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Please note that Attorney Bruzonsky has been doing this regular “Liens Corner” column since April 2006. His last “Liens Corner” article was for the November/December 2017 issue of The Advocate, having stepped down from this regular column, as he now works part-time (and is part-time retired) exclusively handling large subrogation/lien claims in very large personal injury and medical malpractice cases for other attorneys. However, attorney Bruzonsky may add notes to this website under the subject lien article headers from time to time. (Please keep in mind that this site contains general information for educational purposes only. It is not intended to provide legal advise, which can only come from a qualified attorney who is familiair with all the facts and circumstances of your specific case and relevant law.) 



2016-05/06: McCutchen Revisited: Excellent Guidance on the SPD vs Plan Document & Incorporation By Reference Issues

June 25th, 2016 11:56:23 am

This article has been published in “The Advocate”, a monthly publication of the Arizona Association for Justice/Arizona Trial Lawyers Association, May-June 2016 issue, @2016 by Steven J. Bruzonsky, Esq.



                                                                May/June 2016                                              

                         ERISA Liens: McCutchen Revisited – Excellent Guidance on the

                           SPD vs Plan Document & Incorporation By Reference Issues 


The ERISA participant, McCutchen was grievously injured in a car accident.  Due to multiple severely injured claimants and one wrongful death, McCutchen settled with the adverse driver’s liability insurance for $10,000 (the remainder of the $100,000 liability limits were paid to the other injured/deceased parties), and also obtained his $100,000 underinsured motorist policy limits, for a total of $110,000. After paying a 40% contingency attorneys’ fee and expenses, his recovery was less than $66,000. Ingenix, on behalf of the U.S. Airways ERISA healthplan, claimed a lien in the sum of $66,865.62 against the liability and underinsured motorist settlements. The ERISA plan claimed a constructive trust or equitable lien on the $41,500 held in Trust (client’s portion after attorney deducted his procurement/attorney’s fees and costs), and sought the remaining $25,366.00 personally from McCutchen. The U.S. District Court for the Western District of Pennsylvania granted summary judgment for the ERISA plan for the full amount of the claimed lien of $66,866, requiring  McCutchen to sign over the $41,500 held in Trust, and requiring McCutchen to pay the remaining $25,366 from his own funds. The Third Circuit vacated the district court’s order,  and remanded the case for the district court to fashion “appropriate equitable relief”  for U.S. Airways.


The U.S. Supreme Court,in U.S. Airways v. McCutchen, 133 S. Ct. 1537, 569 U.S. ___ (2013), reversed and remanded, holding that equitable principles, such as the made whole doctrine, do not override clear terms of an ERISA plan requiring reimbursement, as the ERISA plan terms control because the terms created an equitable lien by agreement; and also holding that the plan language in this case was not clear regarding the common fund doctrine, and that in the absence of clear language, the court may apply equitable principles to “fill the gap” when the plan language is silent or ambiguous; and the case was remanded to the district court including  to determine the amount of the “common-fund” attorney’s fees lien reduction. Note that since McCutchen, ERISA plans and their subrogation companies have in general significantly tightened the noose in regard to equitable reduction of ERISA liens.


The district court recently issued its decision in U.S. Airways v. McCutchen, Case No. 2:08-cv-01593-DSC (3-16-2016). This decision provides excellent guidance on the Summary Plan Description (SPD) vs Plan Document, and the incorporation of the SPD as part of the official Plan Document, issues which often arise in ERISA lien cases. The SPD vs Plan Document issue was first discussed by the U.S. Supreme Court in Cigna Corp. v. Amara, 563 U.S. 421 (2011). McCutchen was previously decided all the way up to and including the U.S. Supreme Court based on the assumption that the subrogation provision of the SPD is controlling.


The SPD subrogation provision states that: “The purpose of the Plan is to provide coverage for qualified expenses that are not covered by a third party. If the Plan pays benefits for any claim you incur as the result of negligence, willful misconduct, or other actions of a third party, the Plan will be subrogated to all your rights of recovery. You will be required to reimburse the Plan for amounts paid for claims out of any monies recovered from a third party, including, but not limited to, your own insurance company as the result of judgment, settlement, or otherwise. In addition, you will be required to assist the administrator of the Plan in enforcing these rights and may not negotiate any agreements with a third party that would undermine the subrogation rights of the Plan.


