Lawyers’ Corner: US Supreme Court Weighs in on Auto Law

heading divider

Auto accident cases are usually a state court issue. It isn’t too often a car crash case makes it all the way to the US Supreme Court, except when federal insurance plans under ERISA get involved. Recently, the US Supreme Court weighed in on a tough auto law question, which could change the way trial lawyers do their jobs.

On January 20, 2016, the United States Supreme Court decided Montanile v Board of Trustees of the National Elevator Industry Health Benefit Plan. The Court was asked to decide whether an ERISA plan administrator was allowed to sue a patient to recover benefits received, and spent, before the lawsuit was filed. The question came down to the historical difference between legal and equitable remedies.

In 2008, Montanile was struck by a drunk driver in Florida. At the time, he was a covered member of the National Elevator Industry Health Benefit Plan – a federal health insurance plan under the ERISA statute. The plan paid for $122,044.02 in medical expenses including back surgery and other medical care.

Montanile’s ERISA plan included subrogation language that required him to reimburse the plan for any benefits paid if he later recovered an award, judgment, or settlement from a third party. It required Montanile to notify the plan of any Third Party litigation and get the plan’s consent before settling his claims.

What Happened to the Money?

Montanile sued the drunk driver under Florida law, and won a $500,000 settlement. The money remained in the attorney’s trust fund while he and the plan representative debated whether reimbursement was allowed under ERISA and the contract’s subrogation clause. When they couldn’t agree, the attorney sent the plan administrator a letter saying he would disburse the funds to the client unless the plan objected in 14 days. It didn’t.

What happened to the money after that is not clear. Six months after the disbursement, the plan sued Montanile to enforce an equitable lien on the settlement funds as allowed under ERISA. Montanile told the court he had already spent most of the money, but agreed that he still possessed some of the settlement proceeds.

Some wasn’t enough for the plan administrator. It asked the court to award it the full $122,044.02 out of the defendant’s general assets – essentially asking the court to bankrupt an auto accident patient. The trial court and Court of Appeals agreed, and the case went up to the US Supreme Court.

Enforcing an Equitable Lien

The Supreme Court saw things differently. It noted that ERISA only authorized plan fiduciaries to file civil suits “to obtain. . . appropriate equitable relief . . . to enforce . . . the terms of the plan.” 29 USC 1132(a)(3) (omissions in original). The court then looked to historical laws regarding legal and equitable relief to decide whether the plan administrator was allowed to enforce an equitable lien against the defendant’s general assets.

The Court ruled that where “a plan fiduciary sought reimbursement for medical expenses after the plan beneficiary or participant recovered money from a third party” the basis for that claim was equitable, not legal. When the plan participant had already received his money and placed it in a separate account, the remedy was also equitable. Specifically, the injured party in those cases is said to be holding the funds as a “constructive trustee” for the benefit of the plan administrator.

But when the defendant wrongfully spent money he held on non-traceable expenses (like services or food), even though the plan administrator had an equitable lien on them, the plan’s claim against the defendant’s general assets became legal in nature. Since ERISA law only allows plan administrators to seek equitable remedies, the administrator was out of luck.

Motivation to Spend Quickly

Justice Ruth Bader Ginsberg filed a dissent. As she saw it, the Court’s decision motivated injured parties to quickly spend down any disbursement they received before a plan administrator had time to file suit. The majority of the justices disagreed. The Court pointed out that the plan administrator  had notice of the claims and had been in negotiation with the defendant’s attorney.

The plan administrator could have objected to the disbursement and filed suit then, which would have allowed the plan administrator the equitable remedy it required. Or the plan administrator could have filed a lawsuit against the injured motorist immediately, putting a hold on the funds until a court could determine the plan administrator’s equitable interest in the money. Since it did neither, it lost its ability to collect against the defendant under the ERISA statute.

Erisa and Michigan Law

This U.S. Supreme Court case will have auto accident attorneys in Florida and other parts of the country scrambling to change the way they handle client funds. But here in Michigan, our no-fault law makes it so these types of subrogation cases rarely come up. Under the Michigan No-Fault Act, a person’s auto insurance takes priority over any ERISA health insurance benefits. That means after a crash, a ERISA plan only pays benefits when there is no auto insurance company to cover the reasonable and necessary medical benefits. Even when a Third Party lawsuit is appropriate because of severe injury, the money damages received from an at-fault driver will probably not be the types of benefits paid by an ERISA plan.

If there is a dispute between the auto insurance company and the ERISA plan administrator over who pays the bills, Michigan auto accident victims can get caught in the middle. The law requires an auto insurance provider to pay first and ask the court to sort out priority later. But more often, these issues are handled even while the patient’s medical bills remain unpaid. If the court orders the ERISA plan to pay, the injured motorist’s attorney could be required to repay those benefits under any First Party or Third Party settlement.

David Christensen is an auto accident attorney at Christensen Law in Southfield Michigan. He has represented auto accident victims for over 20 years. If your client is facing a tough auto accident case, contact Christensen Law for a referral today.

Image Source: 350z33 via Wikimedia Commons