reimbursement from injured beneficiaries. First in McCutchen and then in a similar case, CGI v. Rose, Public Justice persuaded the Third and Ninth Circuits to reject those rulings and limit ERISA plans to obtaining only their fair share of the injury victims’ underlying recoveries. With the high court’s April 2013 ruling in McCutchen, ERISA plans are back to being able to enforce their agreements as written, though now they must pay their share of costs and fees absent a plan provision to the contrary.
On remand following the Supreme Court decision, Public Justice filed an amended answer and counterclaim, contending that the Plan language did not actually provide the Plan with a right of reimbursement, and alleging that the Plan breached its fiduciary duty in failing to provide Mr. McCutchen with the language of the Plan itself (as opposed to the Plan summary) until the case was in the Supreme Court, and in bringing suit against Mr. McCutchen without first reviewing its rights under the Plan (as opposed to the Plan summary). The Plan opposed our motion for leave to file the amended answer, but the court granted our motion. Following discovery, the parties filed cross-motions for summary judgment. Unfortunately, while the summary judgment motions were pending, Mr. McCutchen passed away.
In March 2016, summary judgment was denied in part and granted in part. The court ruled that the Plan was entitled to its lien on a portion of the amount paid by the teen who caused the crash, but was not entitled to any of the much larger amount Mr. McCutchen had received from his auto insurance company. In short, Mr. McCutchen’s estate (his widow) was able to keep the large majority of the money the Plan claimed it was entitled to. The parties filed notices of cross-appeals in the Third Circuit, but settled the case in early 2017, before the appeals were briefed or heard.