Supreme Court Update - Where Plan Reimbursement Or Recovery Terms Are Ambiguous Or Silent, Equitable Doctrines May Fill The Gaps

US Airways, Inc. v. McCutchen, 569 U.S. ___ (2013)

In an opinion delivered by Justice Kagan, the Supreme Court recently clarified when equitable doctrines may apply in subrogation and reimbursement claims brought pursuant to ERISA § 502(a)(3), which authorizes plan administrators to bring suit to obtain appropriate equitable relief to enforce the terms of the plan. Not surprisingly, the High Court held that express terms of an ERISA plan govern. However, the Court expanded on its consideration of equitable defenses in the recent trilogy of cases including Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002); Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006); and Cigna Corp. v. Amara, 131 S.Ct. 1866 (2011), and found that, although equitable doctrines may not override the terms of a contract, where the terms of a plan leave gaps, courts may properly use equitable rules to construe the contracting parties' intentions.

Cases with facts similar to those here are not unfamiliar to ERISA benefit litigators. US Airways paid $66,866 in medical expenses for injuries suffered by plan participant McCutchen who was involved in a car accident caused by a third party. The plan at issue entitled US Airways to reimbursement if McCutchen later recovered money from a third-party tortfeasor. McCutchen recovered a total of $110,000 from the third party, which was reduced to $66,000 after deduction for his attorney's fees. Accordingly, US Airways filed suit for reimbursement of its payment of medical expenses. McCutchen raised equitable defenses derived from the principles of unjust enrichment, including the double recovery rule and the common fund doctrine. The High Court granted certiorari to resolve a Circuit split on whether equitable defenses can override a plan's reimbursement provisions.

Because the plan here provided for reimbursement of "any monies recovered from [the] third party", the Court found that the double recovery rule, which would only allow the plan to recover that portion of a payment to McCutchen representing medical expenses (differentiated from future earnings, or pain and suffering, for...