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Case Summary: Effect of ERISA Liens on Disbursement


Brown v. Associates Health & Welfare Plan
2007 U.S. Dist. LEXIS 60307 (2007)

United States District Court Western District of Arkansas


This case arose out of an automobile accident that injured plaintiff Zachery Brown. Mr. Brown’s health insurance was provided by his mother’s Associates Health and Welfare Plan (Associates), a benefit incurred by her employment with Wal-Mart Stores, Inc. at the time of her son’s accident.

Procedural History

The District Court was ruling on a preliminary matter in this case. Both the plaintiff and defendant filed motions for Summary Judgment. The Court would consider if there were genuine issues of material fact, and if there were none, then the moving party would be entitled to judgment as a matter of law.


Zachery Brown suffered severe injuries as a result of an automobile accident caused by a third party. The injuries required Zachery to be hospitalized in an intensive care unit for eleven days. The medical expenses, totaling $63,465.83, were paid by his mother’s insurance, Associates, which was also funded and governed by the Employee Retirement Income Security Act (ERISA). This plan contained a reimbursement/subrogation provision, which entitled the Plan to first priority reimbursement from monies recovered on behalf of the beneficiaries.

The plaintiffs hired an attorney, Stephen Sharum (Sharum), to represent them in a personal injury action against the responsible parties. The Attorney-Client agreement provided Sharum with 34% of all amounts recovered by plaintiffs. Two separate settlements were reached by the plaintiffs. Zachery’s stepfather’s automobile insurance policy provided underinsured motorist coverage, and a settlement was reached for $25,000.00. The second settlement was reached with the liability insurer of the at-fault driver for $25,000.00. The amounts received from the settlements were placed in Sharum’s IOLTA trust account.

Governing Law

The specific statute at issue in this case is contained in § 502(a)(3) of ERISA. This section of ERISA has been codified at 29 U.S.C. § 1132(a)(3) which authorizes a civil action by a plan “participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief to (i) redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.”

This statute authorizes the kind of equitable relief that such a contract provides. Under the plan’s provisions, an action in equity may be brought to enforce a contract-based lien as an ‘equitable lien by agreement.’

The Supreme Court has clarified the three-part test for determining whether the administrator of a plan can maintain an action for appropriate equitable relief to enforce a reimbursement provision in Great-West and further in Sereboff. To comply with the test, the plan must seek to recover funds: (1) that are specifically identifiable, (2) that belong to the plan as medical payments relating to injuries sustained by beneficiary from a third party, and (3) that are within the possession and control of the beneficiary.

As to the first element, the plaintiffs argued that because the funds were still in the attorney’s possession, that they were not specifically identifiable. However, the Court cited Bombardier, a 5th Circuit decision holding that funds were specifically identifiable when settlement proceeds were placed in an attorney’s trust account, thus satisfying the first element of of the three-part test.

The second requirement of the test required that the plan seek to recover funds which belong to the plan as medical payments. The District Court, citing Barnes v. Alexander, stated that a contract to convey a specific object before it is acquired will make the party to the contract a trustee as soon as he receives title to the object. Barnesv. Alexander,232 U. S. 117 (1914). Thus, the proceeds of any judgment or settlement arising out of personal injury should first be used to reimburse the insurance carrier, which in this case would be Associates.

Finally, the plaintiffs argued that because their attorney held the funds, they did not have possession and control of the funds in question. However, the court found that the plaintiffs had constructive possession over the funds, as their attorney was unquestionably their agent in the matter.


The District Court ultimately granted defendant Associates Motion for Summary Judgment, finding that the request for a constructive trust was appropriate equitable relief. The Court also found that there should be no reduction for attorney’s fees from the amount held in trust, because Associates had the first lien on the settlements, and also because the Plan was silent concerning attorney’s fees.

This case is important because it illustrates the far-reaching consequences of the terms of a health insurance plan. When people enter into contracts, most do not read the fine print. In this case, the failure of the Plan to address attorney’s fees and costs within its fine print resulted in the health insurance company recovering all settlement amounts, regardless of the attorney’s fees owed by the beneficiary.

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