Timing of ERISA Notice?



Question: I settled a case about two weeks ago, but the release hasn't been signed and the money hasn't been distributed. I just received notice today from a self-funded ERISA plan of its claimed $289,000 subrogation lien – which amounts to about half of the overall settlement. Can I argue that the plan waived its reimbursement right since it sent notice after the settlement was reached?


Answer: We are not aware of any precedent holding that an ERISA plan’s notice post-settlement is fatal to its reimbursement claim. The lack of precedent is linked to the fact that the issuance of notice is largely procedurally irrelevant unless you are 1) the settling defendant or 2) you are dealing with a statutorily based private lien which mandates that the lien holder provide notice to perfect its lien (ex. state hospital liens). In most states a defendant will not be held liable for a subrogation claim (the health plan pursues the tortfeasor directly by stepping into the plan member’s shoes) where the defendant entered into a release with the plaintiff without knowledge of the subrogated interest.

For the plaintiff, the post-settlement notice is irrelevant for two principal reasons. First, it is more likely than not that the ERISA plan has a subrogation/reimbursement provision in its language that requires the plan member to notify the plan of any third party/injury claim. Therefore, the plan would contend that the duty of notification was on your client and that duty was ignored. Second, a plan’s right to reimbursement (as opposed to subrogation) doesn't come into existence until the plan member settles the underlying claim. An ERISA claim for reimbursement can only be for equitable relief and as such a claim cannot be made against a plan member’s general assets – the claim can only exist against the settlement proceeds. Prior to a settlement, a plan member has no obligation to make reimbursement to their health plan. As a result, the timing would favor the health plan. Also worth mentioning that the statute of limitations for an ERISA reimbursement claim is tied to state contract law, but doesn't run until the settlement proceeds are received.

Aside from the unhelpful procedural points above, there are a couple of practical points to consider. First, if a health plan failed to provide notice until after settlement AND after dissipation of funds they would largely be out of luck. I think they could legally make its ERISA claim (assuming the SOL hadn't run yet) however plan officials would realize that the funds were already gone and there wouldn't be any point in pursuing. Second, there is one case where an ERISA plan pursued the plan member’s counsel for its reimbursement claim but the claim was denied in part because the attorney was not on notice of the claim. See Mank v. Green, 368 F. Supp. 2d 102 (D. Me. 2005). Unfortunately, under the circumstances of your case as laid out below, these practical points may not be applicable.

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