Question
I was perusing your blog and noticed a comment on Missouri being an anti-subrogation state but that such is preempted by ERISA. While I agree with that general statement, I have a puzzling question. As an attorney for an insurance company, I consistently see lawyers asking me to ignore the ERISA "lien" (which I call a subrogation interest rather than a lien). If I tell them I must honor ERISA's "lien", they tell me the deal is off. I'd like to be assured that the plan cannot sue the insurance company if I refuse the honor the "lien," but no attorney has been able to convince me.

My position has always been that Knudson prohibits the plan from suing the insurer for not including the plan on the settlement check as they have no remedy at law. However, some plan will provide me with a signed "lien" which appears to voluntarily executed. If a plan asserts that the anti-subrogation status of Missouri is preempted by ERISA, is the Plan held to the sole remedy of equitable relief in that they cannot assert an action at law against the insurer for not honoring the purported lien? Or, can the plan assert that they have a voluntary lien agreement (which Missouri recognizes under Ford v Allstate, 2 SW3d 810) with the beneficiary for which the tortfeasor's insurance company must honor or face an action at law for not honoring it? In other words, can they choose not to opt for preemption where it benefits them even though we would have to analyze the ERISA qualified plan to determine whether they have legitimately obtained a non-voidable lien?

Missouri Attorney

Answer
Thank you for the question. I will admit that the situation presented can be difficult to wrap one's head around and I can certainly understand the confusion. That said, I think we can break things down to gain a clearer perspective. Simply put, I believe there are two approaches that a health plan could utilize to seek recovery; one under ERISA and another under state law contract/lien principles. From your inquiry it is apparent that you are well versed in this subject matter and it is hoped that some of the more basic material below does not bore you as elementary knowledge. Because of the complex nature of these issues I find it is always better to be as complete and thorough as possible.

Before diving into the analysis I also want to point out that I am in complete agreement with your approach of referring to ERISA interests as an interest rather than a "lien". When GFRG refers to an "ERISA lien" it is more a term of convenience than an accurate legal statement. We both know the term "lien" has a significant legal meaning and using the phrases subrogation or reimbursement interest is more appropriate.

First Approach: ERISA (a plan may seek "appropriate equitable relief")

ERISA defines an employee welfare benefit plan as a plan, fund, or program; established or maintained; by an employer, an employee organization, or both through the purchase of insurance or otherwise, for the purpose of providing medical, surgical, or hospital care or benefits or benefits in the event of sickness, accident or disability, for its participants or their beneficiaries. The ONLY exceptions are individual plans, government plans, and religious group plans. ERISA expressly preempts state laws insofar as they relate to employee benefit plans (29 U.S.C. 1144(a)). HOWEVER, under ERISA this preemption does not apply to those laws which regulate insurance, banking, or securities (29 USC 1144(b)(2)(A). This is known as the savings clause and if an ERISA plan is in fact insured you can use state law defenses such as the anti-subrogation approach of Missouri. (Missouri "" Travelers Indem. Co. v. Chumbley, 394 SW 2d 418"¦ health plans are barred from seeking recovery through subrogation or reimbursement because under MO law a claim for personal injuries is not assignable).

To avoid the state prohibition through preemption, an ERISA plan would need to prove that it is self-funded. This can be done through various documentation including the summary plan description, the annual Form 5500, and if need be an affidavit from the plan administrator.

Assuming that an ERISA plan has validated its self-funded status and its corresponding right of preemption, the plan is entitled to appropriate equitable relief as provided under ERISA and Sereboff, 126 S.Ct. 1869 (2006). As you correctly state in your inquiry, the sole remedy is equitable relief and they cannot assert an action at law under ERISA. Thus a plan may seek its right of subrogation or reimbursement as provided in its plan language so long as that language seeks recovery from a specific fund (third party proceeds) and a specific portion of said fund (amount of benefits paid under plan). The plan could not seek an action at law against a third party insurer under ERISA.

