By Cory Bilton
Around our office, numerous jokes are made about my fascination with the law surrounding liens, subrogation, and rights of reimbursement. So last summer, when I learned that a big ERISA reimbursement case, US Airways v. McCutchen, was granted cert by the Supreme Court, I immediately cleared my schedule for the oral arguments on November 27, 2012. In order to avoid listening to me retell every little detail, associate Mike Martin from our office decided to join me to watch the epic match. In one corner, weighing in with global megafirm Hogan Lovells, stood US Airways. In the other corner, punching above his weight with the non-profit, public interest group Public Justice, stood James McCutchen. It looked to be a classic David versus Goliath battle.
This was my first time watching an oral argument at the Supreme Court. In addition to enjoying the interplay between the attorneys and Justices, there were a few other exciting moments. One came during the arguments when we suddenly anticipated that Justice Thomas might break his silence (he was chatting with his clerks). But much to our dismay, he never verbalized his thoughts into the microphone (he waited another six weeks to break his streak). Mike and I were also fortunate to have McCutchen’s lawyer in the underlying dispute, Jon R. Perry, run into us while we were waiting in line outside the court. Unknowingly, we were chatting with his sister, when he jogged by on the sidewalk. She called him over to stand in line for her, and he talked with us about the case’s history. It was like having a back-stage pass.
There is an interesting story behind this fight. James McCutchen worked for US Airways as a mechanic. As a result of a car wreck, he was severely injured. The crash injured others as well; one of the tortfeasor’s passengers was killed and two other passengers suffered traumatic brain injuries. The tortfeasor had limited liability coverage. Mr. McCutchen received $10,000 from the tortfeasor’s liability carrier and another $100,000 from his own UIM coverage. After his attorney’s fee, the amount that remained for Mr. McCutchen was $66,000. The total cost of his medical treatment paid by US Airways’ self-funded ERISA plan was $66,866. The issue in the case was whether US Airways health benefits plan had the right to be reimbursed fully for the cost of Mr. McCutchen’s medical care. As you can see, full reimbursement would leave him with nothing.
The Supreme Court’s opinion in the case was released on April 16, 2013. US Airways v. McCutchen, No. 11-1285 (U.S. 2013). The Court held that equitable remedies, specifically the “double recovery” rule (“the amount the insured has received from a third party to compensate for the same loss the insurance covered.” McCutchen, slip op. at 6.) and the common fund doctrine (“a litigant or a lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney’s fee from the fund as a whole.” Id.), may not override the terms of the ERISA health plan. However, the court went on to say that if the health plan is silent on the allocation of attorney’s fees, then the common fund doctrine may be used to interpret the health plan. Id. at 14-16. In this case, the US Airways health plan did not state specifically how attorney’s fees would be allocated, and thus the common fund doctrine, due to its widespread and historic use, should be assumed to be the intent of the parties. Id.
The decision was a clear knock-out blow for those injured while covered by a self-funded ERISA health plan. Kagan’s majority opinion clearly states that if the express contract term “contradicts the background equitable rule … the agreement must govern.” Id. at 14. Mr. McCutchen prevailed in sharing the expense of his representation with US Airways solely because the ERISA plan was silent on this issue. See id. at 14-16. Legions of ERISA lawyers are surely churning out billable hours drafting new plan language to avoid this oversight in the future. The result, as Kagan put it, is that the next Mr. McCutchen will, “pay for the privilege of serving as US Airways’ collection agent.” Id. at 16. Kagan speculated that, “we doubt if even US Airways should want [this].” Id. I will post again in the future with some more thoughts on the aftermath of this holding. Although I suspect that ERISA plans do not really want to go toe-to-toe with tortfeasors directly, I would wager that they will draft the plan language as though they do.
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