In 2013 the United States Supreme Court addressed the question of the application of equitable principles, especially the common fund doctrine, to an ERISA benefit plans demand for reimbursement of benefits previously paid.
Under the common fund doctrine a litigant or lawyer who recovers a common fund for the benefits of persons other than himself or his client is entitled to a reasonable attorney’s fees from the fund as a whole. This means that where a plan is silent about the allocation of the cost of recovery of a “common fund, then the fees and costs incurred in obtaining the third party recovery should be allocated pro rata to the parties getting the money – the injured party and the plan.
The issue arose in US Airways Inc. v. McCutchen. McCutchen was an employee of an insured by a US Airways health benefits plan. He was seriously injured in a tragic car accident causes by a third party. The US Airways medical plan sued McCutchen for reimbursement of all the medical expenses it paid, an amount in excess of the net amount McCutchen recovered after payment of his attorney’s fees and costs, because the party which caused the accident had minimal insurance and there were several other severely injured persons. In fact, McCutchen obtained most of his “third party” recovery from his own automobile insurance carrier (having made an “underinsured motorist” claim). The United States Supreme Court held that where the plans specifically provides for recovery of all such expenses without consideration of the common fund doctrine, then the plans specific terms apply. However, when the plan is silent about allocating the costs of recovery, the equitable common fund doctrine provides “the appropriate default” rule.
But there’s more. While the case was in litigation before the district court McCutchen and his attorneys requested all plan documents. And the US Airways responded by producing a summary plan description, only, which provided for reimbursement of all expenses.
But much later the US Airways produced the actual plan document which differs in material respects from the summary plan description, neither providing for a right of reimbursement nor mentioning any right of reimbursement by the plan from recovery from one’s own insurance policy. (As stated in McCutchen’s case most of the recovery was from an underinsured motorist claim he made against his own insurance policy.) In order words, the case was litigated through and including the United States Supreme Court based upon what proved be to a false representation by the plan administrator as to what the plan document actually provided. This underscores the importance first of getting all plan documents and second of compelling plan administrators to confirm that they have provided all plan documents to you. In McCutchen, since the plan administrator, in effect, lied about providing all plan documents, the district court on remand from the Supreme Court allowed McCutchen and his attorneys to amend their pleadings and reopen discovery nearly six years after commencement of the case in order to present new defenses to the reimbursement claim based upon the actual plan documents. Similarly, in our practice we have avoided the application of short contractual limitation periods in a case in which we demanded all plan documents, the plan administrator in writing assured us that it had provided all plan documents to us, but never provided to us that portion of the plan document that included the short contractual limitations.