On April 16, 2013, the United States Supreme Court once again opined on the issue of reimbursement provisions in a plan subject to the Employee Retirement Income Security Act (“ERISA”) in US Airways, Inc. v. McCutchen, 569 U.S. __ (2013). The Court’s holding, delivered by Justice Kagan, reminds us of the importance of detailed and unambiguous plan provisions.

There has been considerable litigation and uncertainty regarding the permissible scope of plan provisions (primarily heath care plans) that require a plan participant to reimburse the plan for benefits paid where there is a recovery by the plan participant from a third party for the same expenses and/or damages.

In US Airways, the US Airways self-funded, ERISA health plan, paid $66,866 in medical expenses incurred by participant James McCutchen resulting from a car accident. After deducting $44,000 for his attorney’s contingency fee, McCutchen received $66,000 from the driver of the other vehicle. US Airways, the plan administrator, filed a civil action under ERISA section 502(a)(3) seeking “appropriate equitable relief” to enforce the plan’s reimbursement provision to recover from McCutchen the $66,866 paid by the plan. McCutchen raised two equitable defenses.

Resolving a split in the circuits, the Court ruled that equitable defenses cannot override an ERISA plan’s reimbursement provision. The plan’s reimbursement provision controls and thus the parties must live by those terms. As stated by the Court: “[I]f the agreement governs, the agreement governs.”

There are several “takeaways” from this case. First, a plan’s reimbursement provision should be in the plan document. In US Airways, the parties had assumed that having a reimbursement provision in the summary plan description (“SPD”) was sufficient, and the Court accepted that stipulation. However, in a footnote the Court noted its decision in Cigna Corp. v. Amara held that the SPD’s terms are not the terms of the plan.

Second, the plan provisions must be explicit and “cover the waterfront.” US Airways lost on the issue of attorney’s fees because the reimbursement provision did not expressly provide for those fees. The Court found that, while equitable defenses could not trump the plan provisions, such defenses are appropriate where a plan is silent. As stated by the Court, “if US Airways wished to depart from the well-established common-fund rule, it had to draft its contract to say so—and here it did not.”

Please let us know if Baker Botts can help you review your plan document’s reimbursement provision and discuss other plan design and drafting issues.