These article have been published in "The Advocate", a monthly publication of the Arizona Association for Justice/Arizona Trial Lawyers Association, June - September 2007 issues, @2007 by Steven J. Bruzonsky, Esq.
ERISA LIEN CLAIMS, A BRIEF PRIMER, PART 1
The Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq is a federal statutory scheme to ensure proper administration of private (non-governmental) pension and welfare plans. However, ERISA does not mention or create any lien or subrogation rights for ERISA health plans.
Health insurance plans often contain provisions which provide for subrogation and/or liens and/or reimbursement from personal injury settlements. Arizona anti-subrogation caselaw has generally held such health insurance provisions void and unenforceable and against public policy, as in Brockman v. Metropolitan Life Ins. Co., 125 Ariz. 246, 609 P. 2D 61 (1980). This was applied in an ERISA context that if an ERISA healthplan pays a premium and purchases traditional health insurance, then ERISA doesn't preempt Arizona anti-subrogation caselaw. United Food & Commercial Workers & Employers Arizona Health and Welfare Trust v. Pacyga, 801 F.2d 1157 (9th Cir. (Ariz.), 1986); and F.M.C. v. Holliday, 498 U.S. 52, 111 S.Ct. 403 (1990).
Employer healthplans have brought cases in federal courts to enforce such plan provisions and to obtain reimbursement from their insured's personal injury claims settlement. Section 502(e)(1) of ERISA, 29 U.S.C. § 1132(e)(1), gives the federal district courts exclusive jurisdiction of civil actions under this subchapter brought by ... [a] fiduciary." Section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), provides that a fiduciary may bring a civil action "to enjoin any act or practice which violates - - - the terms of the plan" or "to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce - - - the terms of the plan."
For Arizona, with anti-subrogation caselaw, and states like it, the U.S. Supreme Court in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), made it very difficult if not impossible to enforce ERISA lien claims in Arizona and the Ninth Circuit. In Knudson, plan provisions and a written subrogation agreement signed by the injured party required reimbursement from settlement. By the time suit was brought, the case was settled and settlement funds were already distributed by the attorney, and a Special Needs Trust had been set up under California law as part of the settlement. The U.S. Supreme Court held that there was no federal court equitable jurisdiction under Section 502(a)(3) of ERISA. During the years immediately subsequent to Knudson, the Ninth Circuit basically held that there was no federal jurisdiction for such lawsuits by ERISA plans against plan participants.
However, in Sereboff v. Mid Atlantic Medical Services, Inc., 126 S. Ct. 1869 (2006), a unanimous Supreme Court held that an ERISA plan's action to collect medical expenses paid on behalf of the plan beneficiary who obtains a recovery from a third party in connection with the injuries requiring the treatment paid for by the ERISA plan is "equitable relief" under 29 U.S.C. §502(a)(3). Sereboff significantly limits the holding in Knudson to situations where the ERISA plan beneficiary does not have possession or control of the injury recovery (the funds were in a special needs trust in Knudson).
Thanks to Sereboff, Arizona personal injury lien claims are now even more complex, with employer health plans getting bolder and bolder in asserting lien claims.
ERISA LIEN CLAIMS, A BRIEF PRIMER, PART 2
How to request plan documents to help evaluate whether the ERISA lien claim is supported by plan provisions and/or pre-empted by Arizona anti-subrogation caselaw.
Once you have "actual knowledge", and at minimum "good faith doubt" (see ER1.15 and comment 4 as well as Ethics Opinion 98-06) that there may be an ERISA healthplan lien against your client's personal injury settlement, ER 1.15 requires that you take appropriate steps to determine if there is a lien and if so, to protect the lienholder's interests. Your "actual knowledge" might be the result of your receiving a lien letter from the subrogation company, or perhaps from experience in dealing with that particular employer.
At this point, its a good idea to request plan documents. My practice is to request the plan documents from both the subrogation company AND the Plan Administrator.
