ERISA Liens in the post-Shank Landscape

Posted by Matthew Garretson

Question:
As to the stop-loss, if there is an ERISA "self-funded" lien up to $50k for example, then an insurance carrier pays $100k for the P, there is only a "self-funded" lien up to $50k?

Answer:
That’s a valid argument, but one that’s relatively untested in the courts. If you argue that the plan should only be entitled to the self-funded portion, they will likely respond that 1) even though the plan may have been reimbursed by a stop-loss carrier, the plan still made the initial payment, and 2) the plan has reimbursement obligations of its own to the stop-loss carrier based upon the stop-loss contract.

Question:
Is my firm or client liable for reimbursement of any amount over $70,000 involving a self-funded ERISA lien if the Plan has stop-loss coverage that attaches at $70,000? Can I make a "made whole" argument against the stop loss carrier even though the Plan itself is self-funded? Or, can I argue that the plan is "double-dipping" by being paid out of the settlement proceeds as well as being paid by the stop-loss carrier?

Answer:
You can make that argument, although the plan will likely claim that it is not “double-dipping” because it has reimbursement obligations to the stop-loss carrier. Moreover, the way that stop-loss insurance should work would also work against you. Even with stop loss, the plan itself should be issuing the payments above $70k – but then it is reimbursed by the stop-loss carrier. As such, the plan could still claim that it made the full payments itself, and is entitled to a lien for the full amount. Then, the plan would have to satisfy any reimbursement obligations of its own out of the full lien amount. This is actually how stop-loss reimbursement should work – the plan should collect the lien from you and then turn around and repay the stop-loss insurer on its own. Unfortunately, many stop-loss insurers like to skip the plan and come after you directly when they have no legal relationship with your client. This is the possibility discussed in the presentation.

Question:
Does ERISA have any effect on employer long term disability liens, or only on healthcare liens?

Answer:
Good question. ERISA affects essentially all private employee benefits, including disability, health, dental, pension, profit-sharing, etc. So it will impact disability liens. However, those liens are still subject to ERISA’s requirements discussed in the presentation (e.g. the “specific fund” doctrine and “made whole” doctrine, etc.)

Question:
What is the statute of Limitations for collection of ERISA liens?

Answer:
There is no specific statute of limitations within ERISA itself for lien enforcement. As such, most courts apply the contract statute of limitations from the applicable state. See Harrison v. Digital Health Plan, 183 F.3d 1235 (11th Cir. 1999) as an example.

Question:
This thought just occurred to me. Since every litigant has a "property right" in whatever claims or causes of action he/she possesses, and ERISA is now interpreted/designed to allow the Plan, in certain circumstances, to effectively destroy this "property right," take ALL the money and give no compensation to the beneficiary or his attorney, why, then, would the ERISA "appropriate equitable relief" clause not be Unconstitutional as it violates the "takings clause" - taking private property (the beneficiaries' property right to recovery) for public use (for the benefit of the entire plan) without just compensation?

Answer:
An interesting thought. However, the principle of ERISA reimbursement, especially under Sereboff, is that whatever portion of the settlement is needed to satisfy a valid ERISA lien doesn’t actually belong to the plaintiff and isn’t a part of their damage – it belongs to the ERISA plan itself. Sereboff states that where an ERISA plan has sufficient language to enforce a valid lien, it creates an “equitable lien by agreement” and “constructive trust.” Relying upon an older case involving equitable principles, the Court invoked “the familiar rul[e] of equity that a contract to convey a specific object even before it is acquired will make the contractor a trustee as soon as he gets a title to the thing.” Sereboff, 547 U.S. 356, *363-364. Thus, I believe that a court would conclude that an ERISA plan isn’t depriving the plaintiff of his or her property rights, but merely enforcing its own.

Question:
What if it’s a self funded plan but administered by an insurance company?

Answer:
This is known as an “administrative services only” or “ASO” arrangement, and does not change the plan’s funding status. Many self-funded plans are managed in this way, and they are still considered self-funded under the law.

Question:
If the plan does not provide notice prior to settlement, can you avoid future subrogation by distributing the settlement and encouraging the client to spend the money immediately or commingle it with other assets so that there is no identifiable res to enforce the lien against?

Answer:
First, I would probably counsel against advising the client to actively seek to subvert lien enforcement – it smacks of bad faith and could lead to direct liability against you. See Great West v. Smith, 180 F.Supp.2d 1311 (M.D.Fla. 2002); Greenwood Mills, Inc. v. Burris, 130 F.Supp.2d. 949 (M.D.Tenn. 2001). So I would simply disburse the funds to the client, and if a potential lien might be out there, educate the client about the possibility that a lienholder may pop-up and that it will be the client’s responsibility to address any asserted liens.

