McCutchen, in his early 50s, won’t ever be able to work again and he has so far incurred more than $65,000 in medical bills. “Four teenagers were also involved in the head-on collision that left McCutchen permanently disabled,” says Wessler. “One teen died and two are catastrophically injured.” McCutchen’s health insurance provided by his former employer, US Airways, paid those medical bills. (McCutchen paid the premiums for 18 years.)
Wessler explains that, because the driver who caused the accident had very limited insurance and because three other people had worse injuries, McCutchen could only recover $10,000 from the driver’s insurance--a negotiated settlement between the representing attorneys.
So with the help of his lawyer, McCutchen filed a claim through his own ‘under-insured motorist’ (UIM) policy and he recovered $100,000, which is the maximum amount allowed under that policy. But the total amount he had now received--$110,000—only covered about 11 percent of his total damages, which included lost wages, and non-economic damages.
Then, to the shock and surprise of both McCutchen and his lawyers, the US Airways insurance plan demanded that, out of that $110,000 McCutchen received, the insurer be paid back the total amount paid in medical expenses, about $67,000.
“McCutchen’s attorneys were surprised because his plan demanded that it be allowed to take everything without even reducing its claim for a proportionate amount of the legal costs it took to recover the fund,” adds Wessler.
US Airways was able to sue McCutchen for reimbursement of all his medical expenses under the federal Employee Retirement Income Security Act (ERISA). The Act permits insurers to obtain some reimbursement from their beneficiaries, but it limits the relief to “appropriate equitable relief.”
In a landmark ruling, the U.S. Court of Appeals for the Third Circuit rejected the ERISA plan’s policy that it can be reimbursed 100 percent of paid medical expenses just because the plan states as much. Instead, the court—for the first time ever in the US—ruled that ERISA’s limit on insurers to seeking only "appropriate equitable relief," meant that the relief available to an insurer had to be based on the principle of "unjust enrichment," rather than on the written terms of the plan.
“As the Third Circuit noted,” Wessler explained, “any other rule would have allowed the plan to get everything, even if it left Mr. McCutchen worse off than if he had not pursued relief at all.” The Third Circuit refused to endorse this possibility, especially given that Congress explicitly limited insurers to recovering “equitable” relief.
Wessler says that, before the Third Circuit’s decision, other people have attempted to fight this practice but they were not successful in trying to avoid a rule that would allow ERISA plans to recover 100 cents on the dollar, even though the victim recovered a tiny fraction of their total damages. Those challenges failed because the courts, unlike the Third Circuit here, held that plain language should trump equitable limits on an insurer’s relief.
It was these decisions that prompted Public Justice to begin fighting against employer-based health plans' efforts to recover 100 percent of their medical expenses from injury victims who have recovered only a tiny fraction of their damages for their injuries from a third-party tortfeasor, or ‘wrongdoer’. “We got involved and made a very straightforward argument,” Wessler says.
“The relief available to an ERISA insurer is, by statute, only ‘appropriate equitable relief’. If this limitation is to have any meaning at all, it must mean that ERISA insurers cannot get everything they want just because their plan says they can get it. Instead, the relief they can get is only that relief that was typically available in equity.”
In other words, Wessler argued that if the ERISA insurer had brought its claim against McCutchen in a court of equity, it would only be allowed to recover an amount equivalent to McCutchen’s unjust enrichment, which in this context is only an amount that corresponds to the amount of his recovery that was for medical expenses. And in equity an insurer would have also had to reduce the amount of its claim by a proportionate amount of fees and costs.
“So we made this argument to the Third Circuit and the Ninth Circuit and both of those courts agreed with us,” Wessler says. “These two courts are the first two courts in the country to find that equity placed meaningful limitations on the relief that an ERISA insurer could get from one of its insureds in a claim for reimbursement.
“Those two decisions also created a split among the lower courts, which is why the U.S. Supreme Court agreed to hear this case,” adds Wessler. “And the Supreme Court is going to decide, presumably, whether equity limits the amount of relief available to an insurer, or whether an ERISA insurer can get unlimited reimbursement simply because that is what is said in the plan.
“Our position essentially is that the relief available was limited in concrete ways by equity, and that an insurer who tried to override these limits by sticking language into its plan would not have been successful.”
In June 2012, the U.S. Supreme Court granted review of the Third Circuit's ruling in U.S. Airways v. McCutchen. Argument is scheduled for November 27, 2012.
In CGI v. Rose, a case also handled by Public Justice, the Ninth Circuit in June 2012 similarly blocked a plan's attempt to obtain 100 percent reimbursement from an injury victim.
Wessler adds that McCutchen’s attorneys, Jon Perry and Paul Hilko of Rosen, Louik and Perry P.C. of Pittsburgh, PA., are still involved in the case. “We approached McCutchen’s attorneys because a district judge had found against McCutchen,” says Wessler. “After seeing that opinion, we discussed with Perry and Hilko the possibility of co-counseling with them in an appeal to the Third Circuit. We have been working with them on the case ever since.”
As for James McCutchen, Wessler says he is “doing OK but is in chronic pain, likely for the rest of his life.”
Matt Wessler is a Staff Attorney at Public Justice in Washington, D.C. He represents clients in a wide range of public interest areas, with a particular focus on issues surrounding the environment and access to justice, including ERISA, mandatory arbitration, preemption, and civil rights.