Follow the Money:
ERISA Reimbursement Tactics
One Year After Montanile
by | Philip R. O’Brien
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benefits magazine february 2017
The U.S. Supreme Court’s decision in Montanile v. Board of Trustees of the National Elevator
Industry Health Benefit Plan has important implications for self-funded ERISA health plans.
This article discusses the case itself. A second article, in March, will examine how trustees
can protect their health plan’s right to recover claims costs from an award or settlement to a
participant.
MAGAZINE
Reproduced with permission from Benefits Magazine,
Volume 54, No. 2, February 2017, pages 20-25, published
by the International Foundation of Employee Benefit
Plans (www.ifebp.org), Brookfield, Wis. All rights
reserved. Statements or opinions expressed in this article
are those of the author and do not necessarily represent
the views or positions of the International Foundation, its
officers, directors or staff. No further transmission or
electronic distribution of this material is permitted.
Deep Throat: “Follow the money.”
Bob Woodward: “What do you mean? Where?”
Deep Throat: “Oh, I can’t tell you that.”
Bob Woodward: “But you could tell me that.”
Deep Throat: “No, I have to do this my way. You tell me what you
know, and I’ll confirm. I’ll keep you in the right direction if I
can, but that’s all. Just . . . follow the money.”
—William Goldman, Screenplay, All the President’s
Men (Warner Bros., 1976)
n the film adaptation of the book All the
President’s Men, Washington Post reporter
Bob Woodward (played by Robert Redford)
meets with a government informant (Hal
Holbrook) in the shadows of a darkened, empty
parking structure in the early morning hours in
Washington, D.C. The informant, dubbed Deep
Throat, tells Woodward the Watergate scandal
story has tentacles that reach all the way to the White
House, but the reporter will have to chase down the vital
information to get the story he is seeking. Deep Throat’s succinct advice on how to reach that goal: “Follow the money.”
I
february 2017 benefits magazine
21
subrogation
In the latest chapter of the Employee Retirement Income Security Act (ERISA) reimbursement saga,1 U.S. Supreme Court
Justice Clarence Thomas, ruling in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, provided yet another lesson for self-funded ERISA health plans:
Following the money might not be enough. In juggling myriad
responsibilities, boards of trustees are not routinely asked to
weigh in on subrogation and reimbursement issues until there
is a crisis or decision point. However, to fulfill their responsibilities and properly direct the professionals who run the plan day
to day, trustees must stay abreast of the latest rulings. Effective
practices will result in meaningful collections for the plan.
Under ERISA, trustees and/or third-party administrators
(TPAs) have a fiduciary duty to pursue reimbursement and
bear legal risks if they fail to attend to subrogation and reimbursement rights for the self-funded ERISA plans they administer. Due diligence in subrogation and reimbursement
matters should include staff training in claims identification,
systematic evaluation of claims by qualified professionals
and coordination with legal counsel to protect plan assets.
Recovery procedures should be implemented in a manner
that is reasonable and administratively consistent.2
Most ERISA self-funded health plans either outright exclude or administratively refrain from paying medical claims
for participants if another party is at fault or responsible for
their injuries. However, to protect participants from financial hardship, plans will pay claims when they are received
with the express understanding that the participant will re-
learn more
Education
Trustees and Administrators Institutes
February 20-22, Lake Buena Vista (Orlando), Florida
Visit www.ifebp.org/trusteesadministrators for more information
From the Bookstore
Trustee Handbook: A Guide to Labor-Management
Employee Benefit Plans, Seventh Edition
Claude L. Kordus, Editor. International Foundation. 2012.
Visit www.ifebp.org/TrusteeHandbook for more details.
Self-Funding Health Benefit Plans
John C. Garner, CEBS. International Foundation. 2015.
Visit www.ifebp.org/SelfFunding for more details.
22
benefits magazine february 2017
imburse the plan in full on a priority basis if the participant
recovers money from a responsible source. Settlements and
awards typically come from automobile, workers’ compensation, homeowners or commercial property insurance.
Supreme Court decisions dating back to 2002 have provided useful guidance on plan document and summary plan
description (SPD) language required in order to effectively
establish and assert subrogation and reimbursement rights.
