Recently the United States Supreme Court upheld a decision in the case of Montanile v. Board of Trustees of the of National Elevator Industry Health Benefit Plan which held that a healthcare benefit plan that follows regulations set forth in the Employee Retirement Income Security Act (ERISA), with reimbursement rights, can only obtain “appropriate equitable relief” when enforcing its lien against a third-party settlement. This decision limits the plan’s recovery to settlement funds still held by, or on behalf of, the participant.
The case’s plaintiff, Robert Montanile was injured in a car accident and his ERISA group healthcare plan paid his medical expenses, which totaled $121,044. Under the plan’s terms, acceptance of benefits constituted an agreement that any amounts recovered from another party would be used to reimburse the plan in full for the payment of applicable medical claims. Following previous precedence set forth by the Supreme Court, this would have created an equitable lien in favor of the plan if Montanile received a judgment or settlement for medical expenses paid by the plan.
Montanile obtained a $500,000 settlement for his injuries. After payments to his attorneys, $240,000 of his settlement dollars remained. Montanile’s health care plan sought reimbursement of the medical expenses it had paid. After discussions failed to resolve the matter, an attorney for Montanile advised the plan that the remaining settlement funds would be distributed from the trust in which they were held, to Montanile directly, unless the plan objected within 14 days. Since the plan did not respond within the designated time frame chosen by the attorney, the remaining funds were distributed to Montanile
Since ERISA generally preempts state claims related to ERISA benefit plans, the plan filed a suit for “appropriate equitable relief” under Section 502(a)(3) to enforce its equitable lien and to prohibit Montanile from dissipating any associated funds. Montanile’s perspective, however, was that since he had already spent the majority of the settlement, no identifiable fund existed against which to enforce the lien.
By an 8-1 vote the Supreme Court held that the plan’s right to “appropriate equitable relief” did not permit a judgment against Montanile’s general assets, but only against funds related to the settlement. The Supreme Court also refused to allow reimbursement when settlement funds were dissipated.
The Court also stated the lien could have been enforced had Montanile purchased traceable assets with the settlement dollars, or commingled the settlement proceeds with a different fund. The lien would have survived in these circumstances, and allowed the plan to recover the amount of the lien from the commingled funds.
According to Justice Thomas, writing on behalf of all of the Justices with the exception of Justice Ginsberg:
We hold that, when a participant dissipates the whole settlement on nontraceable items, the fiduciary cannot bring a suit to attach the participant’s general assets under [ERISA] §502(a)(3) because the suit is not one for “appropriate equitable relief.”
The decision in Montanile reaffirms the Supreme Courts’ interpretation of the meaning of “appropriate equitable relief,” to “those categories of relief that were typically available in equity” before 1938 when the Federal Rules of Civil Procedure were adopted when courts of law and equity were separate and ‘legal remedies’ and ‘equitable remedies’ were strictly defined.
The impact of the Montanile case on ERISA healthcare plans is to affirm that while ERISA plans have a right to reimbursement and a lien against a participant’s personal injury settlement, the plan has no claim against the participant’s general assets, but only an equitable claim against the settlement fund. Such a fund disappears if the settlement proceeds are dissipated by the participant. Self-funded benefit plans should review their subrogation language in their plan document, and discuss with their broker or health benefit plan administrator to ensure the plan language optimally protects the plan from potential lost reimbursement opportunities.