|U.S. Supreme Court: Health plan barred from seeking reimbursement under ERISA|
� A copy of the opinion in Great-West Life & Annuity Ins. Co. v. Knudson
is available free to PaTLA members by contacting Craig Giangiulio of the Philadelphia office ([email protected]).
In an important decision involving the Employee Retirement Income Security Act (ERISA), the U.S. Supreme Court ruled on Jan. 8, 2002 that an employee�s health plan is not authorized to sue under ERISA to be reimbursed out of a participant�s tort recovery. In a 5-4 decision, the Court ruled in Great-West Life & Annuity Ins. Co. v. Knudson that judicially decreed reimbursements for payments made to a beneficiary of an insurance plan by a third party is not �equitable relief� authorized by �502(a)(3).
�Because petitioners are seeking legal relief�the imposition of personal liability on respondents for a contractual obligation to pay money��502(a)(3) does not authorize this action,� Justice Antonin Scalia wrote in the majority opinion for the Court.
The Court did not, however, express its opinion as to whether the petitioners could have intervened in the state-court tort action brought by the respondents, or whether a direct action by petitioners asserting state-law claims, such as breach of contract, would have been pre-empted by ERISA. The court looked to another ERISA case, Mertens v. Hewitt Associates, in which it rejected a reading to the statute that would extend the relief obtainable under �502(a)(3) to whatever relief a court of equity is empowered to provide. Scalia wrote: �We need not decide these issues because, as we explained in Mertens, �[e]ven assuming�that petitioners are correct about pre-emption of previously available state-court actions� or the lack of other means to obtain relief, �vague notions of a statute�s basic purpose� are nonetheless inadequate to overcome the words of its text regarding the specific issue under consideration.� He added: �We will not attempt to adjust the �carefully crafted and detailed enforcement scheme� embodied in the text that Congress has adopted.�
Scalia was joined by Chief Justice William H. Rehnquist and Justices Sandra Day O�Connor, Anthony M. Kennedy, and Clarence Thomas. Justice John Paul Stevens filed a dissenting opinion. Justice Ruth Bader Ginsburg filed a dissenting opinion, in which Justices Stevens, David H. Souter, and Stephen G. Breyer joined.
PaTLA President Clifford A. Rieders said the decision was an important one for the plaintiffs in the case, but added that it is unclear whether the Court�s ruling will have much of an impact on other plaintiffs seeking defenses to ERISA pre-amptions.
According to the Court�s opinion, Janette Knudson was rendered a quadriplegic by a car accident in 1992. Janette was covered by her then husband�s employer�s plan, known as the Health and Welfare Plan for Employees and Dependents of Earth Systems, Inc. (Plan). The Plan covered $411,157.11 of Janette�s medical expenses, of which all except $75,000 was paid by Great-West Life pursuant to a �stop-loss� insurance agreement with the Plan.
The Plan included a reimbursement provision giving the Plan �the right to recover from the [beneficiary] any payment for benefits� paid by the Plan that the beneficiary is entitled to recover from a third party.
In 1993, the Knudsons filed a tort action in California state court seeking to recover from Hyundai Motor Co., the maker of the car they were riding in at the time of the accident, and other alleged tortfeasors. The parties to that action negotiated a $650,000 settlement, which allocated the bulk of the recovery to attorney�s fees and to a trust for Janette�s medical care, and earmarked $13,828.70 (the portion of the settlement attributable to past medical expenses) to satisfy Great-West�s reimbursement claim.
Approving the settlement, the state court ordered the defendants to pay the trust amount directly and the remainder to the respondent�s attorney, who, in turn, would tender checks to Great-West and other creditors. Instead of cashing its check, Great-West filed a federal suit under �502(a)(3) of the Employee Retirement Income Security Act of 1974 to enforce the Plan�s reimbursement provision by requiring the Knudsons to pay the Plan $411,157.11 of any proceeds recovered from third parties. The District Court granted the Knudsons summary judgment, holding that the terms of the Plan limited its right of reimbursement to the $13,828.70 determined by the state court. The Ninth Circuit then affirmed on different grounds, holding that judicially decreed reimbursement for payments made to a beneficiary of an insurance plan by a third party is not �equitable relief� authorized by �502(a)(3).
The Supreme Court�s decision affirmed the judgment of the Ninth Circuit Court of Appeals in favor of the Knudsons.
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