The Right of Remibursement for Self-Funded ERISA Plans
The general rule in Missouri is that health insurance plans are prohibited from being reimbursed from car accident settlements. State law prohibits the assignment of a personal injury claim to third parties. This effectively prevents health insurance carriers from having a lien against the proceeds of a car accident settlement.
The exception to this general rule is for Self-Funded ERISA plans. These plans have a right to be reimbursed if the plan language indicates such a right. What is an ERISA Plan? ERISA stands for Employee Retirement Income Security Act of 1974. Self-funded ERISA plans are sponsored by an employer that has a common fund dedicated to paying the medical expenses of their employees. This fund is typically administered by an insurance company, even though it is funded by the employees themselves.
These plans have a very strong claim for reimbursement, rooted in federal case law, on the medical bills they pay on behalf of beneficiaries that are later the subject of personal injury settlements. These claims are enforceable through an “equitable lien by agreement.” Sereboff v. Mid Atl. Med. Servs., 126 S. Ct. 1869 (U.S. 2006). This means that they do not have to submit a lien like medical providers generally do in Missouri. They are also not subject to the Missouri medical provider lien law.
If the plan contains language providing for the plan to be reimbursed, it may be entitled to priority reimbursement over an injured party in regard to a settlement. Such a strong claim may, in some instances, take the entire recovery away from the injury party. This means that the plaintiff’s personal injury lawyer must be very proactive working with the plan to ensure their client doesn’t end up with nothing. It is doubtful any client wishes for their lawyer to inadvertently end up serving as a debt collector for the plan.
Personal injury lawyers must be incredibly careful when navigating client settlements around ERISA plans. Unlike medical provider liens rooted in state law, ERISA plans cannot sue tortfeasors and their liability insurers for a recovery. Federal courts have ruled that ERISA creates reimbursement rights, not subrogation rights, for the plans. Plans can usually only obtain reimbursement through a recovery by a participant or beneficiary.
What does this mean for car accident cases? If medical bills are paid by a health plan obtained through a private employer, the health plan is “self-funded,” and the plain language of the plan requires reimbursement; this will generally be honored by a federal court. There are different ways to find out if the plan is self-funded, which will not be addressed here, but the simplest way is to ask the plan for proof at the onset of communication with them.
The plan’s equitable lien by agreement is created as soon as a settlement or judgment recovery is in the attorney’s actual or constructive possession. Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 363.
What happens if the client asks the attorney to pay them their portion of the settlement and ignore the plan’s interest? This was the subject of the seminal 2016 court case Montanile vs. Board of Trustees of Nat. Elevator Industry Health Benefit Plan. Montanile was seriously injured by a drunk driver. His ERISA plan paid more than $120,000 for his medical expenses. Montanile later sued the driver who caused the accident and obtained a $500,000 settlement. The plan sought reimbursement from the settlement. At the direction of his client, Montanile’s attorney refused the plan’s request for reimbursement and informed the plan that the fund would be transferred from a client trust account to Montanile unless the plan objected. The board did not respond, so Montanile’s attorney issued the settlement. Montanile then used the settlement funds to pay off various items. Six months later, the plan sued Montanile to recover the benefits. The plan sought a lien on Montanile’s assets, some of which may have been paid off from the settlement.
The Supreme Court held that healthcare plan fiduciaries cannot demand reimbursement of medical benefits from a plan member’s general assets if the beneficiary’s general assets cannot be traced back to the original payment from the fiduciary. Montanile v. Board of Trustees of Nat. Elevator Industry Health Benefit Plan, 577 U.S. ___ (2016). When an ERISA-plan participant wholly dissipates a third-party settlement on nontraceable items, the plan fiduciary may not bring suit to attach to the participant’s separate assets.
Does this mean that a beneficiary may obtain a settlement, spend the entire settlement on “non-traceable items,” and thereby avoid paying the plan’s equitable lien? Montanile suggests that this may be the case, however the specific facts of that case may have guided the court’s decision. As a plaintiff’s lawyer, I would not suggest any of my clients take such an action.
