Strict ERISA Read Results in No Benefit Reimbursement

January 11, 2002 ( - In a decision split along ideological lines, the US Supreme Court has barred the reimbursement of health benefit costs from a subsequent tort recovery.

The nation’s high court ruled 5-4 in favor of a woman embroiled in a suit brought against them by the health insurer Great West Life & Annuity Insurance Co, finding that defendant Janette Knudson could not be forced to repay Great West nearly $400,000 for covering the medical work she received on injuries she sustained from a car accident.


When Knudson was injured, the health plan of Earth Systems, Inc., the employer of her ex-husband Eric Knudson, covered exactly $411,157.11 of her medical expenses. However, Great-West Life paid most of this sum.

At the time, Earth Systems? plan included a reimbursement provision enabling it to recover from a beneficiary any payment for benefits paid by the plan that the beneficiary was entitled to recover from a third party. Also, Earth Systems had a separate agreement assigning Great-West the Plan?s rights to any reimbursement provision claim.

Court ‘Costs’ 

In separate litigation, the Knudsons sought damages from the manufacturer of their car and others, eventually negotiating a settlement of roughly $650,000 ? eventually allocating the bulk of their recovery to attorney?s fees and to a trust for Mrs. Knudson?s medical care. The settlement designated some $14,000 as the portion of the settlement attributable to past medical expenses. The Knudsons turned that amount over to Great-West?s in accordance with the reimbursement agreement.

The state court approved the settlement and then ordered the Knudsons to pay the trust amount directly and the remainder their attorney, who would then remit payment to Great-West and other creditors. However, instead of cashing its check, Great-West filed a suit under ERISA to enforce the Plan?s reimbursement provision by requiring the Knudsons to pay the plan the entire $411,157.11 from their private settlement with the manufacturer of their car.

The District Court granted the Knudsons summary judgment, stating that the terms of the Plan limited its right of reimbursement to the $14,000 determined by the state court. The appeals court supported the decision, but on different grounds, ruling that the recovery sought by Great West was not the equitable relief permitted under ERISA 502(a)(3).

‘Equitable’ Decision

The US Supreme Court was similarly persuaded, citing Mertens v. Hewitt Associates, where the high court ruled the ‘equitable relief’ granted by ERISA’s Section 502 included only those types ‘typically available in equity.’ Here the majority ruled that Great West’s suit was essentially trying to use ERISA to establish a right to recovery that was not available. ERISA’s Section 502 authorizes actions that correct violations or enforce provisions of the terms of the plan.

The majority held that the terms of the Knudson’s recovery did not create a violation of the ‘right of recovery’ clause. The majority also noted that the disbursements from the settlement were not in the Knudson’s possession ? with most of it being paid to the “Special Needs Trust’ set up for Ms. Knudson’s care.

Distinct Differences

Justice Ginsburg, writing for the dissent, called the law/equity distinctions ‘an ancient classification’. Justice Stevens, also in dissent, classified the majority’s parsing as ‘an obsolete distinction.’

Justice Scalia, who wrote for the majority, responded ‘Like it or not?that classification and distinction has been specified by the statute?’

Chief Justice William H. Rehnquist as well as Justices O’Conner, Kennedy and Thomas joined Scalia in the majority. Joining Justice Ginsburg in the dissent were Justices Stevens, Souter and Breyer.