The U.S. Supreme Court has held that a self-insured health plan may not exercise reimbursement rights against a plan participant after settlement proceeds recovered by the participant from a third party have been spent or otherwise “dissipated.”

In the case, the plan paid $120,000 toward medical expenses incurred by the participant after he was injured by a drunk driver. The participant later recovered a $500,000 settlement from the drunk driver. The plan was entitled to seek reimbursement of $120,000 from the settlement, but it did not take adequate steps to enforce its rights. By the time the plan brought suit to enforce its right to reimbursement, the settlement proceeds had been paid to the participant and were gone. The plan attempted to recover the $120,000 from the participant, but the court held that the equitable remedies available under ERISA did not include a right to obtain payment from the participant after the settlement dollars were no longer in an identifiable fund.

The take-away? A self-insured health plan with a right to subrogation or reimbursement must assert its claim while the proceeds of a judgment or settlement are still in an identifiable fund, such as the trust account of the lawyer representing the participant in the personal-injury action. Otherwise, there may be nothing left from which to seek recovery. 

A copy of the court's opinion is available here.

In a unanimous decision (here), the Supreme Court has upheld the enforcement of an internal statute of limitations imposed by the language of an ERISA plan. 

Background. The case involved an employer-sponsored disability insurance plan. The plan language said that any lawsuit to seek payment of benefits must be filed within 3 years after proof of loss of the claim was required to be submitted. This was a shorter period than would have been required under general legal principles. Although ERISA does not provide a specific statute of limitations for claims for benefits, courts have long held that the most comparable statute of limitations under state law applies (usually 3 to 5 years) and that the statute of limitations does not begin to run until after the participant has exhausted the plan's internal claims and appeals process. Under the facts of the case before the Supreme Court, the effect of the internal statute of limitations imposed by the plan language was to require the participant to file a lawsuit within about 1 year after the conclusion of the internal claims and appeals process.

The Court's Ruling. The court held that it was permissible for the plan to impose a shorter limitations period than would otherwise apply under general legal principles. The court reasoned that the terms of the plan generally are controlling and must be given effect, unless the limitations period imposed by the plan is unreasonably short or another controlling statute prohibits the shorter limitations period. After considering the specific      Continue Reading...