Navigating ERISA Liens in Catastrophic Injury Cases


Huntington M. Willis
Martin & Jones, PLLC
Raleigh, North Carolina

Any member of the bar who currently practices in or near the world of torts involving personal injury probably knows that the academic “flavor of the month” that many practitioners labor over is the extent of the right of reimbursement that a qualified, self-funded ERISA health plan may have on any potential claim. In fact, in the current climate, many practitioners lament that the laborious undertaking of getting to your client’s favorable judgment is only the first step in a case. What follows is a painstaking negotiation process with the various lien holders. And thanks to the United States Supreme Court, the lien with the most severe potential impact on a plaintiff’s recovery is the self-funded ERISA lien.

This is more and more true of any tort claim involving personal injury. But in cases involving permanent and catastrophic damages, the self-funded ERISA lien must be taken very seriously. These liens can easily reach hundreds of thousands of dollars in conditional benefits paid, all of which the plan may have a potential right of reimbursement for. It is now increasingly necessary that counsel involve the plan from day one of the claim through its conclusion.

A. U.S. Airways v. McCutchen

In 2013, the United States Supreme Court set the landscape for these “super liens,” dealing a blow to some of the last available equitable defenses that could be raised in combating the lien’s effect on a recovery where there are inadequate means to satisfy all the damages. The McCutchen court held that certain equitable defenses to reimbursement claims under § 502(a)(3) of ERISA, such as the “common fund” doctrine or principles of unjust enrichment, would be overcome by properly drafted plan language. US Airways, Inc. v. McCutchen, 133 S. Ct. 1537, 1548, 185 L. Ed. 2d 654 (2013).

The consequences of this decision have reshaped the considerations for taking on any tort claim with such a plan involved. Moreover, for those catastrophic cases that will require a significant amount of attorney resources, time and expenses to resolve to judgment, must consider the following implications:

  • The plan does not have to reduce its lien based on work performed by the claimant’s counsel;
  • The plan can recover the full amount of their benefits paid from any party that took custody of the funds once the funds have been recovered;
  • No equitable defenses remain viable to defense of these actions;
  • State anti-subrogation statutes are pre-empted; and
  • State ethical rules and Rules of Professional Conduct might prevent an attorney from disbursing contrary to a plan’s right of reimbursement even when the client so instructs.

These factors have even created an entire business around the collection of plan benefits paid from third-party claims. Multiple companies, who practice much like a typical debt collection service, have sprouted from the ground since McCutchen in an effort to collect on these claims. In fact, they have become so cumbersome that many attorneys have resorted to hiring specialty groups to deal with any “lien resolution” after a successful recovery is obtained in the tort claim.

In a catastrophic case where the benefits paid could easily reach $500,000.00 or more, these issues are hardly nominal. This is the case even when liability is not necessarily at issue. But in circumstances where liability is contested, as most cases are, an ERISA lien could mean the difference between bringing the claim or advising the client to walk away, depending on the resources available to collect on any judgment.

B. Make the Plan Show its Work

All counsel for an injured tort claimant should know that in order to properly determine whether these harsh realities will be implicated turns on whether the plan is properly qualified under the self-funded provisions of ERISA. If the reader takes only one point from this article, it should be this: do not trust the plan that merely “claims” it is a qualified, self-funded plan, without further diligence!

Once retained in a catastrophic case, the first thing the attorney needs to do is determine the status of all health benefit plans involved. Once these plans have been notified of your involvement, they may send you formal notice of “a right of reimbursement under ERISA” or some similar letter. This is by no means the way a plan shows its qualifications.

In North Carolina, we “enjoy” a very straight-forward anti-subrogation/reimbursement provision in our administrative code. See 11 N.C.A.C. § 12 .0319. Health plans in our state are barred from containing reimbursement provisions. Obviously, this provision is pre-empted by contrary provisions under ERISA. However, if your jurisdiction has a similar provision, the necessity for the attorney to make the plan “show its work” is most important. If it is not a properly qualified ERISA plan, it would be entitled to nothing.

This is done, in part, by using the provisions of 29 U.S.C. § 1024(b)(4) and demanding copies of the following plan documents:

  • The plan’s employer identification and three-digit plan number;
  • A copy of the policy which states the right to reimbursement of a portion of any settlement of the claim;
  • A copy of the updated summary plan descriptions in effect at the time of the incident;
  • A copy of the summary annual reports in effect at the time of the incident;
  • A copy of the bargaining agreement, trust agreement, contract or other instrument under which the plan was established and all amendments since the establishment date until the present;
  • A copy of the plan’s Series 5500 returns and accompanying schedules at the time of the incident;
  • A copy of all written policies, memoranda, minutes of meetings and any other written documentation addressing reimbursement or subrogation, enforcement of the same, or waiver of the same from the date of establishment of the plan until present; and
  • If the plan is insured, partly insured, or provides stop-loss coverage, a copy of the documents which engage that insurance carrier and all policies of insurance.

Plan administrators usually scoff at these requests, and instead merely send a package of documents purporting to be the “plan booklet” that is not identifiable as to the time in which the benefits apply. This should not be acceptable.

