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Supreme Court rules on health plan ERISA subrogation case

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Members of the U.S. Supreme Court have ruled 8-1 against the administrators of a health plan in a case involving efforts by the plan to tap an enrollee’s injury settlement money.

Robert Montanile, the petitioner in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan (Case Number 14-723), was an enrollee in the National Elevator Industry Health Benefit Plan in December 2008, when a driver hit his car and hurt him severely, according to a majority opinion written by Justice Clarence Thomas.

The health plan spent $121,044.02 on Montanile’s care. Montanile later recovered $500,000 in a settlement and ended up with $240,000 in cash left over after he paid attorneys’ fees and paid back money his lawyers had lent him. 

When the plan board tried to get reimbursement money from the remaining settlement money, the lawyer said he would give the cash to Montanile unless the board objected within 14 days. The board failed to object within 14 days, and the lawyer gave Montanile the cash. The board then sued in federal district court.

A district court and the 11th U.S. Circuit Court of Appeals ruled in favor of the plan trustees. 

In 2002, in Great-West Life v. Knudson, the Supreme Court ruled that “equitable relief,” a traditional set of legal principles, applies when a plan governed by the Employee Retirement Income Security Act (ERISA) uses a plan subrogation clause to get access to an enrollee’s injury settlement money.

In the new ruling on Montanile, the Supreme Court majority says an ERISA plan’s administrators have no right to use equitable relief to recover from injury settlement money if the patient has spent all of the money on non-traceable items, such as food.

The court overturned the 11th Circuit ruling and asked the 11th Circuit to see whether any of Montanile’s injury settlement money continues to be separate from Montanile’s general assets.

“The basic premise of an equitable lien by agreement is that, rather than physically taking the plaintiff’s property, the defendant constructively possesses a fund to which the plaintiff is entitled,” Thomas writes in the opinion for the majority. “But the plaintiff must still identify a specific fund in the defendant’s possession to enforce the lien.”

Justice Ruth Bader Ginsburg blasted the ruling.

Because of the ruling, a patient can escape an obligation to reimburse his health plan “by spending the settlement funds rapidly on non-traceable items,” Ginsburg writes in a dissenting opinion. “What brings the court to that bizarre conclusion?”

Ginsburg says the court is perpetuating the mistake it made in 2002, when it issued the Great-West equitable relief ruling.

See also:

Key selection criteria for third-party administrators

Subrogation Provision Ditched

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