The United States Supreme Court has released its opinion in U.S. Airways v. McCutchen, No. 11-1285 (USSC April 16, 2013), a case that raised the issue of whether "equitable doctrines and defenses," such as the "common fund" doctrine and the "made whole" doctrine applied to subrogation interests governed by the Employees Retirement Income and Security Act of 1974 ("ERISA").
McCutchen was injured in a car accident and received $110,000 in a personal injury settlement - $10,000 from the defendant's liability insurer and $100,000 from his underinsured motorist insurance carrier. His attorneys' fees were 40% of the recovery, leaving McCutchen with $66,000. U.S. Airways had paid the medical bills incurred to treat the injuries in the accident, and demanded repayment of 100% of the monies it paid - $66,866. When McCuthen refused to do so, U. S. Airways filed suit in federal court.
The USSC ruled that U.S. Airways had the right to enforce what it called an "equitable lien by agreement." and thus had a right to recover its money notwithstanding any argument that McCutchen was not made whole.
The issue of whether the U.S.Airways recovery should be reduced by the amount of money paid in attorney's fees to secure the recovery was a different story. The Court found that the U.S. Airways plan was silent on whether the common fund doctrine applied and therefore the common fund doctrine applied. The Court made it clear that a properly draft Plan could trump the common fund doctrine. Here is a summary of the Court's language on this point:
The rationale for the common-fund rule reinforces that conclusion. Third-party recoveries do not often come free: To get one, an insured must incur lawyer’s fees and expenses. Without cost sharing, the insurer free rides on its beneficiary’s efforts—taking the fruits while contributing nothing to the labor. Odder still, in some cases—indeed, in this case—the beneficiary is made worse off by pursuing a third party. Recall that McCutchen spent $44,000 (representing a 40% contingency fee) to get $110,000, leaving him with a real recovery of $66,000. But US Airways claimed $66,866 in medical expenses. That would put McCutchen $866 in the hole; in effect, he would pay for the privilege of serving as US Airways’ collection agent. We think McCutchen would not have foreseen that result when he signed on to the plan. And we doubt if even US Airways should want it. When the next McCutchen comes along, he is not likely to relieve US Airways of the costs of recovery. See Blackburn v. Sundstrand Corp., 115 F. 3d 493, 496 (CA7 1997) (Easterbrook, J.) (“[I]f . . . injured persons could not charge legal costs against recoveries, people like [McCutchen] would in the future have every reason” to make different judgments about bringing suit, “throwing on plans the burden and expense of collection”). The prospect of generating those strange results again militates against reading a general reimbursement provision—like the one here—for more than it is worth. Only if US Airways’ plan expressly addressed the costs of recovery would it alter the common-fund doctrine.
Opinion, Page 16.
Thus, lawyers representing plaintiffs now will need to scour the relevant documents to determine whether the common fund doctrine has been adequately trumped by the language of the Plan. To be sure, there will be a rush by many Plans to re-write Plans with this decision in mind.
As a lawyer who represents plaintiffs in personal injury and wrongful death litigation, we see more and more greed by those with subrogation interests. That those insurers are permitted to receive money from another policy that the insured paid for - like an uninsured motorist insurance policy - is particularly offensive.
I happen to believe that a health insurer should be reimbursed the expenses it incurs that are later recovered as part of a recovery by the insured in a third-party claim. And I believe that that the insured should not be able to structure a settlement in such a way that can defeat that interest. But the common fund doctrine should apply in all cases, and the health insurer's recovery should be reduced to reflect a reduced recovery of the insured because of collectability issues, liability issues, etc. Current law wrongfully favors the economic interests of employers and their health insurers at the expense of employees and their families. The USSC has made it clear that it has deferred to Congress on the issue and the chances are virtually nil that Congress will modify ERISA to actually benefit an employee.