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Supreme Court Says No Subrogation Claims from Health Plan After Participant Spends Settlement

    Client Alerts
  • February 08, 2016

On January 20, the Supreme Court released its decision in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, concluding that although health plan fiduciaries can generally seek subrogation from plan participants who receive settlement funds from third parties, these claims can no longer be filed once a participant has spent the settlement funds on non-traceable items.

In general, when a participant in a health plan is injured by a third party, the participant can still obtain benefits from the health plan to cover medical expenses. In the event the participant later recovers certain amounts from the third party, a subrogation clause inserted in the health plan will generally require the participant to reimburse the plan to the extent of that recovery. If a participant does not reimburse the plan, Section 502(a)(3) of ERISA authorizes plan fiduciaries to file suit “to obtain … appropriate equitable relief … to enforce … the terms of the plan.”

In this case, after the plan paid for the participant’s medical expenses, the defendant obtained a settlement from the third party responsible for his injuries but failed to reimburse the plan. The plan fiduciaries then sought an equitable lien on the settlement proceeds. However, the participant had already spent these amounts. The Supreme Court held that under a literal reading of ERISA Section 502(a)(3), a lien could not attach to the general assets of the participants because such a lien is not an equitable remedy.

In light of the Supreme Court’s holding in this case and because the pursuit of reimbursements to the plan based on subrogation is a fiduciary act, plan fiduciaries should carefully monitor lawsuits filed by plan participants against third parties, and promptly act to recover any amounts owed to the plan. Coordination with service providers or other third-party administrators with respect to the plan may be necessary. As this case demonstrates delaying subrogation efforts can result in a loss of the health plan’s ability to recover such amounts.