Sereboff v. MAMSI, decided the day before yesterday by the Supreme Court, deals with the right of an ERISA fiduciary to pursue a participant in the ERISA plan for reimbursement of money the plan has paid and that the participant later recovers from some other source. For example, say a person is injured in an auto accident and his health insurance, provided through a group policy from his work at the bar and grill, pays $10,000. The policy says that if the person later recovers that $10,000 from the drunk driver who ran into him, the health insurer has the right to be reimbursed the $10,000 before the participant gets anything. Can the insurer enforce that language and get the money back?
The Supremes first dealt with this question in Great-West Life & Ann. Ins. Co., 534 U.S. 204 (2002). In that case the Court ruled that Great-West could not seek reimbursement from a plan participant where the funds recovered in a personal injury case were deposited in a special needs trust, a separate account not in the possession of the participant. The Court in Great-West also stated that "[a] claim for money due and owing under a contract," such as the reimbursement claim at issue in Sereboff, was not a claim available to ERISA fiduciaries.
In Sereboff, the Court backtracks on this Great-West language and rules that a reimbursement interest created by the language of ERISA plans is an "equitable lien ‘by agreement.’" The Court rules that an insurer may be reimbursed all the funds it paid from a participant who later recovers a portion of those funds from a third party so long as those funds are in the possession of the participant. The Court also makes it easier for ERISA fiduciaries to recover funds in reimbursement actions by overruling the language in Great-West that required the fiduciary trace the funds held by the participant. All an insurer now has to do is show that the participant possesses the funds the insurer seeks and that the ERISA plan gives the insurer the right to get those funds back. The decision defers to another day the role the doctrine of equitable subrogation, the "made whole rule," has in ERISA.
Unfortunately, as with so many ERISA decisions, the analysis is muddled, almost incoherent in spots. Sereboff raises many questions. Its purpose was to clarify the law relating to ERISA’s equitable remedies provision but it offers little assistance on that point. It is clear that insurers will be happy with this result. But I pity the circuit and district courts across the country that will try to obtain specific guidance from its language.
The decision does not address whether its strengthening of equitable remedies in favor of ERISA fiduciaries/insurers will be reciprocal. However, many court decisions across the country say that meaningful equitable remedies under ERISA are available only to benefit businesses sponsoring ERISA plans and their insurance companies. For the most part, the case law relating to ERISA’s equitable remedies is developing as an alarmingly one way street that benefits only corporate America.
The Supreme Court shows no indication that it will provide a level playing field when dealing with employee benefits under ERISA. I continue to be amazed at how the federal judiciary converts a statute intended to protect consumers into a sword that cuts them off at the knees.