There are many risks for a plaintiff’s lawyer when navigating the consequences of the plan’s interest. After a settlement is in hand, the federal courts dictate the legal consequences a lawyer could face, and the Rules of Professional Conduct dictate the ethical consequences.
Disbursement without dealing with a valid lien subjects attorney to possible ethics violations in the Rules of Professional Conduct and the ethical commentary regarding liens and moneys held in trust.
The Missouri Rules for Professional Conduct address trust accounts and property of others in Rule 4-1.15(e). Comment  under this rule leaves the attorney with no choice but to hold the settlement in trust until the ERISA lien amount is either negotiated or finalized. The comment states “when the third-party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client until the claims are resolved…when there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute.”
An eighth circuit decision from 2012 established the precedent that suggests personal injury lawyers may not be held personally liable by the plan, although the court’s ruling was somewhat fact specific, suggesting a lawyer could still face liability given the right circumstances. In Treas., Trustees of Drury Industries, Inc. Health Care Plan and Trust v. Goding, 692 F.3d 888 (8th Cir. 2012), Goding, a plan participant, received benefits under Drury’s health care plan after an accident; the Plan contained an express subrogation agreement.
During the course of Goding’s litigation to collect damages for the accident, Godin’s attorneys repeatedly acknowledged the Plan’s subrogation rights in emails. Goding settled his lawsuit, and his attorneys initially held in escrow funds necessary to reimburse the Plan, but then disbursed them to Godin at Godin’s request. The Plan was unable to obtain reimbursement from Goding after he declared bankruptcy. The Plan then sued Goding’s attorneys, asserting various theories, including equitable lien, restitution and constructive trust.
The Court held that a subrogation agreement between a client and an ERISA plan is only enforceable against a client’s attorney if the attorney agrees with a client and a plan to honor the plan’s subrogation right.
Goding’s attorneys had sent two letters to the Plan. The first said: “This will confirm that we do acknowledge Drury Inns, Inc.’s lien in this matter.” The second said: “we are not challenging your right to reimbursement/subrogation for payments made for the health care of Sean Goding relating [sic] the injuries caused by his fall at the Hilton.”
The Court held that these statements were insufficient to bind the attorneys to the subrogation agreement, holding: “These statements clearly acknowledge the validity and existence of a subrogation agreement between Goding and Drury. However, absent from these statements or any other communication identified by Drury is a promise by [the attorneys] to take any action to himself enforce the subrogation agreement or even to ensure that Goding abide by it.”
The Court also held that the Plan did not have an equitable remedy against the attorneys either, because equitable restitution is available only where a trustee wrongfully disposed of property but is still in possession of the property or its product. Here, even if the attorneys wrongfully disposed of the property at issue because they no longer had possession of any money or property in which the Plan claimed an interest, the Plan’s claim was legal, not equitable, in nature.
While Goding may be interpreted as helping plaintiff’s lawyers escape liability, it also can be viewed as a limited ruling as the lawyer only acknowledged existence of plan reimbursement right and did not sign anything saying they will honor this right.
In practice, many plans now delay payment of benefits (i.e. short term disability or the medical bill payments themselves) until the participant and their attorney sign a document expressly agreeing to honor this reimbursement right. Most clients want their attorney to sign this immediately so that they will receive the benefits they are entitled to, despite the potential pitfalls that may later arise.
In my view, the next time the court takes up this issue, it will have to decide whether the lawyer assumes contractual liability to the plan by virtue of signing this document for their client. The court in Goding did not have to decide that issue as the plaintiff’s lawyer only acknowledged existence of reimbursement rights without promising to see that it was enforced. I am sure many plaintiff’s lawyers will have an interest in seeing that the court rule no contractual liability exists, especially if the lawyer only signs said agreement at the direction of their client. It seems that while no court constructed equitable remedy may be used to go after lawyers, a contractual obligation very likely could be imposed if such a document is signed at their client’s behest.