In a victory for healthcare subrogation, the United States Supreme Court reversed the Third Circuit’s holding in US Airways, Inc. v. McCutchen. In stunning fashion, the Justices of the Supreme Court ruled 9-0 that equitable principles (such as the made whole and common fund doctrines) cannot override clear terms of an ERISA plan requiring reimbursement. However, the Supreme Court ruled 5-4 that the plan language at issue was not clear in abrogating the “common fund” doctrine. The Court goes on to hold that in absence of clear language, courts may draw upon equitable principles to “fill the gap” in ambiguous or silent contracts. The unanimous part of the ruling means that healthcare ERISA plans can contract away made whole, common fund and other equitable doctrines.
The McCutchen case involved an ERISA plan participant who was injured in a automobile accident. The ERISA plan paid $66,866 on behalf of the participant for treatment of his accident related injuries. The participant filed claims arising from the accident and settled those claims for $110,000. The participant refused to reimburse the plan, and the plan filed suit under ERISA § 502(a)(3) seeking “appropriate equitable relief” to enforce the terms of the plan. The district court found that the plan terms required full reimbursement, and awarded $66,866 to the plan. On appeal, the Third Circuit Court of Appeals reversed the award. The Third Circuit held that to be “appropriate”, the relief sought from the plan should be free from equitable defenses (such as the made whole and common fund doctrines). The Third Circuit remanded the case back to the district court to determine what, if any, reimbursement would be equitable under the circumstances. The plan petitioned the United States Supreme Court for review and it was granted. The Supreme Court reversed the Third Circuit holding that clear provisions of an ERISA plan are not subject to equitable defenses. The Court held that the plan at issue in McCutchen clearly required reimbursement regardless of whether the member was receiving a double recovery. As such, the made-whole doctrine did not apply. In contrast, the Court held that the plan was silent as to whether the plan should held bear the attorney fees and litigation costs for obtaining the recovery. As such, the Court stated that the “common fund” doctrine could be read into the language. The Court remanded the matter back to the district court to determine the amount of attorney fee reduction the plan should take.
This decision reverses the Third Circuit’s decision in US Airways, Inc. v. McCutchen and abrogates the Ninth Circuit’s similar decision in CGI Technologies v. Rose. NASP filed an amicus brief on McCutchen at both the petition and merits stage. At the petition stage, the NASP brief was authored by John Kolb, Laura Schmidt, Bryan Davenport and Daran Kiefer. At the merit stage, NASP sought donations from its members to engage the renown Washington D.C. law firm of Wily Rein, LLP. Thanks to all of our brief writers and sponsors who helped make this decision possible.
John D. Kolb
NASP Brief Co-Chair