Subrogation Under ERISA

May 20, 2014

Mary Ellen Schill and I were talking about the e-alert that we posted April 19 on the right of reimbursement for self-insured group health plans under ERISA in light of the US Airways v. McCutcheon case decided by the U.S. Supreme Court on April 16. A couple of points caught our attention. The scope of reimbursement can be as broad as possible so long as the plan is drafted accordingly. If the plan language does not have any gaps, then the Court will not inject a default gap filler based on equity principles. But when there are gaps, the Court will supply a default, which may drastically affect the amount of reimbursement. So drafting is key.

Yet, as Justice Kagan describes in her well-written opinion, drafting a reimbursement clause to apply even before deduction of contingent attorney fees and costs could be self-defeating. What personal injury lawyer will agree to take an injury case if the lawyer knows that the contingent fee might be consumed in the right of reimbursement enjoyed by the self-insured group health plan? In that situation, the only manner by which the self-insured group health plan may obtain reimbursement would be to file a separate action in federal court. Having said that, the plan sponsor is at liberty to negotiate from a position of the broadest possible language. Stay tuned for further details!

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