Compliance March 11, 2002

Supreme Court To Weigh in On Reimbursement Recoveries

November 27, 2000 (PLANSPONSOR.com) - In an issue of critical interest to plan sponsors, the US Supreme Court has decided to weigh in on whether an employee benefit plan can sue to recover medical expenses paid to a worker - who later recovers those same expenses from a third party.

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editors@plansponsor.com

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The nation’s highest court today, without comment, agreed to hear an appeal from Reynolds Metals, which was acquired earlier this year by Alcoa.

Case History

The case arose from a 1994 car crash near Merced, California that left Reynolds employee Robert Ellis a paraplegic and killed his wife. The company’s health-care plan paid Ellis’ medical expenses, which exceeded $560,000.

Ellis later sued the driver of the vehicle that struck his car, reaching a settlement in 1997. According to Dow Jones, court papers indicate the recovery exceeded the amount Reynolds paid for the medical expenses.

Citing the reimbursement provision in its medical plan, Reynolds asked Ellis to return the benefit payments. When he refused, Reynolds filed suit in federal district court in Los Angeles seeking to enforce the provisions of its plan.

A district judge, however, dismissed the case in a ruling upheld earlier this year by the San Francisco-based Ninth U.S. Circuit Court of Appeals.

However, in its Supreme Court appeal, Reynolds claimed the Ninth Circuit decision was at odds with three other U.S. appellate courts that have considered the issue.

Strange Allies

Reynolds’s appeal was backed by the Central States, Southeast and Southwest Areas Health and Welfare Fund, a union benefit plan covering more than 300,000 people in 36 states. The fund said its reimbursement program has saved it some $62 million since 1984.

In addition, the Clinton administration also urged the justices to tackle the case – saying the issue was of “substantial importance” in its impact on “the ability of plan fiduciaries to recoup significant amounts of money on behalf of employee benefit trust funds.”

Attorneys for Ellis claimed that the Ninth Circuit was correct, arguing that ERISA doesn’t contemplate lawsuits such as the one filed by Reynolds. Relying on a previous ruling, the court held that a lawsuit seeking restitution must demonstrate wrongdoing by the person who received the benefit.

The case, Reynolds Metals vs. Ellis, 99-1787, will likely be argued early next year.

– Nevin Adams editors@plansponsor.com