The latest in this line, Montanile, decided January 20, 2016,
narrowly defines the property against which those rights
may be exercised.
A year later, the time is ripe to review Montanile’s effect
on self-funded ERISA plans. This article reviews how these
rights were formulated through statutory and legal actions.
In the March Benefits Magazine, the author will outline options available to trustees to protect subrogation and reimbursement rights most effectively and efficiently.
Lead-Up to Montanile: A Solid Foundation
Establishing Plan Reimbursement Rights
Montanile marks the fifth time the Supreme Court has addressed the scope of “appropriate equitable relief ” available
under ERISA §502(a)(3).3 Previous cases in which the Court
considered attempts by ERISA plan fiduciaries to obtain reimbursement from a participant’s third-party recovery and
the legal precedents they established were:
• Mertens v. Hewitt Associates,4 1993—ERISA §502(a)(3)
allows recovery for only traditional “equitable relief,”
such as an injunction or restitution.
• Great-West v. Knudson,5,6 2002—In a narrow view of
“equitable relief,” adopted in relation to an ERISA
plan’s reimbursement language, equity allows for restitution only when “the money or property identified as
belonging in good conscience to the plan” can be
traced clearly to particular funds or property in the
beneficiary’s possession.
• Sereboff v. Mid Atlantic Medical Services,7 2006—The
plan can enforce an “equitable lien by agreement.” Because the plan sought to review a specifically identifiable fund within the defendant’s possession and control, it is entitled to full reimbursement of its claim
• US Airways v. McCutchen,8 2013—The plan’s language, if
definitive, always trumps and controls. But it is the plan’s
burden to ensure that language is explicit, plain and obvious.
subrogation
Each of the previous cases involved
very sympathetic facts that spotlighted
the plight of participants. Yet, based
on these previous four precedents, the
plan in Montanile should have been
able to enforce an equitable lien by
agreement (which means both the plan
and the participant agree the plan has a
right to reimbursement) if the plan had
attempted to timely attach the funds
while they were in the actual possession of Montanile and his attorney.
The Case: The Plan Pursues
Montanile’s Money
Robert Montanile was a participant
in a self-funded ERISA health plan administered by the board of trustees of
the National Elevator Industry Health
Benefit Plan. In December 2008, a drunk
driver struck Montanile’s car. The plan
paid out more than $120,000 for medical
expenses relating to Montanile’s injuries.
Montanile later negotiated a $500,000
settlement, and the plan sought to enforce its subrogation and reimbursement
provision, which clearly allowed for firstdollar, priority reimbursement to the
plan for claims paid on his behalf.
Montanile’s attorney argued the plan
was not entitled to any recovery. Negotiations between the plan and the attorney were unsuccessful. Among other
things, Montanile asserted that:
• He was not “made whole” by his
tort settlement.
• He was entitled to a discount because of his attorney’s efforts to
obtain a settlement that would
benefit the plan.
• The plan did not have enforceable reimbursement provisions
because these provisions were
found only in the SPD and not in
the plan document.
• The plan had not verified the accurate amount of claims it had
advanced on Montanile’s behalf.
Given the impasse, the attorney informed the plan that if it did nothing
to assert its rights within 14 days, he
would distribute all settlement money
he was holding in trust to his client.
The plan failed to initiate legal action
within that time frame, and the money
was distributed with $240,000 going to
Montanile and the remaining $260,000
going to his attorney for fees and costs.
There was no dispute in the court record that after negotiations broke down
between the parties, the plan did not
contact the participant’s attorney for
six months. At that time, the plan filed
an ERISA reimbursement action in the
U.S. District Court for the Southern
District of Florida. In response, Montanile argued that the plan could attach
only settlement funds that were still in
his possession—namely the “traceable”
proceeds of such funds. He claimed he
had spent almost all of his settlement
money and, therefore, the plan had no
viable claim for “appropriate equitable
relief ” under ERISA §502(a)(3).
