Synergy Blog

ERISA Liens: How to turn the McCutchen gray into green for your client

By Dave Place, J.D. – Vice President & Director of Lien Resolution

The uncertainty that exists regarding a self-funded ERISA plan’s ability to refuse reduction of their claim based upon equitable principles can be used to increase your client’s net recovery.   A gray area was created in ERSIA healthcare subrogation and reimbursement rights by the 11th Circuit’s April 2010 ruling in Zurich American Insurance Co. v. O’Hara.  This opinion stated that with proper language an ERISA qualified health plan could avoid the “common fund” doctrine.  (See also, Admin. Comm. of Wal–Mart Stores, Inc. Associates’ Health & Welfare Plan v. Shank, 500 F.3d 834 (8th Cir.2007); Administrative Committee of Wal–Mart Stores, Inc. Assocs.’ Health & Welfare Plan v. Varco, 338 F.3d 680 (7th Cir.2003);  Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough, 354 F.3d 348 (5th Cir.2003).  Normally this doctrine would require the plan to reduce their recovery to reflect the attorney fees that were incurred to create the “common fund” from which both the plaintiff and the self-funded ERSIA plan recover their monies.  For example if the injured plaintiff must pay a 33.3% contingency fee to his attorney for his efforts in obtaining the settlement or award, then the self-funded ERISA plan’s recovery should also be reduced by this percentage.

The gray area surfaced four months after Zurich American Insurance Co. v. O’Hara when the 3rd Circuit ruled in U.S. Airways v. McCutchen that despite plan language to the contrary “US Airways’ claim for reimbursement under § 502(a)(3) of ERISA is subject to equitable limitations”.  This gray area intensified in late June 2012 when the 9th Circuit weighed in on the side of the 3rd Circuit and ruled in  CGI Technolgies v. Rose  that a Court in Equity cannot have its powers limited by contract.  Therefore CGI Technologies’ attempt to have Ms. Rose contract away the equitable principles of “common fund” and “made whole” was not permissible.  At this point the gray area deepened into a full split in the Circuits and on the following Monday the U.S. Supreme Court granted a writ of certiorari in U.S. Airways v. McCutchen.

Now that this question about the superiority of plan language over equitable principles is before the Supreme Court, it is the perfect time to turn this gray area of case law into green for your injured client.  Before the week wherein CGI Technolgies v. Rose was decided and U.S. Airways v. McCutchen was granted certiorari, the recovery vendors for the self-funded ERISA groups thought themselves immune to equitable defenses.  They would direct any plaintiffs’ counsel or plan participant to the 5th, 7th, 8th and 11th Circuits when asked for reduction based upon “common fund” or “made whole”.  Those same vendors and recovery agents would counter the power of the 3rd Circuit’s ruling in U.S. Airways v. McCutchen by saying that was only law in one Circuit.   Things have changed and so should the plaintiff lawyer’s negotiation tactics.

When attempting to obtain a reduction for your client be sure to raise the fact that Supreme Court is considering overriding express plan language with traditional equitable principles.  The self-funded groups and their recovery vendors are well aware that U.S. Airways v. McCutchen has been granted certiorari and that the influential 9th Circuit has articulated support for this position in CGI Technolgies v. Rose.  Though they are aware of the status of these cases, they are more keenly aware that time may be running out for their practice of recovering 100% of their claim without regard to equity.  It is essential that a plaintiff‘s attorney place the self-funded ERISA plan or its agent on notice that they are also aware of this potential for significant shift in the power paradigm.

Plaintiff’s counsel should articulate that any demand by the self-funded ERISA qualified health plan for a 100% repayment without regard to equitable principles, especially “common fund” is a gamble.  It is key for the plaintiff’s attorney to remember that neither the self-funded ERISA group nor their recovery vendor has a business model based upon litigation.  The ERISA subrogation and reimbursement recovery business model is dependent on negotiation and compromise.  You should stress the time value of money to the ERISA group or its agent.  A two-thirds repayment today is better than a two-thirds repayment next summer.  This old concept is strengthened by the argument that by next summer it may very well be the law that the maximum a self-funded ERISA plan would be entitled to is less than two-thirds.

Uncertainty in how the U.S. Supreme Court will decide U.S. Airways v. McCutchen has created insecurity on the part of self-funded ERISA plans already.  The plaintiffs’ bar needs to leverage this uncertainty and insecurity into large reductions for their injured clients.


"I have used Synergy to resolve tough Medicare lien and set aside issues. There is no other practice that comes close to the quality of their work. I highly recommend them and they are a must for the substantial, tough cases."

Mark R. Hanson
LaBovick Law Group

"I recently engaged Synergy to assist with a complicated PTD settlement involving a substantial Medicare Set Aside. The claimant’s wife has been providing full time attendant care which is not Medicare covered. The Synergy nurse was able to do a full analysis of non-Medicare covered expenses which far exceeded the value of the MSA analysis performed by the carrier’s contracted MSA provider. The non- Medicare figures became the main focus of the settlement negotiations and more than doubled the value of the case. Although I could estimate the attendant care figures, the nurse added in other items that I would not have routinely considered. I also asked Synergy to evaluate the EC’s MSA as well as their prescription review. Synergy offered insight about the prescription donut hole which I did not have a clear understanding about. Again, their insight and information added a great deal of value to the overall settlement. Not only did I learn from Synergy but was able to educate my clients in the process. These are very complex and complicated areas; I will use Synergy again and again!"

Rosemary Eure
Lancaster & Eure

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