This article was published in the Chicago Daily Law Bulletin on March 29, 2016.
By Mark D. DeBofsky
Mark D. DeBofsky is a name partner of DeBofsky, Sherman & Casciari, PC. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage, and Social Security law. He can be reached at email@example.com.
Reimbursement claims that health insurance plans assert against personal-injury recoveries frustrate the plaintiffs' bar and tie up the courts. A recent ruling from a federal court in Pennsylvania resolving the issues remaining following a Supreme Court remand is instructive in the manner it addressed some of the thorniest issues presented in such claims.
In U.S. Airways Inc. v. McCutchen, 2016 WL 1156778 (W.D. Pa., March 16, 2016), the court addressed a self-funded medical plan's efforts to seek reimbursement from a plan participant who incurred expenses under the plan and subsequently received a settlement in a third-party personal-injury claim.
James E. McCutchen recovered only $10,000 from the negligent driver who crossed the center line of a road and hit him head-on, resulting in severe injuries, because there were several parties injured (and one killed) in the accident. The driver at fault had only $100,000 in liability insurance coverage. But McCutchen received an additional $100,000 from his own automobile insurer, the limits of his coverage for underinsured motorist liability.
Based on reimbursement language in the plan's summary plan description, the U.S. District Court permitted the plan to recover reimbursement from the $110,000 in total payments McCutchen received.
Ultimately, the case was heard by the U.S. Supreme Court, which rejected an intermediate appellate court ruling that general equitable defenses might defeat the reimbursement claim altogether. However, the court did apply the common fund doctrine to reduce the reimbursement claim, recognizing the plan's responsibility to pay its proportional share of attorney fees incurred in generating the monies it sought to receive. U.S. Airways v. McCutchen, 133 S.Ct. 1537, 1551 (2013).
Following a remand from the Supreme Court, the district court addressed a number of undecided issues.
One issue left open had to do with the tardy filing of the governing plan document. The plan was not submitted until the case was already filed and pending before the high court; and the earlier proceedings were based on the plan's summary plan description.
However, unlike the summary plan description, the plan did not contain reimbursement language, nor did it entitle U.S. Airways to reimbursement out of monies received from McCutchen's own insurance company. Because of the late filing of the plan document, the Supreme Court did not address the discrepancy between the plan and the summary plan description.
On remand, though, the district court did so despite U.S. Airways' argument that the issue had been waived and the law of the case required the summary plan description terms to govern because the parties had treated the summary plan description as controlling in prior proceedings.
The court disagreed because both the plan and summary plan description contained disclaimers reciting that if there were any differences between the two documents, the plan language would govern.
Moreover, at the time the case was originally pending before the district court in 2010, the law was unsettled as to the authority of summary plan descriptions to create substantive rights and remedies. However, in 2011, the Supreme Court issued CIGNA Corp. v. Amara, 563 U.S. 421 (2011), which held that only the terms of a plan govern and found that summary plan description's terms in conflict with the terms of the plan are unenforceable.
Unless the plan itself incorporates the summary plan description or deems its terms enforceable, the court held the summary plan description cannot create rights and responsibilities binding on the parties. No such language was contained in either the U.S. Airways plan or its summary plan description, however.
The court then turned to the differences between subrogation and reimbursement since the benefit plan only permitted a right of subrogation. The court explained that subrogation "allows the carrier, once it has paid an insured's medical expenses, to recover directly from a third-party responsible for the insured's injury." (citing Empire Healthchoice Assurance Inc. v. McVeigh, 547 U.S. 677, 698 (2006)).
However, while permitting subrogation, the plan, unlike the summary plan description, did not explicitly require reimbursement of monies received from third parties or permit reimbursement out of funds received from the participant's own insurance company. The plan did reserve the right to assert a lien against any personal-injury recovery, though.
The lien language led the court to conclude that U.S Airways had the right to claim a lien over the $10,000 recovered from the driver who hit McCutchen. However, the court determined the plan lacked any language that would permit the assertion of a lien against the funds McCutchen recovered from his own insurance company.
And by applying the common fund doctrine, the plan's claim against the $10,000 had to be reduced by the fees and expenses incurred in the recovery of the $10,000.
This decision offers tremendous guidance to the personal-injury bar.
First and foremost, it reinforces the need for plan participants who are being asked to reimburse benefit plans to make an immediate written demand to the plan administrator for copies of all governing plan documents.
A summary plan description may sufficiently grant the plan the right to reimbursement, but as this decision points out, the summary plan description may not have independent power to impose additional obligations on plan participants.
The issue can only be resolved by carefully examining all of the plan documents. Moreover, if the governing plan documents are not produced on demand, the participant may also be able to recover penalties of up to $110 per day plus fees pursuant to 29 U.S.C. Section 1132(c).
Second, once the limits of the plan's rights are ascertained, the participant is in a position to determine how much, if any, reimbursement needs to be made and from which monies. The lesson of the Supreme Court's ruling in this matter is that if the plan is silent as to the applicability of the common fund doctrine, it is incorporated by default and any reimbursement payment must be reduced by the fees and costs incurred in generating the fund from which reimbursement is sought.
In addition, the governing plan documents will permit a determination as to which funds can be used as a source of reimbursement.
Here, most of McCutchen's recovery came from his own insurance company due to the severity of his injuries and limited liability insurance available from the driver who was responsible for the accident. Consequently, McCutchen had to utilize his own automobile insurance to recover an additional $100,000 of underinsured motorist coverage.
While the summary plan description permitted the plan to assert a reimbursement claim over the underinsured motorist payment, the plan itself did not, thus relieving McCutchen from any obligation to reimburse the plan from those funds.