The actual plan language in Montanile seemed to be solid: “Amounts that
have been recovered by a participant
from another party are assets of the plan
. . . and are not distributable to any person or entity without the plan’s written
release of its subrogation interest.” The
plan also provided that “any amounts”
that a participant “recovers from another party by award, judgment, settlement or otherwise . . . will be promptly
applied first to reimburse the plan in full
for benefits advanced by the plan . . . and
without reduction for attorneys’ fees,
costs, expenses or damages claimed by
the covered person.” It stated that partic-
ipants must notify the plan and obtain
its consent before settling claims.
In addition, Montanile personally
signed a subrogation and reimbursement agreement9 reaffirming his obligation to reimburse the plan from any
recovery he obtained “as a result of any
legal action or settlement or otherwise.”
Montanile argued in response that
the reimbursement and subrogation
provisions were unenforceable because
they were set forth only in the SPD and
not in the formal plan document and
that this drafting inconsistency therefore did not permit the plan to recover.
The district court agreed with him.
The plan appealed, and the Eleventh Circuit Court of Appeals reversed
the district court’s decision. The decision was consistent with Sereboff and
McCutchen: The terms of the plan
document created an equitable lien by
agreement on any third-party recovery
received by Montanile, and a subsequent
dissipation of assets did not destroy that
lien or the plan’s ability to enforce it.10
The Eleventh Circuit first addressed
Montanile’s contention that recovery
was unavailable under ERISA §502(a)
(3), which permits only equitable remedies. He argued that an equitable lien
or constructive trust was unavailable
because he had already spent the money
from the settlement. Relying on another
recent case,11 the court found that, because the settlement funds were “specifically identifiable” prior to the dissipation, the plan’s equitable lien remained
intact. Even if Montanile had spent
some or all of the settlement funds, the
plan was still entitled to reimbursement
from Montanile’s general assets.12
The Supreme Court agreed to hear
Montanile’s appeal in order to resolve
a question that had arisen among eight
february 2017 benefits magazine
23
subrogation
different federal circuits13: Is a participant’s dissipation of overpaid benefits
fatal to a plan’s ERISA recovery claim?
Considering the previous Court decisions, the benefits community was fairly confident that the Eleventh Circuit
decision in Montanile would be upheld
in favor of the ERISA self-funded plan.
The Supreme Court Decision
bio
In an eight-to-one decision authored by Justice Thomas, however, the
Court held that even though an ERISA
plan established an equitable lien by
agreement enforceable under ERISA
§502(a)(3) against a portion of a participant’s settlement proceeds, Montanile defeated the plan’s right to relief
by spending the settlement proceeds
before the trustees filed suit to enforce
the agreement. In other words, since
the actual money from the settlement
had been spent, the plan was prohibited
from collecting the amount owed from
other assets Montanile might own.
The plan’s argument that it should
be allowed to collect from Montanile’s
general assets because the participant
“wrongfully dissipated the equitable
lien to thwart its enforcement” did not
24
sway the Court. Nor did the plan’s assertion that allowing the plan to collect
from Montanile’s general assets would
best protect plan assets that benefit all
plan participants and their dependents.
This means that even the best-drafted
plan document language may not be
enough to protect a plan’s subrogation
and reimbursement rights.
Even though this was a majority decision, was it an equitable result? Why can
a participant slither out from underneath
his or her repayment obligation, despite
a valid reimbursement agreement and
solid plan language, by racing to spend
settlement money on untraceable services or goods? Justice Ruth Bader Ginsberg, the sole dissenter in Montanile, labeled the decision a “bizarre conclusion,”
allowing Montanile to escape his reimbursement obligation by quickly spending the settlement funds on nontraceable
items. She concluded that this decision
“clearly puts plans in a difficult position
and ultimately can increase the premium
costs for all participants. So what is a
plan sponsor supposed to do in response
to this decision?”14
One thing is abundantly clear: The
term equitable relief is not to be read
Philip R. O’Brien is a shareholder in Reinhart Boerner
Van Deuren s.c. in Milwaukee, Wisconsin in the selffunded multiemployer group of the employee benefits
practice area. He serves Taft-Hartley health and pension
fund clients across the country, with a particular focus
on ERISA contribution delinquency protection, withdrawal liability,
contract enforcement and subrogation and reimbursement issues.