Second Approach: State Law ("lien on proceeds")

This approach would be applicable in a case where a plan has obtained a voluntary lien agreement. Please note that this response is dealing directly with a health plan rather than a provider who has a voluntary lien. I believe that a lien granted to a provider for services should be evaluated in a different manner.

There are two important considerations when looking at an ERISA plan's right when a voluntary lien agreement is involved. First and foremost, the lien agreement is almost certainly a direct product of the plan's summary plan description language dealing with subrogation/reimbursement. For a valid reimbursement agreement to be utilized a plan arguably must have some reference or requirement in its plan language to such an agreement. Why? If there was no reference such a reimbursement agreement would be void for lack of consideration since the plan is already obligated to pay for the benefits. If on the other hand there was a reference then the agreement was just another specific term in the plan language regarding subrogation/reimbursement. I truly believe that an ERISA plan would have a very difficult time differentiating this separate agreement from its subrogation/reimbursement rights under the plan language.

The second consideration is the Ford v. Allstate case, 2 SW 3d 810. The Court here allowed a lien on a claim (rather than an assignment of the claim) for personal injury. What is important to note is that this case dealt with a lender who was granted a lien for adequate consideration. It is also important to note that in fn. 3 the Court specifically mentions that had this case dealt with subrogation the analysis and results may have been different. Furthermore the Schweiss v. Sisters of Mercy case, 950 SW 2d 537, addresses reimbursement provisions and the fact that such agreements imposed by health plans would be invalid as against public policy under MO state law.

While a health plan could assert a right under MO law and the theory of a voluntary lien, it appears that such an approach would be difficult to differentiate from its rights under ERISA. It has been our experience that the ERISA right of recovery is always preferred and plans will take this over state created remedies. The reason is that state law will have greater protections for the plan participant and the right of action under state law can be harder to prove/proceed under.

I hope you found this analysis helpful and please let me know if you have any additional questions or comments. Thanks for the inquiry.

My Best,
Michael D. Russell, Esq.

Question
I was wondering where Florida attorneys stand as to their liability for the payment/non-payment of clients ERISA liens? If a settlement is reached must we pay the lien? Are we required to hold it in trust? If we disburse to the client will we be liable to the plan? I am well aware of the Longaberger case in the 6th Circuit but was unable to find any controlling precedent in Florida. I am also aware of Florida's rule 5-1.1 regulating trust accounts (basically a copy of ABA MRPC 1.15) requiring disputed funds to be held in trust.

Also, if the plan language is well crafted what tools may I use to attempt to negotiate the lien down?

Answer
Thank you for the inquiry. Your questions hits upon several good points. First and foremost, if an ERISA plan is asserting a valid and legitimate reimbursement interest ("lien") in your client's settlement proceeds then arguably that interest should be satisfied. To have a valid and legitimate interest, the ERISA plan must have plan language which seeks an equitable right to reimbursement. ERISA plans are limited to seeking appropriate equitable relief. 29 U.S.C. § 1132(a)(3)(B). An ERISA plan has a right of reimbursement which sounds in equity if the plan language imposes a constructive trust or equitable lien upon a third party recovery. To qualify as equitable the plan language MUST 1) specify that recovery will be made from an identifiable fund and 2) specify that recovery must be limited to a specific portion of said fund. If either of these requirements are not met in the plan language, the plan does not have an equitable right to recovery and thus they do not have a reimbursement interest under ERISA. See Sereboff, 126 S.Ct. 1869 (2006). Thus it is important to make sure the plan is seeking an equitable remedy.

Some of the considerations for resolving this interest.

