The Supreme Court heard arguments Tuesday in U.S. Airways v. McCutchen, a case that raises the issue of whether a benefit plan administrator is entitled to full reimbursement for payments made to a plan participant injured in an accident where the participant sues and recovers damages from a third party.
“This is a contentious case,” says Howard Shapiro, a lawyer with Proskauer and co-chair of the firm’s ERISA litigation practice. “In some places, some of the conservative Republican appointees asked questions that might favor McCutchen and some of the more liberal, Democrat appointees asked questions that might benefit the plan. So there is no clear consensus position that emerges when you read the transcript.”
James McCutchen, the plan participant, was involved in a serious car accident and his benefit plan, administered by U.S. Airways, paid $66,866 for his medical expenses. McCutchen later recovered $110,000 from the driver who caused the accident and U.S. Airways asked to be reimbursed — under the plan’s subrogation and right of reimbursement provision — for the money it had paid for his medical expenses.
U.S. Airways didn’t make allowance for the legal costs McCutchen incurred while suing the driver who caused the accident — costs which had reduced his net recovery to less than what U.S. Airways was asking for. When McCutchen didn’t pay, U.S. Airways filed suit.
Relying on summary plan description language requiring reimbursement from “any monies recovered from a third party” and prior Third Circuit cases, the district court held that U.S. Airways was entitled to recover the full amount paid by the plan. The Third Circuit reversed, concluding that requiring McCutchen to pay full reimbursement was inappropriate and inequitable relief because it would leave him with less than full payment for his medical bills and provide unjust enrichment to U.S. Airways.
“That’s a critical issue,” Shapiro says. “Assume you have an unambiguous plan document and the plan sponsor or fiduciary did not commit fraud and had no intent to mislead — can equitable defenses such as unjust enrichment vary the unambiguous plan terms?”
“When plan fiduciaries do things wrong, the court tries to find a remedy, but in this case nobody is alleging the plan did anything wrong,” says J. Timothy McDonald, a partner with Thompson Hine LLP. “It would be big news if the Court were to hold that equitable principles are no longer only available to help victims, but also to help people rewrite the terms of the plan.”
If the Supreme Court finds in favor of McCutchen, “it would make employers and fiduciaries nervous, depending on how far the decision went in McCutchen’s favor,” says Shapiro.
The Supreme Court will issue its decision by June 30.
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