O’Brien wrote chapters on ERISA enforcement of subrogation and
reimbursement rights for the International Foundation’s Trustee
Handbook: A Guide to Labor-Management Employee Benefit Plans and
for Self-Funding Health Benefit Plans. He earned his undergraduate
and law degrees from Marquette University.
benefits magazine february 2017
broadly, as the Court once again reiterated its prior holdings in Mertens and
Great-West that this term is limited to
remedies “typically available” from equity courts.
While Montanile certainly does not
affect the bedrock decisions made in
previous decisions that the participant
does, in fact, owe the money to the
plan, the plan has a right to equitable
relief only in the form of clearly segregated monies that are owed to the plan.
This means the plan sponsors are going
to encounter more litigation. A plan’s
lack of vigilance in attempts to recoup
money that may potentially be owed
under the subrogation and reimbursement provision could be construed as a
fiduciary breach.
What is frustrating about Montanile
is that this case never should have made
it up the appeals ladder. The plan would
have prevailed if it had timely asserted
its rights in court. Instead, there are potentially big implications for all ERISA
health plans, pension funds and defined
contribution plans. Because of the way
the Court approached this decision, not
limiting its analysis to factual circumstances in which this case arose, there is
a valid opinion that if the money in question is not kept segregated, a plan simply cannot recover it, even if the money
should have remained segregated.
This means plans must adopt an
aggressive litigation stance by securing temporary restraining orders and
injunctions to keep a wall around the
money in question while the dispute
between a plan and its participant is
resolved by the courts. There is a legitimate argument that Montanile actually
adds nothing to the Supreme Court’s
earlier guidance on what makes a reimbursement provision enforceable.15 But
subrogation
there is no doubt that the plan’s lethargy in not promptly asserting its subrogation and reimbursement rights in court was
an invitation to disaster.16
Follow the Money
Beginning with the first of the Supreme Court subrogation and reimbursement cases in 2004, the basic direction to
plans has been the same: “Follow the money.” In other words,
the best way to ensure that a plan is effective in recovery situations pursuant to its reimbursement provisions is to actively
track the litigation and settlement proceedings between a
participant and the source responsible for payment of damages. An article in the March Benefits Magazine will discuss
ways to do that and other options for protecting subrogation
and reimbursement rights. Endnotes
1.
Montanile v. Board of Trustees of the National Elevator Industry
Health Benefit Plan, 577 U.S. __, 136 S.Ct. 651 (2016). This latest Supreme
Court case deals with the issue of reimbursement, but sometimes this term is
interchangeable with subrogation.
2. DOL 2006 Joint Committee of Employee Benefits Technical Session,
May 3, 2006.
3. ERISA §502. (a) PERSONS EMPOWERED TO BRING A CIVIL
ACTION.—A civil action may be brought . . . (3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this title or the terms of the plan, or (B) to obtain other appropriate
equitable relief (i) to redress such violations or (ii) to enforce any provisions
of this title or the terms of the plan . . . (Emphasis added.)
4. 508 U.S. 248, 261 (1993).
5. 534 U.S. 204 (2002).
6. 534 U.S. at 217.
7. 547 U.S. 356 (2006).
8. 569 U.S. ___, 133 S.Ct. 1537 (2013). It should be noted that in McCutchen, the Court ruled that the common fund doctrine applied, allowing
payment for attorney fees incurred in recovering the plan’s money but only
because the plan language was silent and did not disavow that common law
defense.
9. There does not seem to be much of a groundswell of support for forcing attorneys to sign a subrogation and reimbursement agreement along