29 U.S.C. § 1132(c) provides harsh penalties if the plan refuses to furnish the above information. Failure to supply the requested information within 30 days of the date of your notice may subject the plan to a penalty of $100 per day and other costs, including attorney’s fees.

Always remind the plan, particularly in catastrophic cases, that pursuant to 29 U.S.C. § 1140, it is unlawful for the plan to discharge, fine, suspend, expel, discipline, or discriminate against your client (the employee) for exercising any right to which she is entitled under the provisions of the plan.

C. Catastrophic Cases with Inadequate Coverage

Catastrophic cases where there are inadequate resources to satisfy the damages in the tort case currently present the only scenario in which traditional “negotiations” with a plan administrator may be successful. The bottom line in all of these cases is simple: since McCutchen, the plan does not have to negotiate its lien amount. End of story. I have, on many occasions, been told in catastrophic cases by plan administrators that they had no inclination or incentive to negotiate a lien. And frankly, they are correct. In many instances, it would be less expensive for the plan to hire counsel and file suit to recover their portion of any award obtained by the plan beneficiary than it would be to discount their lien.

However, one condition of their recovery rights make cases with inadequate coverage still worth negotiating. The right of the ERISA plan to recover is a right of reimbursement. In other words, they cannot step into the shoes of the beneficiary and sue on the tort claim. Therefore, without the claimant bringing the action, there is no recovery for the plan. This presents likely the only leverage against a proper claim for reimbursement, but is only applicable if there is an inadequate source of recovery to satisfy the damages.

In these cases, the client must be counseled that the health plan is technically entitled to an amount that would preclude the client from ever recovering any compensation for the injury. Therefore, the proposal to the plan must be that the client will forego her right to recovery unless the plan agrees to take a compromised offer in full satisfaction of its lien. This forces the plan to compromise or receive nothing. In these instances, health plans will typically negotiate. However, understand that if a plan is not agreeable to your proposal, the client must be willing to actually walk away from the claim.

D. Catastrophic Cases with Adequate Coverage

Surprisingly, cases in which there are adequate resources available to satisfy a judgment or settlement usually pose the biggest challenge in arranging a compromise to the lien of a self-funded ERISA plan. This is because the incentive for the client to forego the claim is purportedly absent. Presumably, in these cases, even if the ERISA lien is paid in full, the claimant will recover at least some of the damages.

The ERISA plans and their recovery agents know this. It is very difficult in these cases to reach an agreement without disclosing to the plan the full amount of the gross recovery in the claim. One option that is available, but difficult in practice to employ, is the injured claimant, at the beginning of treatment, forego receiving any benefits from their health plan. This means the claimant will be responsible for the full amount of the medical expenses incurred, and must then resolve those balances with the health providers themselves without ever having filed for benefits under the plan.

This presents obvious practical concerns, however. First, representation may not occur until well after the incident giving rise to the tort claim. In other words, the plan may have already been billed to the tune of hundreds of thousands of dollars in conditional benefits by the injured claimant and their providers well before any counsel can be obtained on the matter. Once benefits are paid, the ERISA plan will have its lien.

Second, many claimants cannot afford to risk not accessing health benefits in catastrophic cases because of the necessity for significant follow-on care like inpatient rehabilitation, specialty care, and future surgical care. Again, I have been told numerous times in cases such as these that the plan had no incentive to compromise if there was adequate coverage to satisfy the damages.

In these cases, diligence in holding the plan to its written policy provisions is paramount. The claimant’s attorney must obtain and review the pertinent plan documents as outlined above. The plan must be confronted with any perceived deficiency, particularly those deficiencies outlined in McCuthchen. If the plan has a so-called “contractual gap” as outlined in McCutchen that fails to address the share or allocation of costs and attorney fees associated with the underlying tort claim, then the courts should apply the common-fund doctrine to prevent the injured claimant from paying for the privilege to act as the plan’s “collection agent.” McCutchen at 1551.

Navigating these liens is one of the most important aspects of a catastrophic injury tort claim. In the current climate, the bar cannot afford to ignore the issue. But armed with the proper authorities, the harsh consequence of this reimbursement right can still be mitigated. It just takes much more in a post-McCutchen world than it ever has before.



Huntington M. Willis
Martin & Jones, PLLC
Raleigh, North Carolina

Hunt joined Martin & Jones in 2013. His practice focuses on representing people injured by the negligence of others, including product liability,fraud, bad faith and deceptive trade practices.

Hunt graduated from Campbell University School of Law, cum laude in 2013. While in law school, he was managing editor of the Campbell Law Review and a member of the national moot court team. Hunt also served as an extern to the Honorable Rick Elmore of the North Carolina Court of Appeals. Upon graduation, he was inducted into the Order of Barristers and awarded the Safran Moot Court Award for outstanding contribution to the school’s appellate advocacy program.

After receiving his undergraduate degree from Appalachian State University in 2005, Hunt was commissioned as an officer in the United States Army, where he served as a captain. He is a former intelligence officer and veteran of the Iraq War.

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