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The Attorneys Guide To Navigating ERISA

By Elisabeth DeWitt and Bernard Walsh

The recent cases from the Supreme Court are ending a trend in case law. These days, plan language is king. So, how can plaintiff’s attorneys protect their clients’ recoveries and their own fees and costs?

Here are a few tips to help you navigate the world of ERISA liens.

The first thing you should find out, of course, is whether or not the plan is governed by ERISA. ERISA governs employer-employee plans except where the employer is a government organization or a church organization. ERISA does not govern individual plans. If it is an employer-employee plan, you next look to funding. If the plan is funded by contribution from the employer and employee, it is a self-funded ERISA plan and pre-empts state law. If the plan is funded by purchased insurance coverage, it is a fully insured ERISA plan and is subject to state law. To determine funding status, you can look to the plan language in the Summary Plan Description (SPD). The funding mechanism described in the SPD will determine if the plan is self-funded or fully insured. You can also get an idea as to whether or not a plan is self-funded or fully insured by name and title of the plan. If the plan is a named employer group or titled an ASO (administrative services organization), then the plan is likely self-funded (federal law applies). If the plan is a named insurance carrier or is titled a HMO, POS, or PPO, then the plan is likely fully insured (state law applies).

The tips above are not necessarily dispositive of whether or not a plan is governed by ERISA, but they can give you an idea. What you really need to look at is both the SPD and the Master Plan Document (MPD). How do you get these important documents? You must request them from the plan administrator (not the Third Party Claims Administrator (TPA) or the recovery vendor (Rawlings, Ingenix, ACS, etc.)). The plan administrator is usually named on the administrative page in the Summary Plan Description. 29 U.S.C. §1024(b)(4) says, “The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary, plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.” Make sure you get ALL of these documents. Most plan administrators or the recovery vendors will try to only provide you with the SPD and a claims summary. Accept those documents, but do not stop asking for the rest of your request (the full plan documents). Also make sure that if you do receive the MPD and the SPD that they match. Many times administrators will update the SPD and not the MPD. The MPD must say the same thing as the SPD. See Cigna v. Amara, 131 S.Ct. 1866 (U.S. 2011).

If your request for ALL documents is ignored, the United States Code has afforded some penalties that may be assessed on the plan administrator. 29 U.S.C. §1132(c)(1)(b) states, “who fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant or beneficiary (unless such failure or refusal results from matters reasonably beyond the control of the administrator) by mailing the material requested to the last known address of the requesting participant or beneficiary within 30 days after such request may in the court’s discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal, and the court may in its discretion order such other relief as it deems proper.” In other words, if the plan administrator does not comply with your request for the full plan documents within thirty days, penalties start tolling at $100.00 per day after the thirty days. These penalties can be increased to $110.00 per day under 29 CFR §2575.502(c)(1). See Leister v. Dovetail, Inc., No. 05-2115, (c. Dis. Oct. 22, 2009), where the court imposed $377,600.00 for 3,776 days of non-compliance and Huss v. IBM Medical and Dental Plan, No. 07 C 7028 (N.Dis.Ill Nov. 4, 2009) where the court imposed $11,440.00 in penalties for 104 days of non-compliance.

