ERISA-Eighth Circuit Upholds Recovery By The Welfare Fund Of Participant’s Settlement Proceeds Attributable To Medical Expenses It Paid

In Mackey v. Johnson, No.16-1886 (8th Cir. 2017), Terri Johnson (“Johnson”) brought a wrongful-death action against the Duluth Clinic (the “Clinic”), alleging that the Clinic was negligent in its treatment of the lung cancer of her brother, Tim Scherf (“Scherf”). Scherf was a participant in the Minnesota Laborers Health and Welfare Fund (the “Fund”), and the Fund paid for his medical treatment. Johnson settled her claim with the Clinic. The Fund then sued Johnson, her legal counsel Meshbesher & Spence (“Meshbesher”), and the Clinic under ERISA § 1132(a)(3). The Fund alleged that it had a right to a portion of the settlement with the Clinic attributable to medical expenses. The district court agreed, on the grounds that the Fund was entitled to the medical expenses included in the settlement proceeds under the terms of the Fund document and a subrogation agreement that Johnson and a Meshbesher attorney had signed. It granted summary judgment for the Fund in the amount of $236,700.16.

On appeal, Johnson and Meshbesher challenged the district court’s ruling. However, the Eighth Circuit Court of Appeals (the “Court”) rejected their arguments, since the settlement agreement included medical expenses and the subrogation agreement applied to “any recovery” (as opposed to expenses incurred due to the Clinic’s negligence).  Accordingly, the Court affirmed the district court’s judgment.


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