INJURED VICTIMS SUFFER TWICE UNDER McCUTCHEN RULING
Congress needs to fix resulting unfair outcomes under ERISA subrogation claims
(Yes, the tail finally does wag the dog!)
On April 16, 2013, the United States Supreme Court issued its long awaited decision in the case of U.S. Airways v. McCutchen, (No. 11-1285). The case involved a subrogation issue under a group health plan governed by ERISA, following a car accident where Mr. McCutchen was seriously injured by another driver.
Mr. McCutchen was an employee of U.S. Airways and was a participant in the U.S. Airways health insurance benefit plan. In January 2007, Mr. McCutchen was injured in a car accident and the U.S. Airways plan paid $66,866.00 in medical expenses for Mr. McCutchen’s injuries from the accident. The person who caused the accident only had $10,000.00 of insurance coverage. Mr. McCutchen turned to his own insurer for help and was able to receive $100,000.00 in underinsured motorist coverage. Therefore, Mr. McCutchen received a total of $110,000.00. Mr. McCutchen’s attorney charged him $44,000.00 for legal fees, which left $66,000.00 for Mr. McCutchen.
U.S. Airways brought suit against Mr. McCutchen under Section 502(a)(3) of the ERISA (Employee Retirement Income Security Act of 1974) statute and said that it was entitled to the $66,000.00 that Mr. McCutchen had in his possession.
Mr. McCutchen asserted certain defenses against the U.S. Airway claim to his money, including defenses centered around unjust enrichment and common fund arguments. McCutchen’s arguments were designed to make the court aware that, after attorney’s fees, he would be giving his entire recovery to U.S. Airways, therefore U.S. Airways should have to share equally in paying the cost of his attorney fees.
In a decision which follows the court’s precedents in Mertens and Sereboff, the Court found that the agreement U.S. Airways had with Mr. McCutchen trumped the type of equitable defenses that he was raising against U.S. Airways’ claim to his tort recovery.
The Court did take time to reassert the strength of its recent decision in Cigna v. Amara, which goes right to the core of ERISA. ERISA’s principal function is to “protect contractually defined benefits.” Additionally, the Court noted that the ERISA statutory scheme is “built upon reliance on the face of the written plan documents.” They further noted, “the plan, in short, is at the center of ERISA.”
The bottom line is: McCutchen was forced to turn over the money he received from the auto insurers for his damages, to the Group Health Benefit Plan which paid for his medical expenses. Essentially Mr. McCutchen would be left with almost nothing after paying the Group Health Plan and his legal expenses.
The outcome of the case was largely predictable. After Sereboff, it is clear that the Court was willing to enforce the terms of the plan and after Amara, it is clear that the Court is interested in the plan, the whole plan, and nothing but the plan.
While much will be written about this case, the problems that it generates are not entirely legal problems. After having handled many tort cases over the years, I have seen people whose lives have been destroyed from the negligence of other people on the highways and roadways of our country. When an individual experiences extreme personal injury from the negligence of another, that individual will likely require an extreme amount of medical care that may go on for an extended period of time. Frequently, injured individuals have spouses, children, and other dependents. The Supreme Court’s decision does little to provide solace to the family of the individual who has been seriously injured.
I doubt that when Mr. McCutchen signed on to the U.S. Airways health plan that he knew that he would be giving up all of his rights of compensation to his employer. Perhaps it wouldn’t be such a bad result if a defendant who had an unlimited supply of money or insurance had injured Mr. McCutchen.
We all know that most accidents generate situations where only a limited amount of insurance coverage is available. It seems bizarre that Mr. McCutchen’s tort rights were consumed by his participation in the health plan. I doubt that Mr. McCutchen or anyone who participates in a group health plan could ever see or predict such a bizarre outcome that leaves the McCutchen family with nearly nothing after being harmed by a tortfeasor who was underinsured.
In a strange twist, it is as if Mr. McCutchen was reinsuring the health benefit plan by purchasing his underinsured motorist coverage. Maybe U.S. Airways should be required to reimburse the McCutchens for all the underinsured premiums they paid for UIM/Underinsured Motorists coverage.
The McCutchen decision actually protects plans but imposes a tremendous burden on taxpayers. Although U.S. Airways was within its rights to generate plan language that gave itself maximum recoveries against plan beneficiaries, the individuals who will ultimately bear the cost associated with the future care of Mr. McCutchen are the United States taxpayers. In any effort to diminish or restrict the rights of the seriously injured in a tort case, the taxpayers are always left to bear the responsibility of caring for the seriously injured individual. People like Mr. McCutchen eventually lose their jobs because of a loss of physical capacity, and therefore will likely be off the health plan. Mr. McCutchen and others in similar situations will then either go on to a Medicaid program or a Medicare program after obtaining Social Security disability.
Either way, the McCutchen family suffers, U.S. Airways gets it money back and the taxpayer bears the burden of Mr. McCutchen’s care. The Supreme Court did not do anything wrong in the case. ERISA is a statute that is not focused on fairness. The court’s hands were tied. This is where Congress must step in. ERISA reform is needed. It is not only needed in subrogation issues, like the one present in McCutchen, but also in terms of the limited remedies that plan participants have.
If you have any questions or concerns about U.S. Airways v. McCutchen or what it means, please do not hesitate to contact me. I welcome your questions on this interesting and difficult set of circumstances that are generated by this decision.
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Joe McDonald, Esq.