ERISA & Non-ERISA Plan Language

Question
I have a non-ERISA policy. My client lives in Ohio, therefore, N. Buckeye v. Lawson applies with regard to plan reimbursement language and the make-whole doctrine. The pertinent language is as follows: "We will have the right to be reimbursed to the extent of benefits we paid for the illness or injury if the covered person subsequently receives any payment from any third party. The covered person shall promptly reimburse Golden Rule from the settlement, judgment or any payment received from any third party. We have a lien on all money received by a covered person in connection with the loss equal to the amount we have paid. We have a right to be reimbursed in full regardless of whether or not the covered person is fully compensated by any recovery received from any third party by settlement, judgment, or otherwise."

Does this language satisfy the Lawson requirements and trump the make-whole doctrine? If settlement funds are released to the client, which includes money for the lien, does an attorney in Ohio have any personal liability? I am aware of what Longaberger states for the ERISA plan. Thanks for your insight.

-Ohio Attorney

Answer
Thank you for the question. Before diving into the question, I want to emphasize one point of differentiation between an ERISA policy and a non-ERISA policy. Often we see the mistake of referring to self-funded Plans as "ERISA Plans" and insured Plans as "non-ERISA Plans." In reality, both insured Plans and self-funded Plans are both ERISA-covered. ERISA defines an employee welfare benefit plan as a plan, fund, or program; established or maintained; by an employer, an employee organization, or both through the purchase of insurance or otherwise, for the purpose of providing medical, surgical, or hospital care or benefits or benefits in the event of sickness, accident or disability, for its participants or their beneficiaries. The only exceptions are individual plans, government plans, and religious group plans. ERISA expressly preempts state laws insofar as they relate to employee benefit plans (29 U.S.C. 1144(a)). HOWEVER, under ERISA this preemption does not apply to those laws which regulate insurance, banking, or securities (29 USC 1144(b)(2)(A). This is known as the savings clause. Thus an insured plan which can be subject to state insurance law can still be considered to be an “ERISA” plan. Obviously, the policy in question here could be a government or individual policy and thus it would be “non-ERISA”.

With regard to the Lawson case, the Court held that “unless the terms of a subrogation agreement clearly and unambiguously provide otherwise” the made whole doctrine will apply. The Court essentially adopted the federal common law approach. The plan language cited in your question gives the plan to right to reimbursed regardless of whether the covered person is fully compensated. While this language differs from Lawson (irrespective of whether settlement reimburses for all injuries) it is similar if not clearer than the language in Lawson. An argument can always be made but it would seem the language in your case would satisfy the requirements of Lawson.

With regard to personal liability of the attorney there are several factors to consider. First and foremost, Ohio does not have an affirmative notice law which requires your client to notify the insurer. Secondly, Ohio has adopted ABA rule 1.15(e) which states “When in the course of representation a lawyer is in possession of funds or other property in which two or more persons, one of whom may be the lawyer, claim interests, the lawyer shall hold the funds or other property pursuant to division (a) of this rule until the dispute is resolved. The lawyer shall promptly distribute all portions of the funds or other property as to which the interests are not in dispute.” If you have received notice of the insurer’s interest this is certainly a consideration. Finally, an important aspect of the Longaberger case was the fact that ERISA controlled and thus the court did not really analyze the priority of the attorney’s fee lien in comparison with that of the health plan. If this a non-ERISA policy and state law applies then Ohio law would control the priority here.

As a final note, in cases where the insurer or plan has not put you on notice of their interest and funds are disbursed to a client, I would strongly recommend that before releasing funds you sit down with your client and explain to them any contractual consequences which arise from the language of the policy.

I hope you found the response helpful and please let me know if you have any follow up questions.

My Best,
Michael Russell