Its not always easy to find out the identity and mailing address of the Plan Administrator. Ask the Human Resources, Personnel or Payroll Depts of your client's employer, although I find that they sometimes give you incorrect information. Go to www.freeerisa.com and look up the plan's Form 5500 (the plan's tax filing), which lists the name, address and phone for the Plan Administrator. However, sometimes there are a number of entities with similar names and it is difficult to determine at www.freeerisa.com which one's Form 5500 is applicable.
The Plan Administrator is required by law to produce the plan documents within thirty days, or there is a penalty of $110 per day thereafter, per ERISA. Recently, I have had a few cases where I was able to use the argument regarding the $110 per day fine, due to the Plan Administrator's late production of documents, to negotiate some offset or waiver of the claimed ERISA lien.
Following is my most recently revised letter to the ERISA Plan Administrator to obtain plan documents.
ERISA Plan Administrator
Re: Our Client:
Our firm represents and is assisting your above-named employee to review and better understand his/her employee benefits. Your above-named employee has authorized our firm to obtain ERISA plan documents as discussed below. Enclosed is an Authorization signed by our client and/or your employee so you can provide us with the requested documents.
29 U.S.C. Section 1024(b) requires that the Plan Administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated. 29 U.S.C. Section 1132(c) requires that Plan documents be provided within thirty days from this written request, or the Plan is subject to an assessment of up to $100 per day for each day in excess of thirty that it takes to produce the documents. The Department of labor by rule increased this maximum penalty to $110 per day. See Final Rule Relating to Adjustment of Civil Monetary Penalties, 68 Fed.Reg. 2875-76 (Jan. 22, 2003). Christensen v. Qwest Pension Plan, 462 F.3d 913 (C.A. 8 Neb. 2006).
In accordance with the above U.S.C. sections, please promptly provide us with the following documents pertaining to the plan which covers the above-named client/employee :
1. The latest updated Summary Plan Description.
2. The plan's last filed annual report - the complete last filed Form 5500 with each and every attachment filed along with the Form 5500.
3. Regarding the bargaining argreement, trust agreement, contract, or other instruments under which the plan is established or operated - please provide the following:
A. The claims administration service contract(s) for payment of medical/health benefits, and the contract(s) and contractual provision(s) providing for payments by the plan for services provided by the claims administrator(s), in connection with health benefits paid and to be paid for the above-named client/employee.
B. The contract(s) and contractual provision(s) thereof by which your plan assigns ERISA health reimbursement rights and/or collection responsibilities to any plan administrator, claims administrator, health insurance company or other person, in connection with health benefits paid and to be paid for the above-named client/employee.
C. The contract(s) and contract provision(s) providing for all claims administration services or other payments from your plan to any plan or claims administrator or health insurance company , in connection with health benefits paid and to be paid for the above-named client/employee.
D. Plan documentation to disclose whether since the above date of accident, the plan is self-paying accident-related medical benefits, or whether the plan is paying premium(s) to purchase health insurance and the health insurer(s) are paying the accident-related medical expenses, for the above-named client/employee.
E. Plan documentation to disclose whether since the above date of accident, the plan has stop loss insurance for the above-named client/employee, and at what point the stop loss insurance will start to pay the above-named client's/employee's accident-related medical benefits.