with the participant. However, there is a case in which a court approvingly
called such an idea “novel”: Kress v. Food Employers Labor Relations Ass’n,
285 F.Supp. 2d 678 (D.Md. 2003), aff ’d 391 F.3d 563 (4th Cir. 2004).
10. It should be noted that the argument that Montanile advanced concerning inconsistency between the plan document and SPD relating to the
effective subrogation and reimbursement provision was dismissed by the
court in a somewhat stilted manner. Montanile argued, relying on CIGNA
Corp. v. Amara, 563 U.S. ___, 131 S.Ct. 1866 (2011), that the subrogation
provision could not be enforced because it appeared only in the SPD. The
court first rejected the argument that a document could not be both a written instrument that set forth the plan’s terms, as required by ERISA §3(a)(1),
29 U.S.C. §1102(a)(1), and an SPD, as required by 29 U.S.C. §1022. On this
point, the court specifically distinguished Amara. It observed that Amara
held only that an equitable remedy—there, reformation of a plan—was not
permitted under ERISA §502(a)(1)(B). The Supreme Court’s holding thus
had no bearing on Montanile’s case, in which the board of trustees sought
relief under §502(a)(3). The Court also confronted the oft-repeated proclamation that an SPD “suggests information about the plan” and is “not itself
part of the plan.” Although Amara precludes enforcement of SPDs “where
the terms of that summary conflict with the terms specified in other, gov-
takeaways
• Fiduciaries of self-funded ERISA health plans have a duty to
pursue reimbursement of medical claims when a plan participant
receives a settlement or award from a third party responsible for
the injury that resulted in the claims.
• Previous U.S. Supreme Court decisions have established a solid
case for plans’ reimbursement and subrogation rights.
• Had the plan in Montanile more vigorously and timely asserted its
rights to reimbursement—rather than waiting six months, during
which time the settlement money was spent—the plan may have
prevailed.
• The Court said the plan didn’t have the right to reimbursement for
Montanile’s medical claims from his general assets.
• Plan sponsors likely will encounter more litigation in their attempts
to seek reimbursement from participants.
• Plans should secure temporary restraining orders and injunctions
to keep a wall around settlement/award money while a dispute
between a plan and its participant is resolved by the courts.
erning plan documents,” the Eleventh Circuit noted that the Supreme Court
only rejected the proposition that SPDs “necessarily may be enforced . . . as
the terms of the plan itself.” This “leaves open the possibility that terms in
those summaries may, at times, be enforced, even though they are not always enforceable.”
11.
AirTran Airways, Inc., v. Elem, 767 F.3d 1192 (11th Cir. 2014)
12.
General assets means any money and property available and assets in
hand that can be used to pay an outstanding debt. This could run the gamut
from bank account balances to real estate to personal property like automobiles.
13. The majority of the eight circuit court of appeals decisions (6-2) favored a plan’s right of recovery.
14. Justice Ginsberg had warned in Great-West of the puzzle box the Court
was placing itself in if the basis of its reasoning would be the adoption of the
pre-1938 distinction of the civil courts in contract and the civil courts in equity. Surely Congress, in writing and passing ERISA, did not mean for that to
be the result. But even Justice Breyer, who had joined Justice Ginsburg’s dissent in Great-West, signed off on the majority opinion in Montanile.
15. So far there is a dearth of case law which has cited Montanile in a
substantive context since the decision was handed down in January 2016.
Metzgar v. U.A. Plumbers and Steamfitters Local No. 22 Pension Fund, No.
13-CV-00085V(F), 2016 WL 1554295 (W.D.N.Y. Mar. 1, 2016) (Citing Montanile, the court noted that if the plaintiffs had spent all of the funds related
to their early retirement payments, the equitable lien would be destroyed
and any recovery would need to be pursuant to a legal remedy); Sheet Metal
Workers Pension Trust of N. California v. Trayer Engineering Corp., No.
15-cv-04234-LB, 2016 WL 1745676 (N.D.Cal. May 3, 2016) (Citing Montanile for the proposition that a claim for a money judgment against general
assets is a claim for a legal remedy rather than an equitable remedy); Sun
Life Assurance Company of Canada v. Jackson, No. 3:14-CV-41, 2016 WL
4184444 (S.D.Ohio Aug. 5, 2016) (Sun Life asserted that it reserved the right
to seek equitable reimbursement for benefits previously paid to Jackson under ERISA §502(a)(3) and the court noted that Sun Life may not be able to
obtain reimbursement for funds already spent due to the Montanile decision); UnitedHealth Grp. v. MacElree Harvey, Ltd., No. 16-1026, 2016 WL
4440358 (E.D.Pa. Aug. 23, 2016).
16. On March 4, 2016, in accordance with the Supreme Court decision,
the Eleventh Circuit remanded the Montanile case to the district court, because there were still questions about how much of the settlement remained
in Montanile’s possession. 2016 B.L. 65966, Eleventh Circuit, No. 14-11678,
unpublished 3/4/16.
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