While it may seem boring to those who don’t deal with benefit plans on a daily basis, the Supreme Court’s recent decision in US Airways, Inc. v. McCutchen is somewhat important. The issues litigated in that case were whether two equitable defenses applied in the context of a health plan’s claim for reimbursement under ERISA Section 502(a)(3). With it, comes some further insight into defining plan terms and available remedies. This can be important for plan undergoing changes for PPACA compliance.
McCutchen was a participant in a self-funded ERISA health plan sponsored by US Airways. He was injured in an automobile accident and the plan paid his medical expenses. McCutchen subsequently recovered money from third parties, but refused to reimburse the plan claiming that (1) he should not have to reimburse the plan because he did not receive full recovery for his injuries and (2) the plan would be unjustly enriched if allowed to take full recovery without taking into account attorneys fees. The district court rejected these arguments and granted summary judgment to US Airways on the ground that the plan terms clearly provided for full reimbursement of medical expenses. The US Court of Appeals for the Third Circuit vacated the district court’s order, holding that an award of "appropriate equitable relief" under ERISA Section 502(a)(3) may be limited by equitable defenses and principles, including unjust enrichment.
The Supreme Court held that equitable defenses cannot override clear plan terms. However, equitable rules can be used to fill a gap where the plan is silent regarding an aspect of the reimbursement, especially for things like allocation of costs. In other words, equitable defense cannot override clear language in a plan…plan terms speak for themselves. So specific terms apply and if terms are missing, courts can fashion remedies based on equitable principles, even if the result is not what the plan sponsor intended.
So the lesson here is, for subrogation and reimbursement cases, health plans should make sure they have very specific subrogation and reimbursement language to avoid challenges on an equitable basis. But the broader concept is an affirmation that plan terms mean what they say. In a time when we are revising and redrafting plans to comply with PPACA, it is important to keep in mind that we have to say exactly what we mean. To avoid "equitable" interpretations of plan language, be specific and detailed. If you need help crafting specific plan language, you can always look to your attorneys at Fox Rothschild for assistance.