Moreover, disbursing the funds certainly makes lien enforcement more difficult, but it probably doesn’t make it impossible. I would certainly argue that the settlement funds are gone and there’s no right to recovery, but it’s not absolute. Sereboff states that although there must be an identifiable fund, there is no strict tracing requirement. An ERISA plan can simply argue that despite the comingling of the funds, the identifiable fund did exist at one time and still remains in the client’s possession, so some reimbursement obligation might still exist. Several courts have found this to be true.

Question:
How do you identify a stop-loss carrier?

Answer:
Demand information on the role of the lienholder and its relationship to the plan.

Question:
The special needs trust in Shank was named as a defendant? (I don't see it in the caption). Is that how you distinguish Shank from Knudson?

Answer:
Yes, it was named as a defendant, and yes that is how it was distinguishable. An ERISA plan must pursue the settlement funds, so if they are being held in a trust, the trust must be named.
Question:
If a plan requires money from third party settlement and settlement is from UM carrier (first party benefits), does the ERISA plan get money back?

Answer:
Typically, yes. An ERISA plan may pursue UM and UIM benefits as well, so long as it contains the proper language. See Primax Recoveries Inc., v. Young, 83 Fed.Appx. 523 (4th Cir. 2003).

Question:
Can a valid ERISA plan sue the tortfeasor directly for its payments, or must it always get its money from the settlement funds?

Answer:
An ERISA plan can sue the tortfeasor directly as a real party in interest.

Question:
What was the cite re: state law applies to insured ERISA plans - FMC vs. ????. Also, I thought you said "state insurance code" - but state case law would apply as well, correct?

Answer:
FMC Corp. v. Holliday 498 U.S. 52 (1990). And yes, case law would also be applicable. Any and all laws regulating insurance.

Question:
If you have an insured ERISA plan in Washington state and state law applies, will the state made whole rule trump clear plan language to the contrary?

Answer:
Yes, because Washington (I believe) has an absolute made whole rule that applies regardless of plan language. But I also believe that Washington’s made whole rule is unique in that it also deals with issues of prejudicing a lienholder’s claim, so I would probably look at that particular rule closely when seeking to apply it.

Question:
At what point in the process of handling a case can you rely on the amount stated in the lien letter from Medicare?

Answer:
Unfortunately, the only number that is binding on Medicare is the final demand, which they will not produce until after settlement (they keep the meter running until then, so to speak). This simply means that when dealing with a Medicare lien, you need to start early and establish a dialogue, providing the caseworker with everything he or she needs to be as accurate as possible in the conditional payment summaries (the numbers they provide before settlement). Also, cross-check that number with the medical bills that you’re aware of – if some bills are missing from the conditional payment summary, then anticipate that the lien amount will grow as Medicare discovers those charges. But to really play it safe, I would calculate the total medical bills and plan as though that entire amount needs to be reserved for Medicare’s lien (although the lien most likely won’t be that large) to make sure that you’re not running afoul of any obligations to Medicare. Finally, always keep the client educated as to their obligations and yours when it comes to Medicare.

Question:
The Plan requires that the member and attorney sign a lien BEFORE any medical benefits are paid. The Plan then says we have a lien and therefore the Make Whole does not apply. (9th Cir.)

Answer:
ERISA plans can do this – requiring that both attorney and client sign a lien agreement. The plan can even condition the provision of injury-related benefits upon the signing of the agreement. If you have a lienholder using this approach, I would discuss the practical aspects of the case and the incentive for your client to settle if the lienholder is going to take it all under the agreement. Also, keep in mind that the agreement is still subject to the defenses discussed in the presentation.

Question:
Please re-explain importance of line 8 of the schedule A.

Answer:
Line 8 is where plans should (but don’t always) indicate what premiums have been paid for the subject insurance policy, and how much has been paid out in premiums. It makes it difficult for a plan to argue that it’s self-funded and that the other sections of the Form 5500 were filled out in error (which is a common excuse) because you have the amount, down to the dollar, that the plan paid for insurance. Something of a “smoking gun.”

Question:
On Derivative claims, (or any case) what happens if your suit does not seek reimbursement of the medical expenses? Made whole does not apply to self funded plans, correct?

Answer:
If your action doesn’t seek reimbursement of medical expenses, it probably doesn’t have any effect on the lien. Most ERISA plans have language granting them a lien on any settlement, regardless of how it may be characterized. However, if such language isn’t present in your particular case, you can try the argument. An interesting case that deals with this issue is Rhodia v. Bollinger out of the District of New Jersey (2008 WL 800502). It involved an ERISA claim in light of New Jersey’s modified collateral source rule which prohibited recovery of collateral sources. The district court reasoned that because the settlement didn’t contain any medical expenses, that they couldn’t be recovered by a lien. However, keep in mind that the decision was predicated on a strict collateral source rule, and is limited to New Jersey at this time. It is unlikely that other courts would universally reach the same result without a strong statutory directive as found in New Jersey, given the strength of ERISA lien rights – but it can certainly be argued if you have a difficult case.

Question:
Is exclusion in plan for coverage due to third party claim or lawsuit enforceable?

