The risk retention group industry is hailing a seminal Supreme Court ruling Tuesday which held that self-insured group health plans are entitled to enforce the terms of their plans as written.
The court ruled unanimously in US Airways Inc. v. McCutchen that common principles of fairness and equity can't overrule specific contract language written by sponsors of a self-insured health plan.
However, four justices dissented on some procedural issues not central to the key issues in the case, said Bryan Davenport, an Indianapolis lawyer and specialist on subrogation issues, as well as a member of the Self-Insured Institute of America.
It is the fourth subrogation issue regarding ERISA plans that the court has dealt with in recent years, and provides the clearest guidelines on general issues regarding contract language in ERISA plans, as well as on enforcement issues.
For example, it says that, in areas where the plan documents are silent, as in the allocation of attorneys’ fees, courts can step in, according to officials of the Self-Insured Institute of America.
The SIIA filed an amicus brief in the case, in partnership with the National Association of Subrogation Professionals.
The court also said that while “... equitable rules ... cannot trump a reimbursement provision, they still might aid in properly construing it.”
Because the US Airways plan was silent on the allocation of attorney’s fees, “in those circumstances, the common-fund doctrine provides the appropriate default,” the court said.
As a result, US Airways can't require the victim of an accident, who is insured by the company’s health plan, to reimburse that plan for the health care costs expended by the plan without also sharing in legal costs because the company's health plan didn't spell out how to handle attorney fees in its plan document, the majority ruling said.
SIIA officials said the case focused on whether plans can enforce the terms and conditions of their subrogation and reimbursement clauses as written.
“We appreciate this court ruling because it clarifies the authority of self-insured employers to administer their plan in accordance with their plan documents,” said Michael Ferguson, SIIA chief operating officer. “It also clarifies an earlier decision in Sereboff that left some issues unclear.”
The case centered on a decision of the 3rd U.S. Circuit of Appeals, based in Philadelphia.
That court ruled in the case of the US Airways employee involved in an auto accident that health plans would have to reduce their interests to account for the common fund doctrine (reducing their right to reimbursement for attorneys’ fees) and the made-whole rule (suspending their right to reimbursement unless and until the plan member recovered ample funds to cover all nonmedical damages) even when the plan specifically exempted itself from the operation of these doctrines.
“Or more simply put, can courts intervene to circumvent the lawful decisions of plan sponsors?” asked SIIA officials.
Writing for the majority, Justice Elena Kagan held that plans are entitled to enforce their terms as written, commenting "...if the agreement governs, the agreement governs..."
The case stemmed from a severe auto accident where the 57-year-old respondent in the case won $100,000 from his insurance company and $10,000 from the driver who caused the accident.
The victim paid $44,000 in attorney fees and ended up with $66,000. US Airways demanded that the victim pay it the $66,866 it spent on medical bills, regardless of how much of his damage award went to his attorneys.
The victim argued that US Airways had a claim only on the part of the award covering medical expenses and couldn't touch compensation for lost future earnings or pain and suffering.
A district court judge held that the airline's health plan specifically allowed it to recover the full amount, but an appeals court panel reversed that.
The divided High Court supported the lower court decision that the victim’s contract allows the airline to recover the money it spent on medical claims, even if that cuts into the future earnings and pain and suffering awards. But the justices overturned the ruling that the airline wasn't liable for any of the victim's attorney fees.
“For US Airways, this meant that language asserting a first-right to recovery, on any dollar recovered – regardless of whether it is for medical expenses – was binding,” said Ron E. Peck, senior vice president and general counsel of The Phia Group, Braintree, Mass., and SIIA member.
As such, US Airways was not limited to recovering only funds received by the employee for those expenses already paid by the benefit plan, Peck said.
“This, however, is where the good news ended for US Airways, and where we must all pay special attention,” Peck said.
“The Court went on to say that while, “... equitable rules ... cannot trump a reimbursement provision, they still might aid in properly construing it,” he said.
“The plan is silent on the allocation of attorney’s fees, and in those circumstances, the common-fund doctrine provides the appropriate default,” Peck said.
“In other words, if US Airways wished to depart from the well-established common-fund rule, it had to draft its contract to say so – and here it did not.”
Peck added, “By so saying, the Supreme Court has reinforced a pre-existing concept that Court created rules such as those raised by the plaintiff in this case will come into play when and if the plan language itself is silent on the matter.”