The U.S. Supreme Court today considered questions about when a federal appeals court can focus on fairness, rather than the written language in a contract, in efforts to resolve a group health plan case.
Lawyers for the parties in U.S. Airways Inc. vs. McCutchen (11-1285) argued about whether they were talking about a subrogation agreement or a reimbursement agreement, and whether the court could apply the same rules to a reimbursement agreement that it could apply to a subrogation agreement.
The justices talked about how far they ought to go when trying to understand the case.
“You want us to decide a case without looking at the plan?” Justice Anthony Kennedy asked Neal Kumar Katyal, the lawyer who represented the plan, according to a transcript of the oral arguments. Kennedy later suggested that something that seemed to be a subrogation provision was not. “This plan is rather confusingly drafted,” he said
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Justice Antonin Scalia questioned whether the Supreme Court should get that deeply into plan details.
“I didn’t think we took this case to review plan,” Scalia said. “Is that what the Supreme Court took the case for, to say what this particular individual plan said?
Several justices suggested that there might be a conflict between what the summary plan document (SPD) appears to say and what the plan contract itself said.
James McCutchen, the plaintiff in the case, was badly hurt in an automobile collision caused by another motorist. A group health plan governed by the Employee Retirement Income Security Act of 1974 (ERISA) covered $66,866 in medical expenses. The plan had a provision permitting it to seek reimbursement for any amounts paid for claims resulting from the actions of a third party. The plan also said in the contract that the “plan will be subrogated to all your rights to recovery,” according to court documents.
McCutchen received $10,000 through a settlement with the other driver and $100,000 in underinsured motorist coverage. He paid a 40 percent contingency fee and ended up with $66,000 in cash.
The employer plan first asked for reimbursement of the $66,866 that it had paid. When McCutchen’s lawyers objected, the plan then sued in federal court to seek “appropriate equitable relief.”
The plan said appropriate equitable relief included the $66,000 in cash that McCutchen had received, $41,500 that McCutchen’s lawyers had put in a trust, and $25,366 in cash from McCutchen.
In “equitable” actions, courts are supposed to try to focus more on what they believe to be fair than on the letter of the law or the letter of a contract.
A three-judge panel at the 3rd U.S. Circuit Court of Appeals ruled in November 2011 that it agreed with McCutchen that awarding the health plan more cash than McCutchen himself had received would lead to “unjust enrichment” of the health plan.
“Because the amount of the judgment exceeds the net amount of McCutchen’s third-party recovery, it leaves him with less than full payment for his emergency medical bills, thus undermining the entire purpose of the plan,” Julio Fuentes, a 3rd Circuit judge, wrote in an opinion for the court.