Answer:
Probably so. ERISA allows for liberal enforcement of plan terms. I would have a discussion with the plan administrator as to the plan’s intentions – especially if the client will need considerable care.

Question:
In Washington state, if the ERISA plan is an insured health plan and state law applies to the insurer, will the common law made whole doctrine in Thiringer trump clear plan language that says the made whole doctrine does not apply?

Answer:
Yes, an insured plan in Washington is always subject to the common fund doctrine regardless of its language.

Question:
How do you resolve removing a lien holder from a settlement check?

Answer:
Do your best to negotiate with the defendant to get the lienholder off the check. I know some attorneys who argue that placing a lienholder on the check is a violation of the settlement agreement, with some success.

Question:
Are plans provided to employees of a medical facility operated by a church group (such as Catholic Healthcare West) covered by ERISA?

Answer:
Maybe. ERISA doesn’t cover “church plans,” but whether a plan is a church plan is a fact-based question of 3 factors: (1) whether the religious institution plays an official role in the governance of the organization, (2) whether the organization receives assistance from the religious institution, and (3) whether a denominational requirement exists for any employee or patient/customer of the organization. See Chronister v. Baptist Health 442 F.3d 648 (8th Cir. 2006).

Question:
Are employer provided long term disability plans governed by ERISA? Or is LTD totally separate from employer based healthcare?

Answer:
LTD benefits provided by a private employer are covered by ERISA.

Question:
If the plan does not provide notice prior to settlement, can you avoid future subrogation by encouraging the client to spend the money immediately or by commingling it with other money and assets so that there is no identifiable res to enforce the lien against? What if the plan does provide notice prior to settlement? (I am in Missouri.)

Answer:
See answer to previous question on this subject:
Be aware that if the plan has provided notice of the lien prior to settlement (or at any time when you’re still involved), you DO NOT want to disburse the funds and encourage the client to spend the money quickly in order to avoid the lien. If you do, you might be directly liable to the plan. See Greenwood Mills, Inc. v. Burris, 130 F.Supp.2d. 949 (M.D.Tenn. 2001).
First, I would probably counsel against advising the client to actively seek to subvert lien enforcement – it smacks of bad faith and could lead to direct liability against you. See Great West v. Smith, 180 F.Supp.2d 1311 (M.D.Fla. 2002); Greenwood Mills, Inc. v. Burris, 130 F.Supp.2d. 949 (M.D.Tenn. 2001). So I would simply disburse the funds to the client, and if a potential lien might be out there, educate the client about the possibility that a lienholder may pop-up and that it will be the client’s responsibility to address any asserted liens.

Moreover, disbursing the funds certainly makes lien enforcement more difficult, but it probably doesn’t make it impossible. I would certainly argue that the settlement funds are gone and there’s no right to recovery, but it’s not absolute. Sereboff states that although there must be an identifiable fund, there is no strict tracing requirement. An ERISA plan can simply argue that despite the comingling of the funds, the identifiable fund did exist at one time and still remains in the client’s possession, so some reimbursement obligation might still exist. Several courts have found this to be true.

Question:
Are plans provided to employees of a medical facility operated by a church group (such as Catholic Healthcare West) covered by ERISA?

Answer:
Maybe. ERISA doesn’t cover “church plans,” but whether a plan is a church plan is a fact-based question of 3 factors: (1) whether the religious institution plays an official role in the governance of the organization, (2) whether the organization receives assistance from the religious institution, and (3) whether a denominational requirement exists for any employee or patient/customer of the organization. See Chronister v. Baptist Health 442 F.3d 648 (8th Cir. 2006).

Question:
I have a few questions related to a low liability limits, high medical expense case, and am having difficulty dealing with Ingenix on the lien. Ingenix claims the plan is self-funded, but refuses to provide a 5500. The SPD I was provided by my client's employer has a plan name and number not found on freeerisa.com.
1. Can a valid ERISA plan, which is claiming it is self-funded and is entitled to full recovery of its payments, sue the tortfeasor directly, or force the injured party to sue, in order to recover its payments?
2. Does the SPD have to have the correct plan name and number? In other words, does the name and plan number on the SPD have to correspond to the one(s) on freeerisa.com?
3. Is the best source for the 5500 always the plan administrator?

Answer:
1. The plan can sue the tortfeasor directly. The plan can’t directly force the client to sue or settle, but it may condition benefits upon the client’s cooperation with its lien efforts
2. Not really. There is no strict requirement as far as I know – plan numbers are just a mechanism to identify them quickly. Also, freeerisa.com hasn’t always been fastidious in its labeling of the plan information (you will find frequent spelling errors in an employer’s name as you search), but the Form 5500 documents, once you find them, should be accurate as they are pulled from the Department of Labor’s database.
3. If you can’t find it on freeerisa.com, then yes. The plan administrator is the only entity that has a statutory obligation to provide the Form 5500 to you. See 29 USC 1024.