One of the quirks about ERISA’s remedies provision is that only participants and beneficiaries are identified as parties who may sue for money damages under the terms of an ERISA plan. Or at least, that’s what the plain language of the statute says. But occasionally, insurers or other plan fiduciaries have a reason to want to enforce the terms of an ERISA plan against participants or beneficiaries of the plan. Subrogation for example. Almost all ERISA plans providing health benefits have subrogation language in their plan documents. This language states that if the plan participant is injured due to the fault of another person and the plan pays medical expenses as a result of that injury, if the participant later receives compensation from the wrongdoer, the plan is entitled to be repaid. The language often says that it doesn’t matter if the participant isn’t “made whole” by the payment from the tortfeasor. This type of incomplete compensation is very common, especially when the wrongdoer has relatively low levels of liability insurance and/or the participant is badly hurt. Nevertheless, plans often claim the right to be repaid all their money before the participant or his attorney get anything. The ability of insurers and other plan fiduciaries or entities acting on their behalf to recover these subrogation interests by suing plan participants and beneficiaries has been strengthened considerably in the last few years by two specific Supreme Court cases, Great-West v. Knudson, 122 S.Ct. 708 (2002) and Sereboff v. MAMSI, 126 S.Ct. 1869 (2006). Now appears a recent case that illustrates how an ERISA fiduciary’s reach may extend beyond plan participants and beneficiaries to tag their personal injury attorneys. Trustees v. Papero, 2007 U.S. Dist. LEXIS 29247 (D. Conn. 2007), a copy of which I’ll add to the website library shortly, involves Edward Papero, an ERISA plan participant, who was badly injured in an accident. His ERISA plan had language that specifically excluded coverage for medical expenses arising out of injuries sustained from the tortious conduct of a third party. However, the plan gave the plan administrators discretion to provide coverage for these expenses if the participant signed a “reimbursement agreement.” Among other things, the document required that, in exchange for benefits from the Plan, Papero agree to pay back to the plan, without any reduction for attorney fees and without regard for whether the participant was made whole, all amounts he recovered from any tortfeasor up to the amount the plan paid in benefits. Having been badly injured, facing a six figure amount of medical expenses, Papero didn’t have much of a choice. He signed the agreement. For reasons that aren’t clear from the opinion, one of his two attorneys, Walsh, also signed the agreement. His second attorney, Ross, did not sign the agreement. With regard to the obligations of Walsh, the signing attorney, the document stated that he agreed to hold any proceeds from the third party tort action in trust for the plan and not to disburse those funds until the plan approved that disbursement. After the agreement was signed, the plan paid about $120,000 in medical expenses for Papero. A number of years later Papero settled his tort claim against the wrongdoer for $150,000. However, Papero and his attorneys failed to establish a trust and pay the plan back the money the plan claimed was owed. The plan sued Papero, Walsh and Ross. Walsh and Ross moved to dismiss the claims against them. The trial court refused to do so. First the court agreed with the plan that as to Ross, the non-signing attorney, if, as the plan alleged, Ross possessed $50,000 of the $150,000 recovered by Papero, under the terms of the rreimbursement agreement, there was a constructive trust on that money and whether Ross had signed the reimbursement agreement was irrelevant: “Ross . . . need not be a signatory to the Agreement in order to be bound by it.” Second, the court ruled that if Ross was deemed a fiduciary of the plan by virtue of having some degree of discretionary control over plan assets, he could be liable if they were disposed of improperly. Whether Ross was an ERISA fiduciary was a mixed question of law and fact that could not be disposed of on a motion to dismiss. Having ruled in this manner as to Ross, the court quickly denied Walsh’s motion on the same basis. If Ross, a non-signer of the Reimbursement Agreement, wasn’t able to get out of the case, it was self-evident that the same principles and perhaps more kept Walsh, the attorney that signed the Agreement, from getting out. This case is not news as it applies to the obligation of plan participants to deal with subrogation claims. What is different about it is its extension of the scope of ERISA’s “appropriate equitable relief” to tort lawyers. Personal injury attorneys have more reasons than ever to pay close attention to the terms of their client’s ERISA plans. They simply cannot take lightly ERISA plans' subrogation claims. UPDATE: Here's Papero
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