Supremes Get Second Chance on Reimbursement Recovery Issue

January 23, 2001 ( - The U.S. Supreme Court has agreed to consider if a health insurance plan can sue under ERISA for a recovery of benefits paid to a plan participant who later recovered damages from another party.

It’s the second time in recent months that the nation’s highest court has agreed to consider the issue, which could have a serious impact on health care insurance costs.

The Supreme Court had agreed last November  to review a Ninth Circuit case raising the same reimbursement issue in Reynolds Metals Co. v. Ellis.  However, the company decided late last month to withdraw the case.

The Supreme Court granted certiori to consider the issues in Great-West Life & Annuity Ins. Co. v. Knudson, U.S., No. 99-1786 on January 22.

Case History

Last February, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment for Janette Knudson in an ERISA suit brought by Great-West Life & Annuity Insurance, Earth Systems Inc., and its health plan.  The court relied on its 1997 FMC Medical Plan v. Owens decision, which held that suits to enforce plan reimbursement provisions are not authorized under ERISA.

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, according to BNA.

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.

After Knudson was injured, her husband signed a right of recovery agreement that agreed to pay benefits without waiting for a final determination.

Nine “Lives”

A friend of the court brief filed by the US solicitor general in October argued that ERISA’s Section 502(a)(3) does allow suits to enforce reimbursement provisions.  However, the health plan’s petition for Supreme Court review is still pending in that case, also from the Ninth Circuit.

In their petition for Supreme Court review, Great-West, Earth Systems, and the health plan argued that the Ninth Circuit’s decisions in Knudson and Owens conflict with decisions by the Seventh, Eighth, and Eleventh circuits.

They also argued that the Ninth Circuit decision conflicts with the Supreme Court’s own decision in Mertens v. Hewitt Assocs., which held that Section 502(a)(3)’s reference to “appropriate equitable relief” did not rule out this kind of recovery.

The opposing brief claims that the parties were aware of the suit, yet failed to file as a party to that suit.  It also said that the state court ruled that Great-West was entitled to $13,829 – the part of the settlement related to the recovery for injury.

– Nevin Adams