Supreme Court to Revisit Reimbursement of Benefits Issue

June 28, 2012 ( - The U.S. Supreme Court agreed to determine whether an employee benefits plan is subject to equitable limitations when it demands reimbursement of benefits paid to a covered employee who recovers money from third parties.

In 2006, the high court upheld a decision by the 4th U.S. Circuit Court of Appeals which said that under certain circumstances health plan fiduciaries could be reimbursed from a participant who had recovered damages from a third party (see “High Court Approves ERISA’s Equitable Relief Provisions”). However, in another case from the 9th Circuit, the court ruled a health plan participant could not be forced to repay a provider nearly $400,000 for covering the medical work she received on injuries she sustained from a car accident, because she 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 “Supreme Court to Provide Clarification of Equitable Relief”).  

In the current case, James McCutchen, a 51-year-old US Airways employee, was seriously injured in an automobile accident when a young driver lost control of her vehicle and struck the car he was driving, Courthouse News Service reports. US Airways, through its Employee Retirement Income Security Act (ERISA) benefits plan, paid $66,866 to cover McCutchen’s medical expenses.  

McCutchen sued the driver that caused the accident, settling the case for $10,000. Then, at his lawyers’ assistance, he and his wife received another $100,000 in underinsured motorist coverage for a total third-party recovery of $110,000. After paying a 40% contingency attorney’s fee and expenses, McCutchen’s net recovery was less than $66,000. 

US Airways sought reimbursement for the entire $66,866. McCutchen's attorneys responded by placing $41,500 in trust anticipating a potential reimbursement, but when McCutchen did not pay, the airline, as administrator of the plan, sued. 

According to Courthouse News Service, US Airways claims the language in its benefits plan permits it to recoup the $66,866 it provided for McCutchen's medical care out of the total he recovered, regardless of his legal costs. However, McCutchen contends this would be unfair and inequitable because US Airways, which made no contribution to his attorneys' fees and expenses, would be unjustly enriched if it were now permitted to recover from him without any allowance for those costs.  

A district court rejected McCutchen's arguments, granted summary judgment to US Airways and ordered McCutchen to sign over the $41,500 in trust and pay the plan $25,366 from his own funds. 

On appeal, the 3rd U.S. Circuit Court of Appeals concluded that U.S. Airways' claim for reimbursement is subject to equitable limitations, and vacated the district court's judgment, remanding the case for further proceedings.