- Ethical Obligations. Florida Rule 5-1.1 and holding disputed funds in trust. An ERISA plan is no different than any other claimant.
- Client Contractual Considerations. If the interest is not resolved or the plan participant does not cooperate according to the terms of the plan, the participant may subject themselves to legal action and additionally they may face a future set off or complete loss of future benefits.
- Constructive Trust Consideration. The Longaberger case was not about imposing liability on the attorney as much as it was about the plan's equitable right. The Longaberger plan had a first priority right to the settlement proceeds. Because the attorney received a third of those proceeds the attorney was responsible for reimbursing the plan one third of its lien. The plan did not seek damages or a cause of action against the attorney but rather it sought the recovery of funds. While Longaberger is a sixth circuit case with very specific facts it certainly should serve as a cautionary tale to attorneys in every circuit.

In negotiating the reimbursement interest I would recommend a careful evaluation of the plan language. As mentioned above, the plan must have specific language to establish its right. Furthermore, equitable doctrines such as made whole and common fund may apply depending on the plan language and whether you are applying state or federal law (applicable law is based upon the funding of the plan; self-funded plans enjoy federal preemption while insured plans can be limited by state insurance law). Additionally, there can be other weaknesses in the plan language such as requiring third party liability or limiting the reimbursement to medicals recovered.

As a general matter I would encourage you to take a proactive approach and deal with the ERISA plan on the front end. It is important to remember that the plan's right of reimbursement does not come into existence until the settlement or verdict is reached. Prior to this time they only have a right to subrogate and this is the last thing that many of these plans and their agents want to get involved with. Because the interest is not "perfected" until settlement we take the approach that a case should not be settled unless the interest is resolved. If you were dealing with a self-funded ERISA plan with draconian language the only leverage you may have is the threat of walking away and thus the plan would receive nothing. If the case settles this opportunity is lost and the plan has an enforceable right.

As you can see this is a complex area of the law which is constantly changing. Because of this you may encounter a lien or a government benefits issue that demands experience and expertise not commonly available inside of a personal injury firm (such as healthcare billing and coding expertise). To ensure the proper evaluation and favorable resolution of such a matter, your client may require the consultation or retention of outside assistance to advise and address the issue. Your fee agreement should provide for this at your discretion, and stipulate that any reasonable costs may be passed along to the client. In this manner the cost can be placed on the client and both you and the client can be assured that the interest will be properly and efficiently resolved.

Thanks again and please let us know if you have any additional or follow up questions. Take care.

Michael D. Russell, Esq.

Question
I have a non-ERISA policy. My client lives in Ohio, therefore, N. Buckeye v. Lawson applies with regard to plan reimbursement language and the make-whole doctrine. The pertinent language is as follows: "We will have the right to be reimbursed to the extent of benefits we paid for the illness or injury if the covered person subsequently receives any payment from any third party. The covered person shall promptly reimburse Golden Rule from the settlement, judgment or any payment received from any third party. We have a lien on all money received by a covered person in connection with the loss equal to the amount we have paid. We have a right to be reimbursed in full regardless of whether or not the covered person is fully compensated by any recovery received from any third party by settlement, judgment, or otherwise."

Does this language satisfy the Lawson requirements and trump the make-whole doctrine? If settlement funds are released to the client, which includes money for the lien, does an attorney in Ohio have any personal liability? I am aware of what Longaberger states for the ERISA plan. Thanks for your insight.

-Ohio Attorney

Answer
Thank you for the question. Before diving into the question, I want to emphasize one point of differentiation between an ERISA policy and a non-ERISA policy. Often we see the mistake of referring to self-funded Plans as "ERISA Plans" and insured Plans as "non-ERISA Plans." In reality, both insured Plans and self-funded Plans are both ERISA-covered. ERISA defines an employee welfare benefit plan as a plan, fund, or program; established or maintained; by an employer, an employee organization, or both through the purchase of insurance or otherwise, for the purpose of providing medical, surgical, or hospital care or benefits or benefits in the event of sickness, accident or disability, for its participants or their beneficiaries. The only exceptions are individual plans, government plans, and religious group plans. ERISA expressly preempts state laws insofar as they relate to employee benefit plans (29 U.S.C. 1144(a)). HOWEVER, under ERISA this preemption does not apply to those laws which regulate insurance, banking, or securities (29 USC 1144(b)(2)(A). This is known as the savings clause. Thus an insured plan which can be subject to state insurance law can still be considered to be an “ERISA” plan. Obviously, the policy in question here could be a government or individual policy and thus it would be “non-ERISA”.

