ERISA Reimbursement and the Acts of Third Parties
Sereboff v. Mid Atlantic Medical Services
547 U.S. 356 (2006)
United States Supreme Court
In Sereboff v. Mid Atlantic Medical Services, the plaintiffs (the Sereboffs) were injured in an automobile accident. Associated medical expenses were paid for by their health insurance plan through Mid Atlantic, the defendant. The health insurance plan is covered by Employee Retirement Income Security Act of 1974 (ERISA).
The defendant sued the plaintiffs under ERISA, seeking to collect the medical expenses Mid Atlantic’s health plan had paid on behalf of the Sereboffs. The district court ruled in favor of Mid Atlantic, and the United States Court of Appeals for the Fourth Circuit affirmed that ruling. Certiorari was granted by the United State Supreme Court.
The plaintiffs in this case were the beneficiaries of a health insurance plan that was administered by Mid Atlantic, the fiduciary. The Sereboffs were injured in an automobile accident, and Mid Atlantic, in accordance with the health insurance plan’s provisions, paid the couple’s resulting medical expenses. Pursuant to a particular provision of the plan known as the “Acts of Third Parties” provision, applied when a beneficiary is sick or injured as a result of an act or omission of another person or party, requires that the beneficiary who receives benefits under the plan to reimburse Mid Atlantic for such benefits from all recovery from a third party. Ultimately, the Sereboffs settled for $750,000.00, and even though Mid Atlantic sent notice of the lien to both the Sereboffs and their attorney, they were never paid the amount of the lien of $74,869.37.
The ERISA law, enacted in 1974 and codified at 29 U.S.C. § 1001, was a result of the federal government recognizing the need for oversight in large-scale interstate employer-provided health insurance. Congress addressed the unequal bargaining power between the insurance companies and those seeking to purchase insurance through their employer, by requiring that the plan provided is financially sound. The specific statute at issue in this case is contained in § 502(a)(3) of ERISA, which provides:
“A fiduciary may bring a civil action (A) to enjoin any act or practice which violates any provision of this subchapter in terms of the plan or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.” 29 U.S.C. Section 1132(a)(3).
In this case, there was no contention that Mid Atlantic was not a fiduciary under ERISA, and that the district court was within its power to enforce the terms of the Sereboffs’ health insurance plan. Specifically the district court was correct to enforce the “Acts of Third Parties” provision, which entitled Mid Atlantic to reimbursement for the benefits it paid.
The Supreme Court ultimately upheld the ruling of the Court of Appeals in relevant part, and held that Mid Atlantic was entitled to an equitable remedy in that the amount of the lien should be reimbursed by the Sereboffs. The Court found that Mid Atlantic could rely on a such a familiar rule of equity to follow a portion of the recovery, as soon as the settlement, lawsuit, or otherwise was identified, and impose a constructive trust on that portion as an equitable lien.
One of the key legal principles in this case involves subrogation. It is important to note that a subrogation lien is not an express lien based on agreement, but“instead is an equitable lien impressed on moneys on the ground that they ought to go to the insurer.”US Airways, Inc. v. McCutchen,569 U.S. ___ (2013). All things considered, it is an equitable principle, because there was a third party that was liable for the injuries sustained, and there was a settlement or judgment received by the beneficiary of the plan.