Most self-funded ERISA medical plans provide that participants who have been injured by other people (think car accidents) must reimburse the plan if the participant recovers from the other person for those injuries. In order to obtain that reimbursement, a plan document must contain appropriate reimbursement/subrogation language and the plan must pay attention to the cause of injuries in order to make sure that it receives its share if the participant recovers money for the injuries.

The U.S. Supreme Court recently made it harder for plans to collect in those situations. In Montanile v. Board of Trustees of National Elevator Plan, the plan participant incurred over $100,000 in medical claims and recovered a $500,000 settlement. The participant’s attorney and the plan negotiated for reimbursement for the plan, but the negotiations fell through. The attorney then gave the plan 14 days’ notice that he planned to release the funds to the participant. The plan took no action but six months later sued the participant for reimbursement. Based on a technical reading of ERISA which allows only “equitable” remedies, the U.S. Supreme Court held that the plan could not recover amounts that the participant had already spent on services or non-durable goods. Under historic views of equity, general claims for money damages are not allowed.

Under this decision, employers must be diligent in monitoring possible third-party claims to protect the plan once the employer determines that there could be a third-party settlement. Failure to do so may jeopardize the plan’s ability to recover from settlement funds.

Note that the decision would apply not just to medical plan claims, but also to disability plan overpayments or even pension plan overpayments. Plans will have to work quickly and carefully to enforce their rights.