Question: My client lost a foot in an accident. The ERISA plan paid $59,000 in medical benefits and the only insurance is a $25,000 uninsured motorist policy which limits have been tendered. The plan demands the whole $25,000. They filed a motion for the same. Their plan language says their "first priority" and what they are entitled to regardless of "made whole." Any thoughts on how to get my client something while, the plan, without doing anything to recoup its losses in regard to the liability claim now just demands every penny of the settlement?
Thank you.
Answer: First and foremost, the status funding of the plan needs to be determined. Generally the language of the Summary Plan Description and the Form 5500 and corresponding schedule A(s) are used to determine the funding status. These documents and other plan document information can be requested from both the employer and insurer or third party administrator.
If self-funded, then ERISA would pre-empt state law under section 1003(a). Thus we would look to the seventh circuit. Possible defenses…
1. Specific Fund Doctrine
a. Party must be seeking to impose constructive trust or equitable lien on specifically identifiable property rather than attempting to impose personal liability
i. Ask two questions regarding the PLAN language
b. Does it specify that plan recover specifically from settlement award?
c. Does it specify that plan can recover only up to amount paid?
ii. If no, it is likely that the lien unenforceable
2. Made Whole Doctrine (7th circuit is default jurisdiction)
a. Thus doctrine may be abrogated by clear and unambiguous language. Plan’s language that you note seems to do this.
b. No help here.
3. Common Fund Doctrine (plan’s recovery is reduced so it bears proportion of attorneys fees and costs)
a. Common fund doctrine applies in seventh circuit unless plan specifically provides that beneficiary is responsible for all attorney’s fees. 338 F.3d 680
b. The first priority language may overcome this argument but worth a try.
c. Reduce demand by % of fees.
4. Other
a. Does the plan limit recovery to settlement amounts allocated for medical expense? If so what amount was allocated for medical expenses?
If insured, then state law defenses would be available under section 1144(b)(2)(A). Under Wisconsin…
1. Made whole doctrine
a.
May be abrogated by plan language – that is the case here. No help.
2. Common Fund Doctrine
a. Applies if:
i. Money recovered solely by efforts of attorney
ii. Notice given that action commenced and reasonable fee requested
iii. And carrier does not become party to action1. 162 Wis.2d 821
3. Specific Fund
a. See above
4. Uninsured Motorist Coverage
a. Depending on the language of the plan, the carrier may or may not be able to subrogate itself against the UM carrier.
I hope you find this response helpful in addressing your client’s situation. Although, we are unable to make a definite determination at this time we would be happy to provide a full evaluation if you could provide us with the information above. Please let me know if you have any questions and please let me know how we can provide further assistance. Thank you and I look forward to your response.
My Best.
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