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The United States Supreme Court finds that equitable remedies may apply to an ERISA plan

by | Apr 17, 2013 | Motor Vehicle Accidents |

James McCutchen was in a motor vehicle accident and incurred $66,866 in medical bills. These bills were paid for by U.S. Airways’ self-funded ERISA plan. McCutchen hired an attorney and settled his claims for the maximum available insurance of $110,000. After paying his attorney fees of $44,000, McCutchen had $66,000 left. The plan then asserted it was owed the entire amount it previously paid, which would have left McCutchen $866 in the hole. He argued that the plan is limited to recovery of the amount of his settlement representing medical expenses and that the plan should have to share in his attorney’s fees. The plan disagreed.

On April 16, 2013, in U.S. Airways v. McCutchen, the United States Supreme Court rejected McCutchen’s argument that the plan was limited to the portion of his settlement representing medical bills because the language of the plan required full payment. However, the Court found that the plan had to share in the cost of his attorney’s fees because the plan language was silent on how to pay for the costs of obtaining the settlement (known as the “common fund” doctrine). The Court reasoned, “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 worse off by pursuing a third party.” See U.S. Airways v. McCutchen.

Following McCutchen, it will be even more important to carefully review the requirements of an ERISA plan to determine whether filing suit would permit a reasonable recovery, or whether it will permit a free ride to the insurer.