Now let us imagine that you have received all of the plan documents that were requested and it looks as though the plan is governed by ERISA. What can you do to save your client money and protect your fees and costs as well? Attack the plan language! The Supreme Court has stated that the plan language must identify a particular fund, from which the plan may recover, distinct and apart from the member’s assets and that the plan language must identify the share of that fund to which the plan is entitled. Sereboff v. Mid Atlantic Medical Services, Inc., 126 S.Ct. 1869 (2006). The court in Popowski v. Parrott sets out a distinction in plan language that is necessary for a plan to recover from a Covered Person. The court compares two different plans and the subrogation language in each. The United Distributors Plan says, “The Plan has a lien on any amount recovered by the Covered Person whether or not designated as payment for medical expenses. This lien shall remain in effect until the Plan is repaid in full. The Covered Person…must repay to the Plan the benefits paid on his or her behalf out of the recovery made from the third party or insurer.” Popowski v. Parrott, 461 F.3d 1367 at 1373 (11th Cir. 2006). The Mohawk Plan says, “If, however, the Covered Person receives a settlement judgment, or other payment relating to the accidental injury or illness from another person, firm, corporation, organization or business entity paid by, or on behalf of, the person or entity who allegedly caused the injury or illness, the Covered Person agrees to reimburse the Plan in full, and in first priority, for any medical expenses paid by the Plan relating to the injury or illness.” Id at 1374. The United Distributors Plan says their lien comes from a distinct fund, i.e. the recover from a third party or insurer. This is good language that will be upheld. However, the Mohawk Plan does not identify a specific fund, only that if a recovery is made, they are to be reimbursed. It does not specify if it comes from the recovery itself or from the Covered Person’s personal assets.

The recent decision in U.S. Airways v. McCutchen by the Supreme Court has made it clear that the Plan language is controlling. U.S. Airways v. McCutchen, 569 U.S. ____ (2013) (slip op.). The language should be clear on whether or not the Plan recovery reaches to first party coverage, i.e. uninsured or underinsured motorist coverage. If the Plan is silent, it may not be able to reach such recoveries. Also, “If the plan is silent on the allocation of attorney’s fees, in those circumstances, the common fund doctrine provides the appropriate default. In other words, if US Airways wished to depart from the well-established common-fund rule, it had to draft its contract to say so…”. Id at 12. In short, make sure to read the Plan documents carefully to see if the Plan spells out exactly the Plan’s recovery rights. Is there recovery a first priority over attorney’s fees and costs? Does the Plan identify a fund separate and distinct from the Covered Person’s personal assets? Does the Plan language overcome the “made whole” doctrine?

Ok. The plan is governed by ERISA, the plan administrator has sent you all the documents required, the plan language is solid as to first right of recovery, it identifies a fund separate and distinct from the covered person’s personal assets, it overcomes the “made whole” doctrine and it overcomes the common fund doctrine. Is that the end? Have you been the best advocate for your client for nothing? Maybe not. When you settle a case and are requesting a final lien amount, you are negotiating with a recovery agent, not the plan administrator. The recovery agent is a person just like you. They probably have a large case load and are ready and willing to cut a deal. They sometimes have monthly or quarterly goals set by their employers to bring in recoveries and settle liens. Be up front and honest. Give them all the figures; total settlement, fees, costs, out of pockets, other liens, etc. If you are reducing your fees or waiving costs, let them know. Threats and animosity are great impediments to your ability to resolve these liens. Be personable and reasonable. Also, bad cases in your eyes can be good for you in negotiating ERISA liens. If some of the injuries claimed in this case are pre-existing, let them know. If there are liability issues that may reduce a recovery at trial, let them know. If there is limited liability and first party coverage, most recovery vendors are willing to accept a 50/50 split of the covered person’s net recovery. Also, a three-way split is sometimes the default position for recovery vendors, i.e. one third for you, one third for your client, and one third for the plan.

Helpful tips for navigating ERISA:

  1. Find out if the plan is governed by ERISA.
  2. Make sure your requests for ALL plan documents are honored. If not, start tolling the penalties.
  3. Does the plan language overcome principles of equity and the common fund doctrine? Does it reach to first party coverage? Does the language specify a particular fund from which the plan may recover?
  4. If all else fails, be forthcoming and professional with the recovery vendor to get the best outcome possible for your client.

ERISA is not the end of the world for plaintiff attorneys. We all just have to be a bit more attentive to plan language and a bit more creative in our negotiation skills.

The Attorneys Guide To Navigating ERISA

Goldman Babboni Fernandez
Murphy & Walsh

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