Equitable Subrogation When ERISA is Involved

Question: What is equitable subrogation?

New York Attorney

Any information you can provide would be greatly appreciated.

California Attorney

Answer: “Equitable subrogation” means two different things, depending on whether ERISA is involved.

In the classic sense outside of ERISA, equitable subrogation is the legal theory which allows for subrogation even when there is no contractual term providing for it (as opposed to “contractual subrogation,” which relies upon such terms). Under the theory of equitable subrogation, an insurer who has paid for health care of an injured individual is equitably entitled to subrogate against the settlement of the injured person simply by virtue of the fact that the insurer, too, suffered a loss as a result of the tort. Under a theory of equity, some of the settlement should also compensate the insurer, regardless of what the insurance policy or contract might say. This is a state law theory, and many states apply it in some form.

However, when discussing an ERISA plan, “equitable subrogation” (really a misnomer – should be “equitable lien”) actually requires a contract, directly opposing the classical definition of the phrase. The reason for this requirement is thus:

• ERISA allows only for “appropriate equitable relief” to enforce plan terms. See 29 U.S.C. 1132(a)(3) (ERISA’s civil enforcement statute).
• Thus, by virtue of the specific wording of the statute, the plan document must contain a subrogation or lien provision to enforce – if it’s not there, it can’t be enforced under ERISA.
• If the plan does contain a subrogation or lien provision, it can only be enforced through “equitable relief” as opposed to “legal relief.” See Mertens v. Hewitt Assoc., 508 U.S. 248 (1993).
• In order to qualify as “equitable relief,” the plan subrogation provision must identify a specific fund, distinct from the injured person’s general assets, which can be recovered via equitable subrogation or an “equitable lien by agreement.” See Sereboff, 547 U.S. 356 (2006). Without such specifics within the contract language, no lien or subrogation right exists. See Popowski v. Parrott, 461 F.3d 1367 (11th Cir. 2006).

As such, for “equitable” recovery in the context of ERISA, you have to have a contractual lien right underlying it.

Hope that helps. Confusing stuff, I know.