Health Plan Cannot Recover Funds to be Placed in Special Needs Trust

July 26, 2007 ( - The U.S. District Court for the Eastern District of Pennsylvania has determined that a health insurer cannot challenge a settlement agreement that calls for funds to be placed in a special needs trust on behalf a child injured in a car accident, in order to receive reimbursement for medical expenses paid for the child.

In making its decision, the court compared the case to two similar cases decided on by the U.S. Supreme Court. In Sereboff v. Mid Atlantic Medical Services Inc. the high court ruled recovery by a health plan in cases where the insured receives funds from a third party should be considered appropriate “equitable relief” under the Employee Retirement Income Security Act (ERISA) where the funds are specifically identifiable, belong in good conscience to the fiduciary, and are within the possession and control of the plan participant (See High Court Approves ERISA’s Equitable Relief Provisions ).

However, the court ruled that in the current case, as in another case previously before the Supreme Court – Knudson v. Great West Life (See Supreme Court to Provide Clarification of Equitable Relief ) – the funds were not in possession of the participant or beneficiary since they were to go to a special needs trust on behalf of the child, and therefore were not recoverable by the health plan.

Aside from the issue of allowed recovery and possession of the funds, the court also found that ACS Recovery Services may have hurt its own ability to assert a claim for reimbursement by not following the terms of the plan. The plan called for participant Stephen Mills, the father of the child injured in the car accident, to first sign a reimbursement agreement before medical expenses would be paid. Mills was never presented with an agreement to sign, the opinion said.

The case was brought by the Mills family against London Grove Township in Pennsylvania and the owner of a property on which there was shrubbery the family claimed hid a stop sign at an intersection where they were injured in a car accident. Mrs. Mills was pregnant at the time of the accident and due to her injuries, had to deliver the baby prematurely by c-section.

A stroke at the time of birth caused the child, Grace Mills, to have cerebral palsy, for which she would need care for the rest of her life.

A settlement by all parties in the case called for $375,000 to be placed in a special needs trust on behalf of Grace Mills. ACS Recovery challenged the settlement in court, saying it was first due reimbursement of medical expenses paid for the child.

In the opinion, the district court judge said, “The net effect of the two cited Supreme Court opinions, as applied to the present case, is, in my view, as follows: the parties to this litigation have a right to settle their differences, and have done so. The only question before this court is whether the proposed settlement is fair to the minor. I conclude that it is. Nothing in the ERISA plan confers upon ACS Recovery Services a right to control the conduct of this litigation; it has no right to object to the proposed settlement.”

The opinion in Mills v. London Grove Township is here .