With regard to the Lawson case, the Court held that “unless the terms of a subrogation agreement clearly and unambiguously provide otherwise” the made whole doctrine will apply. The Court essentially adopted the federal common law approach. The plan language cited in your question gives the plan to right to reimbursed regardless of whether the covered person is fully compensated. While this language differs from Lawson (irrespective of whether settlement reimburses for all injuries) it is similar if not clearer than the language in Lawson. An argument can always be made but it would seem the language in your case would satisfy the requirements of Lawson.

With regard to personal liability of the attorney there are several factors to consider. First and foremost, Ohio does not have an affirmative notice law which requires your client to notify the insurer. Secondly, Ohio has adopted ABA rule 1.15(e) which states “When in the course of representation a lawyer is in possession of funds or other property in which two or more persons, one of whom may be the lawyer, claim interests, the lawyer shall hold the funds or other property pursuant to division (a) of this rule until the dispute is resolved. The lawyer shall promptly distribute all portions of the funds or other property as to which the interests are not in dispute.” If you have received notice of the insurer’s interest this is certainly a consideration. Finally, an important aspect of the Longaberger case was the fact that ERISA controlled and thus the court did not really analyze the priority of the attorney’s fee lien in comparison with that of the health plan. If this a non-ERISA policy and state law applies then Ohio law would control the priority here.

As a final note, in cases where the insurer or plan has not put you on notice of their interest and funds are disbursed to a client, I would strongly recommend that before releasing funds you sit down with your client and explain to them any contractual consequences which arise from the language of the policy.

I hope you found the response helpful and please let me know if you have any follow up questions.

My Best,
Michael Russell

Question
I appreciate your prompt and concise response. Thanks for the good information. However, it does raise many questions but one in particular that I am stuck on:

You say below that Sereboff holds in part that the Plan must “…………………2) specify that recovery must be limited to a specific portion of said fund.” Many plans I see now a day say that they are entitled to proceeds from a settlement or judgment on a third party matter no matter how that settlement or judgment is described. In other words, they are saying that if your plaintiff/their beneficiary have a PI claim against a third party and there is ANY recovery in that suit or claim, they are entitled to their money. Is there a case out there that says this second part is not met by the plan if the language in the plan is too broad as I have tried to describe above? Juries will sometimes not award all of the medical bills asserted ($40,000.00) and only award a small sum for those damages ($5,000) but give significant damages for pain and suffering ($25,000) and lost wages (25,000). In this type of scenario where the total recovery is $55,000 but only a small portion of the medical bills were recovered are they entitled to recover their entire payout?

Thanks for any input you can give on this.

Answer
That is great a question. First, with regard to the second prong of equitable remedy, there are not any cases which hold that because the plan seeks any and all recoveries it is not seeking a specific portion. Courts have held that this specific portion requirement applies to the amount sought rather than characterization of the recovery. For example, language stating that the plan seeks recovery “up to the amount of benefits paid” or for those “benefits paid” will meet the requirement. Although use of such broad language could arguably be challenged as not being appropriate and equitable such a challenge will not be applied to the equitable remedy requirements of Sereboff.

Second, if a plan’s language limits itself to recovery of medical expenses than such allocations can be useful in combating their reimbursement right. However, as you mention in your follow up, they often include broad and all encompassing rights. Unfortunately, in these situations even a court ordered allocation with regard to damages cannot prevent a plan’s recovery if they have an equitable lien and strong plan language. Allocation among individuals is a different story.

