Subrogation

Sereboff v. Mid Atlantic Medical Services, Inc.

Issues

Does the limitation of remedies to “appropriate equitable relief” create a blanket prohibition against a claim for money owed in breach of a contract because such relief is traditionally not characterized as an equitable remedy?

 

With the passage of the Employee Retirement Security Act of 1974 (ERISA), Congress sought to regulate employee benefit plans, including employer-provided health care benefits. However, the particular scheme of remedies Congress created for both plan participants and plan providers has been a source of mischief for courts hearing claims of ERISA violations. Traditionally, the Supreme Court has held Congress to their particular word choice as to the remedies available to aggrieved parties, sometimes creating results that do not seem particularly fair to the lay observer. In Sereboff, the Court will again take up the issue of what remedies Congress contemplated when it envisioned “appropriate equitable relief” under ERISA.

Questions as Framed for the Court by the Parties

Can a plan fiduciary bring a civil action against a plan participant to obtain “appropriate equitable relief” under Section 502(a)(3) of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1132 (a)(3), where a term of the plan requires the participant to reimburse medical expenses advanced by the plan if the participant recovers money from a third party tortfeasor and possesses such payments in an identifiable fund?

Joel and Marlene Sereboff were injured in a car accident in the summer of 2000. They received almost $74,869.37 in payments for medical services from Mid Atlantic Medical Services, Inc. (“MAMSI”), their healthcare insurer under a plan provided through Marlene’s employer. 407 F.3d 212, 215 (4th Cir. 2005). Later, the Sereboffs recovered $750,000 from a third party they claimed was responsible for the accident. Id. at 216.

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U.S. Airways v. McCutchen

Issues

Does ERISA Section 502(a)(3) allow courts to apply equitable principles to refuse to order a participant to reimburse the plan for medical coverage where the contract provides the plan with an absolute right to full reimbursement?

 

Following a serious car accident, James McCutchen received $66,866 to pay for his medical expenses from a benefit plan administered by his employer, US Airways. The Plan included a provision requiring beneficiaries to reimburse US Airways for claims “out of any monies recovered from a third party.” After receiving the Plan benefits, McCutchen hired counsel and sued third parties who were involved in accident, recovering a $10,000 settlement from one of the drivers involved in the accident and $100,000 in underinsured motorist coverage. US Airways subsequently sued McCutchen to recover the money they initially paid him by seeking “appropriate equitable relief” under ERISA Section 502(a)(3). US Airways maintains that the term “appropriate” in Section 502(a)(3) refers to the requirement that the type of “equitable relief” a plaintiff seeks be suitable under the circumstances to enforce the terms of the benefit plan and does not allow courts to use equity to rewrite contractual terms. McCutchen argues that courts have the authority to determine what constitutes “appropriate equitable relief” within the meaning of ERISA Section 502(a)(3) and, thus, are not required to enforce express plan terms. Supporters of the lower court’s decision argue that allowing courts to provide equitable relief would increase fairness and encourage beneficiaries to seek recovery from third parties. Opponents counter that affirming the lower court’s decision will increase ERISA litigation and threaten the financial viability of employee health benefit plans.

Questions as Framed for the Court by the Parties

Whether the Third Circuit correctly held—in conflict with the Fifth, Seventh, Eighth, Eleventh, and D.C. Circuits—that ERISA Section 502(a)(3) authorizes courts to use equitable principles to rewrite contractual language and refuse to order participants to reimburse their plan for benefits paid, even where the plan’s terms give it an absolute right to full reimbursement.

Early in 2007, a young driver lost control of her car and crashed into James McCutchen’s vehicle. US Airways, Inc. v. McCutchen, 663 F.3d 671, 673 (3d Cir.

Edited by

Acknowledgments

The authors would like to thank Professor Emily Sherwin for her insights into this case.

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