ERISA Subrogation Claim Hit by Supreme Loss

Michael Riegert

Employee benefits plans regulated by the Employee Retirement Income Security Act (ERISA) may pay benefits for medical treatment which should have been paid for by the responsible party.  The Fund’s Plan should provide for subrogation and reimbursement rights in those situations.  A recent U.S. Supreme Court decision in Montanile vs. Board of Trustees of the National Elevator Industry Health and Benefit Plan (2016) underscores the risk and detriment of not pursuing such subrogation/reimbursement rights in a timely manner.  In Montanile, the Fund was denied recovery of $121,000.00 in benefits it had paid despite its member’s recovery of $500,000.00.  This article will highlight the Montanile case, the importance of its decision to an ERISA Health and Welfare Fund, and how to best avoid this type outcome.

Richard Montanile was a participant in a Health and Welfare Plan governed by ERISA  and administered by the Board of Trustees of the National Elevator Industry Health and Benefit Plan.  In December 2008, a drunk driver ran through a stop sign and crashed into Montanile’s vehicle.

Montanile filed a lawsuit against the uninsured drunk driver and made a claim for uninsured motorist benefits under his own car insurance.  Mr. Montanile obtained a $500,000.00 settlement from his own car insurance.  After fees and costs, about $240,000.00 remained of his settlement.  It was at this point that the Plan’s Board of Trustees first sought reimbursement from Montanile on behalf of the Plan.  Mr. Montanile’s attorney argued that the Plan was not entitled to any recovery.  By the time the Board sued Mr. Montanile in District Court, Mr. Montanile had spent most of the settlement funds.

The U.S. Supreme Court held that when an ERISA Plan member wholly dissipates a third party settlement on non-traceable items — such as food or travel — it destroys an equitable lien and the Plan may not bring suit to enforce its claim against the member’s general assets.  This decision makes clear and stresses that any delay in pursuit of a Health Fund’s Right of Subrogation/Reimbursement is very risky.  It emphasized that had this Plan pursued recovery of its subrogation/reimbursement claims from the outset, it would have been involved in the settlement of the $500,000.00 and recovered its claim at that point, before it ever became in the control of Mr. Montanile.  The Plan in this case compounded its problem by not   initiating a lawsuit against Mr. Montanile until six months after the settlement proceeds first became available.  Had the Plan in this case pursued its claim much earlier, they would have avoided this adverse decision and avoided the delay and cost of not pursuing this claim in a timely matter.

Our approach at the Previant Law Firm is to pursue subrogation/ reimbursement claims as soon as possible.  We put the member, the member’s attorney, and the other parties on notice of the Fund’s subrogation/reimbursement rights well before any litigation and as soon as possible after any accident or incident.  Our program allows us to contemporaneously review claims the Fund pays to see if the Fund has a subrogation/reimbursement claim.  If so, we investigate and pursue the claim on behalf of the Fund.  We are directly involved with all of the parties in pre-suit settlement discussions and agreements.  We answer and participate in any litigation to protect the Fund’s rights to subrogation/reimbursement.  Our program prevents a settlement or award that doesn’t address and include recovery to the Fund and avoids the risk, costs, and delay of trying to intervene or initiate litigation.  We also review Plan Documents and Summary Plan Descriptions to ensure they have the proper language and provisions to allow for the best possible recovery/reimbursement rights.

The decision in the Montanile case underscores the importance of early pursuit of subrogation/reimbursement claims.  For  a more involved and specific discussion concerning these complex and intricate legal issues, please do not hesitate to contact Attorney Michael Riegert at The Previant Law Firm.