Michael Russell

Question:
We have received a very small judgment in a PI case. There is a no fault medical lien and of course our expenses and fees to be paid per our contract. The ERISA carrier says that they have a lien for the total amount of their payments and it has priority over these liens. What is the priority if any of ERISA carrier's right of reimbursement?

Answer:
An ERISA employee health plan will be governed according to the terms of its plan language. From our perspective as a third-party provider of lien resolution services, the most pivotal step in resolving Private/ERISA liens is the plan evaluation. The language in a plan will dictate the priority, if any, of the reimbursement interest and will identify the scope of that interest.

First, ERISA plans are limited to seeking appropriate equitable relief. 29 U.S.C. 1132(a)(3)(B). An ERISA plan has a right of reimbursement which sounds in equity if the plan language imposes a constructive trust or equitable lien upon a third party recovery. To qualify as equitable the plan language MUST 1) specify that recovery will be made from an identifiable fund and 2) specify that recovery must be limited to a specific portion of said fund. If either of these requirements are not met in the plan language, the plan does not have an equitable right to recovery and thus they do not have a reimbursement interest under ERISA. See Sereboff, 126 S.Ct. 1869 (2006).

Second, ERISA plans which are funded through an insurance provider may be subject to state law defenses through the “savings clause” of ERISA 1144(b)(2)(A) (if the state law is found to regulate insurance). ERISA plans which are self-funded through the assets of the employer or a trust of similar nature will preempt state law but may be subject to federal common law defenses. Whether or not a defense will apply will be controlled by the language of the plan as well. In addition, the plan’s funding status should be identified in the plan language; although this alone should not be relied upon.

Third, as a general matter, the plan language will specifically state what type of priority it possesses.

In conclusion, to properly identify and assess a plan’s interest and what priority such an interest may have it is absolutely necessary to obtain a copy of the Summary Plan Description from the year in which benefits were provided. Under 1024(b)(b), your client has the right to request this and any other document under which the plan is operated or established. The request should be directed to the administrator of the plan and they are required to comply.

If you obtain the plan language I would be happy to give it a quick review and provide my general thoughts on the strength or priority. Thanks.

Michael D. Russell

Posted by Michael Russell

Question:
Can a plan sue the personal injury attorney as a defendant for simply holding the settlement proceeds of a plan participant in their trust account to which the plan may have a lien? Also, what does a plan have to do to have an enforceable lien? If the plan pays benefits but does not have the participant sign a repayment agreement per the plan is the lien still enforceable and is that still ERISA or is it a contract claim?

Answer:
With regard to your first question, there is nothing which prevents the plan from suing an attorney in such a situation. However, as the funds have not been disbursed to the client there is limited danger in such a scenario.

Regarding enforceability, it really depends upon the language of the plan (contractual right) or the state where your client resides (equitable right). If the language of the plan gives the plan a right to subrogation and/or enforcement then there is presumably an enforceable lien. Likewise, if there is no plan language but state case law recognizes that the insurer has an equitable right to subrogation then presumably there is an enforceable lien. For example in the state Illinois, the Supreme Court in a 1990 decision, decided that a health plan can only have a contractual right. In either case there are no formal steps for perfection which you may see with other liens.

Repayment or reimbursement agreements are common but by no means are they necessary to trigger enforceability. Again the plan language will dictate. I also have to point out that there is really no difference between an ERISA claim and a contract claim in such context. ERISA does not specifically provide for subrogation (no specific provision) but it does allow for appropriate equitable relief. See 29 USC 1132(a)(3). This relief is obtained through enforcing the terms of the plan which is itself a contract. The focus should be first on the plan language and second on the reimbursement agreement, if any.

I hope this email provided useful insightful in response to your inquiry. I am happy to discuss a particular case in more detail. Often ERISA cases are very fact specific and without more info it is hard to give a complete answer (and sometimes even with all the info a complete answer cannot be given).

Michael Russell