...but Mid Atlantic's claim is not considered equitable because it is a subrogation claim. As explained, Mid Atlantic's action to enforce the "Acts of Third Parties" provision qualifies as an equitable remedy because it is indistinguishable from an action to enforce an equitable lien established by agreement, or the sort epitomized by our decision in Barnes. See 4 Palmer, Law of Restitution Section 23.18(d), 470 (A subrogation line is not an express lien based on agreement, but instead is an equitable lien impressed on moneys on the ground that they ought to go to the insurer. Mid Atlantic need not characterize its claim on a freestanding action for equitable suborgation. Accordingly, the parcel of equitable defense the Sereboffs claim accompany any such action are beside the point. Id. at 623-624.
The above holding is an enigma because it invites speculation on the court's intent. The court could have decided the case on much clearer and more narrow grounds simply by noting that make whole was not a defense because there was a proper waiver of the doctrine in the plan's reimbursement provision. This holding appears to suggest that make whole could not be a defense to an equitable lien theory. However, in footnote 2, the Supreme Court expressly refused to decide the issue of whether a plan seeking reimbursement without regard to the make whole rule was "appropriate equitable relief" under ERISA because the Sereboffs had attempted to raise that issue for the first time in the Supreme Court.
The reason that the Supreme court's refusal to decide the precise issue of whether seeking reimbursement without regard to the make whole rule constitutes "appropriate equitable relief" under ERISA is significant is that it preserves the Ninth Circuit's application of make whole in ERISA cases. The Ninth Circuit has adopted the make whole rule as fully applicable to ERISA cases. In Barnes v. Independent Auto Assn. of CA H&B Plan, 64 F.3d 1389 (9th Cir. 1995), the court noted that the make-whole rule was consistent with "ERISA's purpose of protecting participants...in plans" and "compatible with the remedial principles of ERISA" (Id at 1394-1395) and held as follows:
We adopt as federal common law this generally accepted rule that, in the absence of a clear contract provision to the provision to the contrary, an insured most be mad whole before an insurer can enforce its right to subrogation. 64 F.3d at 1395 (emphasis supplied)
The fact that the make whole defense survives the Sereboff decision is illustrated by the recent published decision of a district court in Washington state, Providence Health System v. Bush, 428 F. Supp.2d 1226 (2006). There, the court followed the above referenced 9th Circuit decision in Barnes, requiring the ERISA participant to be made whole before the plan was entitled to recover the first dollar in reimbursement. This case was decided six months after Sereboff and rejected the plan's reimbursement claim despite the fact that the plan provision purported to allow the plan to recover 100% of the amounts expended for medical care. Consequently, until there is further clarification from the Supreme Court, it appears that the make whole doctrine remains a complete defense to subrogation or reimbursement actions under ERISA where there is no waiver of make whole in the health plan.