Supreme Court to Provide Clarification of Equitable Relief

December 2, 2005 ( - The US Supreme Court has agreed to review a case that will allow it to clarify the scope of "equitable relief" or reimbursement available to Employee Retirement Income Security Act ( ERISA) plan fiduciaries when plan participants recover payments for health expenses from third parties.

Thompson reports that the Supreme Court will re-evaluate whether the   equitable relief criteria established by the US 4th  Circuit Court of Appeals (as  well as the 5th , 7 th and 10 th Circuits) are proper under ERISA.   It will also re-evaluate its own  earlier ruling in the Great West Life v. Knudson case.

In that case the US 9 th Circuit Court of Appeals affirmed summary judgment for Janette Knudson in an ERISA suit brought by Great West Life & Annuity Insurance, Earth Systems Inc., and its health plan.   Following a car accident that left Knudson paralyzed, the plan paid more than $400,000 in benefits for medical care.    She later recovered $650,000 in a settlement approved by a California court which attributed just $13,829 to past medical expenses.   The health plan included a “right of recovery” or “subrogation” provision entitling Earth Systems to recoup benefits paid to a beneficiary who recovers from a third party responsible for the expenses (See  Supremes Get Second Chance on Reimbursement Recovery Issue).   Knudson turned over the $13,829 to Great West.

In reviewing that case, the Supreme Court ruled 5-4 that 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.   The court noted that Knudson was not in possession of the money as some had been paid to her attorneys and the rest was put in a trust for her care (See  Strict ERISA Read Results in No Benefit Reimbursement).

The 4 th Circuit case is Sereboff v. Mid Atlantic Medical Services, LLC, cert. granted, 05-260 (S.Ct., Nov.28, 2005).   According to Thompson the 4 th Circuit, which upheld reimbursement to the plan, said such a  recovery should be considered appropriate equitable relief where the funds   are specifically identifiable, belong in good conscience to the fiduciary   and are within the possession and control of the plan participant.

That decision contrasts with rulings by the 9 th and 6 th Circuits, which have held that a fiduciary’s subrogation right to   reimbursement from a plan beneficiary who has received payments from a third   party is legal in nature, regardless of whether the beneficiary has   possession of the identifiable funds.    The Supreme Court will review the  conflict among the circuits.

The Supreme Court will also consider that the 4 th  Circuit said that a plan can recover its own legal fees at a   district court’s discretion, but that in this case the lower court failed to make   the specific findings that justify such an award.    It also upheld a pro-rata  reduction in the plan’s subrogation recovery on account of the plan   participant’s attorney’s fees and plan provisions.