The actual Plan Documents with the subrogation provision were finally produced at the request of the Solicitor General after the case reached the U.S. Supreme Court. The actual Plan Documents state that: Plan Document, Section 4.2: “Benefits under the Plan shall be provided in accordance with the terms of the Program in which the Participant enrolls. The benefits under the medical, prescription drug, mental health, and chemical dependency, dental, and EAS programs are set forth in the Summary Plan Description for the Plan.”


Plan Document, Section 4.6:  Subrogation     Subject to any provisions in any contract referred to in Section 4.2 which specifically provide to the contrary, the Plan shall have the following rights: (a) If the benefits are paid or payable by this Plan as the result of an action of a third party, this Plan shall be subrogated to all rights of recovery of any Participant under this Plan in respect to such action. The Participant shall execute and deliver such instruments and papers as may be required and whatever else is needed to secure such rights. Participants receiving benefits under this Plan are obligated to avoid doing anything that would prejudice the Plan’s rights of recovery. (b) If a suit is filed, the Plan may cause to be recorded a notice of payment of benefits, and such will constitute a lien on any judgment recovered. (c) If a Participant to whom benefits are paid or payable under this plan fails to bring suit promptly against a third party, the Plan may institute suit against such third party in its own name or in the name of such Participant, and the Plan shall be entitled to retain from any judgment the amount of benefits paid or to be paid to such Participant together with all court costs and attorney fees. The remainder of any recovery shall be paid to such Participant or other persons as the court directs.” Also, the SPD includes a “disclaimer” provision, first discussed by the district court on remand of the case: “This SPD provides a comprehensive overview of the benefits available under the Plan. However, it is only a summary. Complete plan details are contained in a legal plan document. If there is any difference between the information in this SPD and the legal plan document, the legal plan document will govern. . .- - - Plan Document- - - This SPD is intended to help you understand the main features of the Plan. It should not be considered a substitute for the Plan document, which governs the operation of the Plan. That document sets forth all of the details and provisions concerning the Plan and is subject to amendment. If any questions arise that are not covered in this SPD or if this SPD appears to conflict with the official Plan document, the text of the official Plan document will govern.”


On remand, the district court , in U.S. Airways v. McCutchen, Case No. 2:08-cv-01593-DSC (3-16-2016), held:


1.  Section 4.2 of the Plan Document does not incorporate by reference the SPD and its subrogation provision as part of the official governing Plan Document. Caesars Entm't Operating Co. v. Johnson, 2015 U.S. Dist. LEXIS 30221 (W.D. Ky. Mar. 11, 2015). The language in Caesars’ Welfare Benefit Plan (“WBP”) is more specific than the language of Section 4.2. Caesars’ WBP states that : “[t]his Plan, including all benefits provided, summary plan descriptions and insurance policies which appear as attachments (Plan Benefits), is a single employer welfare benefit plan within the meaning of Section 3(1) of ERISA and for all purposes under ERISA.” Also, Section 4.1, titled “Plan Benefits”, Caesars’ WBP explained that it “incorporates by reference the Plan Benefits and insurance policies and the accompanying summary plan description and provides legally enforceable rights to the Plan Benefits.”


2.  The “disclaimer” provision of the SPD controls. Where the SPD contains specific language stating that the official Plan Documents govern, then the SPD is not the Plan and thus is not the authoritative source of Plan terms, citing Hooven v. Exxon Mobil Corp., 465 F.3d 566, 577 (3d Cir. Pa. 2006). Where the terms of the SPD and the Plan Document are inconsistent, the terms of the Plan Document control, citing Cottillion  v. United Ref. Co., 781 F.3d 47 (3d Cir. 2015).


3.  The U.S. Airways Plan Document subrogation provision, which only applies subrogation and reimbursement rights against the third party liability settlement,  is more favorable than the U.S. Airways SPD subrogation provision, which applies subrogation and reimbursement rights against both the third party liability and Underinsured Motorist settlements. Therefore, the Plan Document subrogation provision controls and the subrogation and reimbursement rights of the Plan only apply against the third party liability ($10,000) settlement, and the Plan has no such rights against the Underinsured Motorist ($100,000) settlement.


4.  As directed by the U.S. Supreme Court, as the Plan Document’s subrogation provision does not include an anti-common-fund/attorney’s fees provision, the district court directed that McCutchen is entitled to deduct his proportional fees and expenses that resulted in the $10,000 Underinsured Motorists settlement. (Thus the ERISA lien will be reduced by 40% to $6,000.)

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© Copyright 2006, Steven J. Bruzonsky, Attorney
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