Friday, March 20, 2009

The Common Fund Doctrine, ERISA case, Stop Loss Policy

Posted by Matthew Garretson and Elizabeth Vish Schad

1)What jurisdictions recognize the Common Fund Doctrine?
2) What if you have provided an ERISA plan with written notice of your involvement in a case and they have failed to respond? In my case it has been over 30 days-can you disburse funds directly to a client without accounting for their purported lien or subrogation interest?
3) Please define a Stop Loss policy and give me a list of the companies who write these policies?

-Recent Seminar Attendee

The Common Fund Doctrine is the default rule. Every circuit essentially applies the default rule except the 5th. With respect to notice to the plan, their rights are controlled by contract, so their failure to respond is not that harmful to them (assuming they have good language]. Under 29 U.S.C. 1024 and 1132, they have to provide it to you within 30 days. So demand a copy for the year of injury along with ALL attached schedule A’s. It’s very important to request these documents because failure to produce can result in them facing penalties.

Under the terms of ERISA, the plan administrator must provide the beneficiary with a copy of the SPD upon written request. Any administrator which fails to comply with the request in a timely manner risks incurring a penalty of $100 for each day the SPD is not delivered to the beneficiary. Thus, as soon as notice is received of a potential lien, the attorney should immediately issue a written request for this document, along with the Form 5500, to the plan administrator.

Regarding Stop Loss, we don’t have a list. Below is some info:
Stop-loss contracts are not covered by ERISA. While a self-funded plan remains “self-funded” even if it buys stop loss insurance, that insurance coverage is subject to state law and state regulation. Don’t let a stop-loss provider itself convince you that they’re grounded in ERISA – they’re not! Only the ERISA plan is – they are two separate entities.

Always make sure that the ERISA plan is involved in any stop-loss reimbursement issue. They must take part and release their subrogation claim. Stop-loss carriers then typically have to get reimbursed by the ERISA plan, since they’re the ones who have the contract.
• When a stop-loss insurer gets involved, they create a contract with the ERISA plan – but not with your client.
• Most, if not all, stop-loss policies actually disavow any legal relationship with the client.
• But when it suddenly suits the stop-loss carrier – like, say, when they stand to gain financially – they will try to assert a contractual claim against your client’s settlement and cloak themselves in ERISA and try to assert a lien.
• But don’t be fooled – there is no contract between your client and the stop-loss carrier.
• Make sure you get a copy of BOTH the stop loss policy and the SPD (which I discussed above) and see exactly what rights the stop-loss carrier has and doesn’t have – then stick to your guns.
• Stop-loss carriers love to claim that they have the same rights as the plan. Make them provide you with some authority that says so – you might be surprised at how desperate they become.
• The ERISA plan MUST be on board with any reimbursement right. If a stop-loss carrier is trying to recover independent of the ERISA plan, that’s a RED FLAG!