Follow up to post on 2/15/2010 - ERISA Employee Health Plan Language

Question
I appreciate your prompt and concise response. Thanks for the good information. However, it does raise many questions but one in particular that I am stuck on:

You say below that Sereboff holds in part that the Plan must “…………………2) specify that recovery must be limited to a specific portion of said fund.” Many plans I see now a day say that they are entitled to proceeds from a settlement or judgment on a third party matter no matter how that settlement or judgment is described. In other words, they are saying that if your plaintiff/their beneficiary have a PI claim against a third party and there is ANY recovery in that suit or claim, they are entitled to their money. Is there a case out there that says this second part is not met by the plan if the language in the plan is too broad as I have tried to describe above? Juries will sometimes not award all of the medical bills asserted ($40,000.00) and only award a small sum for those damages ($5,000) but give significant damages for pain and suffering ($25,000) and lost wages (25,000). In this type of scenario where the total recovery is $55,000 but only a small portion of the medical bills were recovered are they entitled to recover their entire payout?

Thanks for any input you can give on this.

Answer
That is great a question. First, with regard to the second prong of equitable remedy, there are not any cases which hold that because the plan seeks any and all recoveries it is not seeking a specific portion. Courts have held that this specific portion requirement applies to the amount sought rather than characterization of the recovery. For example, language stating that the plan seeks recovery “up to the amount of benefits paid” or for those “benefits paid” will meet the requirement. Although use of such broad language could arguably be challenged as not being appropriate and equitable such a challenge will not be applied to the equitable remedy requirements of Sereboff.

Second, if a plan’s language limits itself to recovery of medical expenses than such allocations can be useful in combating their reimbursement right. However, as you mention in your follow up, they often include broad and all encompassing rights. Unfortunately, in these situations even a court ordered allocation with regard to damages cannot prevent a plan’s recovery if they have an equitable lien and strong plan language. Allocation among individuals is a different story.

Michael Russell