Most ERISA welfare benefit plans have provisions that allow the plan to recoup amounts of medical expenses it paid to participants or beneficiaries for injuries or illnesses caused by third parties (such as those sustained in automobile accidents), where the participant obtains a recovery from the third party.  Often, an ERISA plan member will argue that such reimbursement is not required unless the member was “made whole” by the third-party recovery, that is, where the recovery fully compensates the member for his or her injuries, after all deductions are made (including for attorneys’ fees).  Plans often draft around such arguments by requiring reimbursement regardless of whether the plan member was made whole. 

In Gold v. McCombs Enterprises Flexible Benefits Cafeteria Plan and Trust (W.D. Tex. Feb. 16, 2012) (Magistrate Judge’s Report and Recommendation) (pdf.), the ERISA plan at issue provided that the plan could reduce reimbursement pro rata, “if, and only if, the Plan, in its sole discretion, determines that the beneficiary cannot be made whole by the limits of all sources of recovery which are, were, or will be available to the beneficiary.”  Although the plan did not per se condition its reimbursement rights on the participant being “made whole,” the court assumed the “made whole” analysis was required.

Gold was injured in a car accident and the plan paid $142,418.34 in medical benefits relating to his injuries. Gold recovered $352,000 in insurance payments related to the accident.  The plan demanded reimbursement of the $142,418.34 out of the $352,000 recovery.  Gold sought a reduction in the reimbursement amount, arguing he was not “made whole” by the settlement.  The plan denied Gold’s request, and Gold appealed his claim pursuant to the plan’s claims and appeals procedures, being denied each time.  In support of his contention, Gold submitted medical records, a summary of expenses relating to his injuries, and his own estimate of a likely recovery (which he set at $1,785,000). 

After exhausting his appeals, Gold brought suit, alleging that the plan’s refusal to reduce its reimbursement amount was “arbitrary and capricious.”  The plan moved for summary judgment and the Magistrate Judge recommended granting the plan’s motion.  The plan made two arguments.  First, it argued that the plan language did not require it to perform a made whole analysis in the first place.  Second, the plan argued that, it did perform such an analysis, and its conclusions as to Gold were not “arbitrary and capricious.” 

The court assumed, without deciding, that the plan document required the plan to engage in a “made whole” analysis before requiring full reimbursement. But it agreed with the plan that it did not act arbitrarily in rejecting Gold’s assertion that he was not made whole.  The court found it was within the plan’s discretion not to credit Gold’s evidence on this point and its decision was not tainted by a conflict of interest.

Lessons Learned …

It is concerning that the court read into the plan the requirement that it perform a “made whole” analysis when the plan document did not so provide, but rather left to the plan the discretion to reduce reimbursement if it concluded that the participant was not made whole.  In light of Gold, plans should be reminded of the importance of clear language setting forth: (a) their discretion to seek reimbursement and (b) whether, how, and when the plan will engage in a “made whole” analysis.