Wednesday, October 28, 2009

Enforceable Liens that Involve ERISA

Posted by Michael Russell

Can a plan sue the personal injury attorney as a defendant for simply holding the settlement proceeds of a plan participant in their trust account to which the plan may have a lien? Also, what does a plan have to do to have an enforceable lien? If the plan pays benefits but does not have the participant sign a repayment agreement per the plan is the lien still enforceable and is that still ERISA or is it a contract claim?

With regard to your first question, there is nothing which prevents the plan from suing an attorney in such a situation. However, as the funds have not been disbursed to the client there is limited danger in such a scenario.

Regarding enforceability, it really depends upon the language of the plan (contractual right) or the state where your client resides (equitable right). If the language of the plan gives the plan a right to subrogation and/or enforcement then there is presumably an enforceable lien. Likewise, if there is no plan language but state case law recognizes that the insurer has an equitable right to subrogation then presumably there is an enforceable lien. For example in the state Illinois, the Supreme Court in a 1990 decision, decided that a health plan can only have a contractual right. In either case there are no formal steps for perfection which you may see with other liens.

Repayment or reimbursement agreements are common but by no means are they necessary to trigger enforceability. Again the plan language will dictate. I also have to point out that there is really no difference between an ERISA claim and a contract claim in such context. ERISA does not specifically provide for subrogation (no specific provision) but it does allow for appropriate equitable relief. See 29 USC 1132(a)(3). This relief is obtained through enforcing the terms of the plan which is itself a contract. The focus should be first on the plan language and second on the reimbursement agreement, if any.

I hope this email provided useful insightful in response to your inquiry. I am happy to discuss a particular case in more detail. Often ERISA cases are very fact specific and without more info it is hard to give a complete answer (and sometimes even with all the info a complete answer cannot be given).

Michael Russell