ERISA-Eleventh Circuit Holds That Health Plan Was Entitled To Reimbursement From Employee’s Entire Settlement Proceeds For An Injury

In Johnson Controls, Inc. v. Flaherty, No. 10-10215 (11th Cir. 2011) (unpublished), the plaintiff, Johnson Controls, Inc. (“Johnson Controls”), sought reimbursement from its employee, Flaherty, under ERISA for medical benefits that its health plan (the “Plan”) had paid on Flaherty’s behalf in connection with a bicycle injury. Flaherty had received a monetary settlement for the injury from a third party. The issue was whether Flaherty’s attorney fees and costs incurred in obtaining the settlement — in the amount of $14,467.44 — must be deducted from the proceeds, before the funds are subject to the Plan’s reimbursement claim.

The Court said that the Plan expressly provides that, when an employee receives benefits under the Plan and thereafter recovers for his injuries from a third party, the Plan “has the right to be reimbursed for such benefits in full,” and “no portion of the [Plan]’s recovery shall be reduced by the fees or costs (including attorney’s fees) associated with any claim, lawsuit, or settlement agreement in connection with any recovery, without the express written consent of the Plan Administrator.” Further, the Court noted that the Summary Plan Description plainly says that the Plan “ha[s] the right to be reimbursed in full before any amounts (including attorneys’ fees) are deducted from any policy, proceeds, judgment or settlement,” and that the Plan’s “right to . . . reimbursement takes preference over any other claims against the recovery, . . . regardless of how settlement proceeds are characterized.”

The Court concluded that when the plan’s terms are clear and unambiguous — as they are here — the Court must enforce them as written. Thus, the Court ruled that Flaherty had to reimburse Johnson Controls for the entire amount the Plan paid in medical expenses on Flaherty’s behalf, without deduction for attorneys’ fees and costs (it looks like the Plan was self-funded by Johnson Controls, so that Johnson Controls was entitled to the reimbursement).

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