ERISA Federal Law Protection on Private Health Plans & What it Means In Regards to a California Personal Injury Settlement

ERISA & the Famous "Sereboff" Court Case:

Yes, it is true - if you have an ERISA protected private health plan, you will need to address the reimbursement rights it contains if you have a personal injury settlement and your private health plan paid out any benefits toward your medical bills that you used to get a settlement! In Sereboff v. Mid Atlantic Medical Services, Inc., 126 S. Ct. 1869 (2006), the court held that an action for constructive trust or equitable lien will lie under ERISA for a plan to enforce its reimbursement/subrogation provision against a beneficiary in possession of the settlement funds. The Ct held that this was an "equitable" action authorized by 29 USC 1132(a)(3) and distinguished its 2002 holding in Knudson on the basis that the settlement funds in Knudson had been placed in a Special Needs Trust and therefore the suit v. beneficiary sought to impose personal liability and was therefore an action at law, not authorized by ERISA. The Sereboff Ct further suggested in dicta that the "make whole" doctrine that wd apply to a subrogation claim wd not apply to the equitable lien claim. Very likely that all ERISA reimbursement actions will now proceed in federal court, alleging equitable lien and/or constructive trust to enforce the contractual right of reimbursement.

Now, the 9th Circuit Court in Barnes v. Independent Auto Dlrs. Assn. of CA H&B Plan, 64 F.3d 1389, 1395 (1995) held that "make whole" rule applied to subrogation provisions in ERISA plans as part of the federal common law of ERISA. "Make whole" can be expressly waived in contract. See Providence Health Plan v. Bush, 461 F.Supp.2d 1226 (DC WA 2006) for post-Sereboff case w/in 9th Cir. applying make whole as complete defense to ERISA claim. Barnes also adopted the CA rule of interpreting ambiguities against the drafter of the policy in ERISA cases. Also examine closely the language in the reimbursement provision. 9th Circuit also adopted the "reasonable expectations" doctrine as applicable to insured ERISA plans in Saltarelli v. Bob Baker Grp. Medical Trust, 35 F.3d 382, 387 (9th Cir. 1994). Consider making Ahlborn argument (see discussion in Medi-Cal section) where supported by plan language and significant degree of undercompensation to plaintiff.

Prior to the "Sereboff" Decision:

Interestingly, prior to Sereboff, it was widely held that ERISA did not authorize ERISA fiduciaries to bring suit for contractual reimbursement or subrogation. See Great West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002); 29 USC 1132(a)(3); Pacificare v. Martin, 34 F.3d 834 (9th Cir. 1994); FMC v. Owens, 122 F.3d 1258 (9th Cir. 1997); Cement Masons v. Stone, 197 F.3d 1003 (9th Cir. 1999); Reynolds Metals v. Ellis, 202 F.3d 1246 (9th Cir. 2000); Westaff v. Arce, 298 F.3d 1164 (9th Cir. 2002); Honolulu Jt. Apprent. & Train. Comm. of United Assn. Local Union 675 v. Foster, 332 F.3d 1234 (9th Cir. 2003); ERISA fiduciaries are any entities with responsibility for administration of plan assets. These include employers, plan administrators, unions, insurance companies. Exclusive federal jurisdiction--29 USC 1132(e); Jefferson Pilot Life Ins. Co. v. Krafka, 50 Cal.App.4th 190, 192 (1996); Totten v. Hill (2007) 154 Cal.App.4th 40. But see contra Providence Health Plan v. McDowell, 361 F.3d 1243 (9th Cir. 2004) petition for rehearing denied (with 7 judge dissent) 385 F.3d 1168, cert. denied 4/4/05. See also Aetna Health v. Davila, 124 S. Ct. 2488 (2004), inconsistent with McDowell holding.

Note stringent drafting requirements for ERISA Summary Plan Descrips (SPD) in 29 USC §1022, 29 CFR 2520.102-2 and 29 CFR 2520.102-3(l), that are widely disregarded by the plans. See Burke v. Kodak, 336 F.3d 103 (2d Cir. 2003) and Arnold v. Arrow Transport, 926 F.2d 782 (9th Cir. 1991) Fn. 4.

Mark C. Blane is a San Diego Personal Injury Attorney, and the managing lawyer of the Law Offices of Mark C. Blane, a San Diego, California Personal Injury Law Firm dedicated to representing families of people injured in personal injury accidents including car accidents, slip and falls, dog bites, product defects, and the like. If you or a loved one has been killed or injured in an accident in San Diego, or Southern California, due to the negligence of another, please order your free copy of Mr. Blane's book, The 10 Secrets You Need To Know About Your Injury Case, BEFORE You Call A Lawyer. It is full of helpful information that will help you protect your legal rights and it normally sells for $16.95.  However, it is free to all California residents, or those injured in an California accident.