In Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, No. 14-723 (U.S. Supreme Court 2016), the Court faced the issue of subrogation rights of a health plan subject to ERISA. The Court noted that health plans often contain subrogation clauses requiring a plan participant to reimburse the plan for medical expenses, if the participant later recovers money from a third party for his injuries. In this case, the plan in question had a subrogation clause, and petitioner Montanile has signed a reimbursement agreement reaffirming his obligation to reimburse the plan from any recovery he obtained (the “Agreement”).
Montanile has been seriously injured by a drunk driver, and his ERISA health plan paid more than $120,000 for his medical expenses. Montanile later sued the drunk driver, obtaining a $500,000 settlement. Pursuant to the health plan’s subrogation clause and the Agreement, respondent plan administrator (the Board of Trustees of the National Elevator Industry Health Benefit Plan, or the “Board”), sought reimbursement from the settlement. However, Montanile’s attorney refused that request and subsequently informed the Board that the fund would be transferred from a client trust account to Montanile unless the Board objected. The Board did not respond, and Montanile received the settlement.
Six months later, the Board sued Montanile in Federal District Court under §502(a)(3) of ERISA, which authorizes plan fiduciaries to file suit “to obtain . . . appropriate equitable relief . . . to enforce . . . the terms of the plan.” 29 U. S. C. §1132(a)(3). The Board sought an equitable lien -which arises from the plan’s subrogation clause and the Agreement-on any settlement funds or property in Montanile’s possession and an order enjoining Montanile from dissipating any such funds. Montanile argued that because he had already spent almost all of the settlement, no identifiable fund existed against which to enforce the lien. The District Court rejected Montanile’s argument, and the Eleventh Circuit affirmed, holding that even if Montanile had completely dissipated the fund, the health plan was entitled to reimbursement from Montanile’s general assets.
The Court held that, when an ERISA health plan participant wholly dissipates a third-party settlement on nontraceable items, the plan fiduciary may not bring suit under §502(a)(3) to attach the participant’s separate assets (what is left is a personal claim by the Board against those assets). The ERISA suit would have been allowed if the Board immediately sued to enforce its equitable lien-provided, again, from the plan’s subrogation clause and the Agreement -against a specifically identifiable fund attributable to the settlement. This ERISA suit is permitted against only: (1) specifically identified funds (so attributable) that remained in the participant’s possession or (2) traceable items that the participant purchased with the funds. But that result does not obtain-and the ERISA suit is not permitted- when the defendant has dissipated all of a separate settlement fund, and the plan then seeks to recover out of the defendant’s general assets.
Note: The Supreme Court’s decision could cause health plans to begin to intervene in a participant’s legal action or other proceedings against the third party causing the injury, and otherwise take accelerated actions, in order for the health plan to protect its interests.