When we obtain a judgment or negotiate a settlement on behalf of a client, the question of how much a client can keep almost always comes up. Depending on attorneys’ fees and expenses, a client may be left with 40% to 60% of the settlement amount. This is not the end of the story. If some of the client’s medical expenses were paid by a health insurer, that number may be significantly less. Under the Employee Retirement Income Security Act of 1974 (ERISA), an employee benefits plan can recover in equity the amount it paid on behalf of the injured client through a process called “subrogation.” Although we negotiate with medical providers and health insurance companies for our clients following a recovery, some of that money will have to go to pay those providers and insurers. But how much and under what circumstances?
The United States Supreme Court recently addressed the issue of ERISA subrogation in the case Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan. Mr. Montanile was hit by a drunk driver and seriously injured, with over $120,000 in medical expenses. Those expenses were paid by the health insurance plan Mr. Montanile had through his employer. Mr. Montanile settled his claim against the drunk driver for $500,000, and after paying attorneys’ fees and expenses, had about $240,000 left over. The health insurer notified Mr. Montanile’s attorney that it was seeking the $120,000 it paid though subrogation. After negotiations broke down, Mr. Montanile’s attorney advised that he would distribute the entire amount to Mr. Montanile unless the health insurer objected within fourteen days. The health insurer did not object and the remaining $240,000 went to Mr. Montanile, which he placed in his general funds and used to pay household and other expenses.
Six months later, the insurer sued Mr. Montanile for the $120,000 it had paid his medical providers from his general assets. The trial court sided with the health insurer and was upheld on appeal. Mr. Montanile appealed to the U.S. Supreme Court.
In an 8-1 decision, Justice Thomas delivered the opinion of the Court reversing the 11th Circuit Court of Appeals and sending the case back to the trial court for additional findings of fact. The Court drew a distinction between lawsuits about things, or suits in equity, and lawsuits about money, or suits in law. This is important because the ERISA law under which the health insurer was suing only allows equitable remedies. Because a settlement fund is a thing, the health insurer was seeking an equitable remedy. However, in the six months the health insurer waited to bring its lawsuit, Mr. Montanile spent the money on non-traceable items such as food and services, including legal services to defend against the health insurer’s lawsuit. Thus, the thing of the settlement fund had been dissipated.
The Court flatly rejected the health insurer’s argument that the money could be recovered from Mr. Montanile’s general assets, because that would be a suit in law, not equity. Although this seems like a hyper-technicality, as noted above, the ERISA law only allows suits in equity. The Court sent the case back to the trial court to determine how much of the settlement fund was left or could be traced to specific items, such as a car.
What does this mean to our clients? First of all, it is vital that we protect our clients’ interests by negotiating the liens medical providers and health insurers place on settlements and judgments. Second, it is important that we reach agreements with the lien holders, because if our failure to agree causes a client to have to defend a lawsuit like the one here, we have done a disservice; it makes no sense to save $10,000 only to have the client spend $50,000 in legal fees to get it.
At Watson Law Office, P.C., we understand that our obligation to our clients does not end when the defendant writes a check. We see the process though to the finish.