When it comes to recovery of overpayments from ERISA beneficiaries…

money is a fungible commodity in the Eleventh Circuit, but is not a fungible commodity in the Ninth Circuit.

This week the U.S. Supreme Court agreed to address recovery of overpayments to ERISA beneficiaries.

  1. The Problem: Many times an ERISA plan may overpay a beneficiary. Under ERISA, beneficiaries are promised prompt payment of benefits if they are injured or disabled on the job, but they also agree to repay whatever they get later from the Social Security Administration or from a settlement in a lawsuit.
  2. The Issue: Currently, getting that overpayment back from the beneficiary can be lots more challenging if the overpayment occurs in the Ninth Circuit…

In the Ninth Circuit money, apparently, is not a fungible unit of exchange. ERISA plans cannot recover funds from the beneficiary unless specific funds from a settlement or the Social Security Administration can be tracked. If the beneficiary spends that money before the plan can get a court order forcing repayment, the insurer is out of luck. Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F. 3d 1083 (2012)(Plaintiff received $30,000 in overpayments. Court refused to order repayment because the funds could not be tracked.)   The Eighth Circuit follows this line of reasoning, too.

But money in the Eleventh Circuit is a fungible unit of exchange, making recovery of ERISA plan overpayments lots easier. Last November 2014 the Eleventh Circuit determined that when a plan unambiguously gives itself a first-priority claim to third party payments, then an equitable lien attaches immediately upon the receipt of specifically identifiable funds. This makes it irrelevant that the funds were subsequently spent or dissipated. Board of Trustees of the National Elevator Industry Health Benefit Plan v. Montanile, 593 F. App’x 903 (11th Cir. 2014)(The Plan spent $124,000 in medical expenses. When Montanile obtained $500,000 from a lawsuit… he spent it quickly. The Court rejected Montanile’s argument that no repayment was required because the funds had dissipated). Most circuits follow this analysis.

  1. The US. Supreme Court Accepts Review. By accepting review of Montanile this week, the Supreme Court may endeavor to resolve this interesting split, which has complicated recovery of overpayments.