In case you are wondering why we have requested above the administration contract and other pertinent plan "operational" documents requested above: We have been contacted by a subrogation company claiming a lien against our client's personal injury settlement for payment of accident-related medical benefits either by your ERISA plan or by health insurance purchased by your ERISA plan. However, if the plan purchases traditional premium based health insurance, then the health insurer solely pays our client(s)' accident-related health benefits, and Arizona anti-subrogation caselaw prohibits the health insurer from claiming a lien or subrogation interest against our client(s)' upcoming personal injury settlement. On the other hand, if the plan hires the health insurer to administer the plan's healthplan, so that the ERISA plan pays administration fees AND the ERISA plan self-pays the client(s)' accident-related health benefits, only then does federal ERISA statutes preempt Arizona law such that the lien/subrogation interest is at least arguably enforceable. Moreover, when a health insurer claims the right on behalf of the ERISA plan to assert a lien or subrogation interest, the administration contract will include provision(s) assigning to the health insurer/administrator this right â€“ absent this contractual right, the health insurer has no right to claim a lien or subrogation on behalf of the ERISA plan. So review of the administration contract and other pertinent plan "operational" documents requested above is necessary to first determine whether the plan may claim a lien or subrogation interest in the first place. And your failure to disclose these "operational" documents will subject the plan to the $110 per day statutory penalty discussed above.
Thank you for your courtesy and assistance.
Very truly yours,
Steven J. Bruzonsky
ERISA LIEN CLAIMS, A BRIEF PRIMER, PART 3
Defenses to ERISA Lien Claims
This is simply a brief explanation of defenses which you should use to hopefully minimize or possibly defeat ERISA lien claims. For more information, please see the Arizona Trial Lawyer's Association Arizona Personal Injury Lien Law and Practice, 2007 Edition.
1. Is the employer the federal or state government, or a political agency or subdivision thereof? ERISA doesn't apply to governmental employers, and therefore Arizona anti-subrogation caselaw is not preempted by ERISA (although other federal or state liens may apply).
2. Are the health benefits provided by an MEWA (Multiple Employer Welfare Arrangements)? An MEWA is a group of employers which band together and jointly provide benefits including health benefits. MEWAs are not exempt from state law. 29 U.S.C. § 1144(6). See "MEWAs are not exempt from state law" by Dan Ziskin, Esq., The Advocate, April 1997.
3. Does the plan language expressly provide for lien rights for this type of settlement (liability, uninsured, underinsured, etc.)? The contract must expressly provide for the lien or there is no lien. If plan language only provides for coordination of benefits and/or contractual reimbursement rights, but does not expressly establish a lien or subrogation interest against the injury settlement, then there is no lien. Argue that if the lien language is in the Summary Plan Description (SPD) (usually the SPD is the benefits brochure provided to employees), but not in the Plan (the master document with all plan provisions), then the Plan provisions control and the lien is not enforceable. Grosz-Salomon v. Paul Revere Insurance, 237 F.3d 1154 (9th Cir. 2001).
4. If traditional premium based health insurance has paid the health benefits, then ERISA doesn't apply, and therefore Arizona anti-subrogation caselaw is not preempted by ERISA. United Food & Commercial Workers & Employers Arizona Health and Welfare Trust v. Pacyga, 801 F.2d 1157 (9th Cir., 1986); and F.M.C. v. Holliday, 498 U.S. 52 (1990).
5. Has the Statute of Limitations expired? Argue that A.R.S. § 12-541(3), which provides a one year statute of limitations applies to actions "for breach of an oral or written employment contract including actions based on employee handbooks or policy manuals that do not specify a time period in which to bring an action, applies. ERISA has no statute of limitations (other than for breaches of fiduciary duty, which is not relevant here). In enforcing ERISA provisions, the courts look to the most nearly analogous state statute of limitations, which in most cases is the state Statute of Limitations for breach of written contract (A.R.S. § 12-548 six years for written contracts), but here in Arizona we have A.R.S. § 12-541(3) which appears to be more applicable.
6. If the ERISA lien claimant has filed an action in federal court, is there federal "equitable" court jurisdiction under ERISA? Section 502(a)(3), 29 U.S.C. § 1132(a)(3), of ERISA provides that a fiduciary may bring a civil action "to enjoin any act or practice which violates - - - the terms of the plan" or "to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce - - - the terms of the plan." Attempting to defeat federal jurisdiction, after Sereboff v. Mid Atlantic Medical Services, Inc., 126 S. Ct. 1869 (2006), is at best very limited. See "ERISA Lien Claims in Light of the U.S. Supreme Court Decision in Sereboff", by Steven Bruzonsky, Esq., The Advocate, July/August 2006.
