Executive Summary: Reimbursement claim brought under ERISA sec. 502(a)(3) was akin to “equitable lien by agreement,” and therefore could not be defeated by equitable defenses that contradicted plan terms. 

With the United States Supreme Court’s decision released Tuesday, U.S. Airways, Inc. v. McCutchen, 2013 U.S. LEXIS 3156 (April 16, 2013), health plan administrators and sponsors were heard to breathe a collective sigh of relief. In McCutchen, an ERISA-governed employee health plan sought to enforce its reimbursement clause. The clause provided that, if a participant recovered from a third party for injuries, he must reimburse the plan for any medical benefits it paid for treatment of the participant’s injuries, out of "any monies recovered...."  Because the avenue of recovery for a plan's reimbursement claim is "appropriate equitable relief" under ERISA § 502(a)(3), the participant argued that equitable doctrines such as the make-whole doctrine and the common fund doctrine could be applied as defenses.   The Third Circuit Court of Appeals agreed with the participant, allowing these doctrines to reduce the reimbursement to the Plan, even if these doctrines contradicted the Plan’s terms. 

The Supreme Court reversed the Third Circuit, ruling consistently with the view espoused by the Eleventh Circuit in Zurich American Ins. Co. v. O’Hara, 604 F. 3d 1232 (11th Cir. 2010). The Supreme Court noted that the equitable doctrine by which the Plan sought recovery under ERISA § 502(a)(3) was most akin to an equitable lien by agreement, which "arises from and serves to carry out a contract's provisions." Because the boundaries of relief under ERISA § 502(a)(3) are limited to enforcing plan terms, any equitable defenses that resulted in undermining the plan terms could not be used as a defense. 

Applying its holding to the Plan in its case, the Supreme Court found that the "make-whole" doctrine could not defeat the Plan’s terms allowing for first-dollar reimbursement.  However, it found that the Plan did not specifically address the apportionment of attorneys' fees; therefore, the common fund doctrine could be used as a default rule, thus requiring the Plan to contribute toward the participant’s attorneys’ fees incurred in pursuing recovery from third parties.  

Lesson: Plan administrators and sponsors should now feel confident that their plan’s reimbursement clause will be honored by the courts, but they should review their plans to insure that the plan language clearly states their intention as to first-dollar reimbursement, apportionment of attorneys’ fees, and the applicability of equitable defenses.