7. If plan language provides for a lien, the language used will be that the lien is for "accident-related benefits" paid by the Plan, or similar language. Lets say that the client's health care isn't accident-related and isn't claimed as accident-related â€“ then ensure that the claimed lien doesn't include non accident-related expenses. Only accident-related expenses are allowed by the contract language. Similarly, say the odds are that certain claimed accident-related expenses may on the average be awarded only X% of the time at trial, then argue that the lien for those expenses should be reduced to X% of the benefits paid towards those medical expenses. Use the logic of Arkansas Dept. of Health and Human Services v. Ahlborn, 126 S.Ct. 1752 (2006), which holds that state Medicaid agencies' claims for lien reimbursement from tort settlements are limited to that portion of any settlement attributable to past medical expenses. Ahlborn recognized that an injured party's cause of action constitutes "property" which was protected under the federal Medicaid anti-lien provision, 42 U.S.C. §1396p(a)(1), which prohibits States from imposing liens "against the property of any individual prior to his death on account of medical assistance paid . . . on his behalf under the State plan." Similarly, you can argue that if the federal equity court sustains the full claimed ERISA lien, as opposed to an equitable amount as discussed above, that this is an unconstitutional taking of the injured party's property which violates the 5th Amendment to the U.S. Constitution. A good trick is one you have reached settlement with the adverse party, have them give you a letter detailing the percent of the claimed medical bills that they considered as accident-related and why including the discount factor used. Then present this letter to the subrogation company.
8. Does the plan language provide for procurement cost (pro-rated attorneys fees and costs) or other reduction? Or does plan policy provide for this anyway (ask the subrogation company this question)?
9. Argue that the "make-whole" doctrine applies. This doctrine provides that the Plan has no right of reimbursement until the plaintiff has been made whole for his other injuries. Footnote 2 of Sereboff notes that the Court declines to consider the "make-whole doctrine" because the issue wasn't raised in the lower courts. There is Ninth Circuit authority which indicates that the "make-whole" rule is the default interpretation under federal common law, unless the plan language is directly inconsistent with it. Barnes v. Independent Auto Dealers' Assoc., 64 F.3d 1389 (9th Cir., 1995). However, most plans these days have plan language that expressly states that the "make-whole" doctrine not applicable.
10. Argue other equitable defenses, especially as a defense in litigation under federal equity jurisdiction. The U.S. Supreme Court in Sereboff, supra held that the lower courts did not err in refusing to apply equitable defenses and that a Plan's lien claim is a subrogation claim established by agreement and not subject to equitable defenses. However, this seems inconsistent with the whole concept of equity and might be challenged with the right facts, thereby limiting Sereboff to its facts. Consider whether your facts support equitable defenses such as laches, that equity will not aid in the enforcement of a forfeiture, that the equitable plaintiff [the Plan] must have "clean hands," etc. Be creative as to the equity theories: judges enjoy the freedom to do what they think is the right thing without being compelled to do otherwise due to restrictive statutes and rules. Sitting in equity gives the judge lots of freedom to rule based on fairness.
11. Although in practice this rarely occurs, it is possible that the subrogation company or healthplan could threaten to reduce or terminate future health benfits due to nonpayment of the lien. Does the plan language expressly provide for this? Is this provided for only in the SPD but not in the Plan itself, in which case the SPD provision is arguably not enforceable?
Remember â€“ be tenacious. And if the subrogation adjuster isn't budging your way, do what you can to get the file in the hands of legal counsel. I find legal counsel is often more willing to work with me than the subrogation adjuster in ERISA lien claims, as the adjuster often has little or no discretion and often doesn't understand or care about the legal issues involved.