:: “Appropriate” Equitable Relief Under ERISA Section 502(a)(3) – Another Silver Bullet Misses The Mark

O’Hara contends that, as a matter of equity and in order to effectuate ERISA’s policy of protecting plan beneficiaries, the make-whole rule must be applied because allowing Zurich to recoup the medical expenses it paid on his behalf unduly punishes him by requiring him to forfeit a substantial portion of the compensation he received for his other losses, including  future wages and bodily integrity, and unjustly enriches Zurich. We disagree.

Zurich Am. Ins. Co. v. O’Hara, 2010 U.S. App. LEXIS 8570 (11th Cir. Ga. Apr. 26, 2010)

The Eleventh Circuit takes up the issue of “appropriate” equitable relief in this recent opinion.  The Court rejects the argument that the plan’s reimbursement fails to satisfy the terms of statutory relief authorized under ERISA Section 502(a)(3).

The Facts

On 22 February 2005, the personal injury plaintiff, O’Hara, was seriously injured in a head-on collisions. The ERISA-governed group health plan providing his medical benefits paid $ 262,611.92 for his accident-related medical treatment. O’Hara later sued the other driver, and the parties to that action settled for $ 1,286,457.11.

The plaintiff disputed the plan’s right to reimbursement using one predictable argument and several innovative arguments. The dispute ended up before a federal district court judge who ruled for the Plan under its claim for reimbursement under ERISA Section 502(a)(3).

Framing The Argument

First, what was not in dispute:

#1 The parties did not dispute the premise that the plaintiff was not “made whole” by the recovery.

# 2 The parties had “no quarrel” that the plan’s claim was authorized under ERISA Section 502(a)(3) as “equitable” in nature.

# 3 The funds were held in an identifiable account, so there was no issue of a res upon which equitable remedies could be imposed.

#4  The parties did not argue that the plan provision failed to disavow the “make whole” doctrine.

Equitable Claim Versus “Appropriate” Claim

The plaintiff’s case tested the limits of what may be considered “appropriate” equitable relief.   For those who regularly follow ERISA subrogation issues, the argument will be clear enough.  A full explication of the issue must take into account the foundation laid for this query in the Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006).

There, while holding for the plan, the Court dropped a footnote in which it rejected consideration of whether the relief was “appropriate” since the issue had not been raised below.

Allow me here to insert the question as formulated in an Eighth Circuit opinion:

The remaining issue is whether the relief the Committee sought was “appropriate.” The Supreme Court in Sereboff declined to expound on the meaning of this term, because Sereboff’s argument on that point had not been raised in the court below. 126 S. Ct. at 1877 n.2. The Shanks contends that full reimbursement to the Committee is not “appropriate” under section 502(a)(3), and asks us to apply either the “make-whole” doctrine or a pro rata share requirement as a rule of federal common law in order to reach this conclusion.

Admin. Comm. of Wal-Mart Stores, Inc. Assocs.’ Health and Welfare Plan v. Shank, 500 F.3d 834, 838-39 (8th Cir. 2007) (noting the “primacy of the written plan” under ERISA and rejecting appellant/beneficiary’s argument that the make-whole doctrine precluded insurer from exercising its contractual right to recovery)

“Appropriate” Delimiter Does Not Equal “Make Whole” Requirement

As in Shank, and with even shorter shrift, the Eleventh Circuit rebuffed the notion that the statute’s requirement of “appropriate” equitable relief, even in view of the mischievous Sereboff footnote, had any effect on the plan’s right to recovery.

The Court tersely concluded that:

Applying federal common law to override the Plan’s controlling language, which expressly provides for reimbursement regardless of whether O’Hara was made whole by his third-party recovery, would frustrate, rather than effectuate, ERISA’s “repeatedly emphasized purpose to protect contractually defined benefits.”

Note: As is becoming increasingly clear, whatever “appropriate” means in this context, it does not mean an implicit make whole requirement.   So what does it mean?  It may be worth considering whether a misrepresentation might make relief inappropriate.  In any event, an example of inappropriate relief has not found its way into an important opinion yet.

Make Whole – The doctrine:

“Under the make-whole doctrine, an insured who has settled with a third-party tortfeasor is liable to the insurer-subrogee only for the excess received over the total amount of his loss.” Cagle v. Bruner, 112 F.3d 1510, 1520 (11th Cir. 1997) (per curiam).

Cited Authorities – The Court’s cited a number of cases upholding reimbursement rights including its own opinion in Popowski v. Parrott, 461 F.3d 1367, 1373 (11th Cir. 2006) was well as United McGill Corp. v. Stinnett, 154 F.3d 168, 172 (4th Cir. 1998), Admin. Comm. of Wal-Mart Stores, Inc. Assocs.’ Health and Welfare Plan v. Varco, 338 F.3d 680, 691-92 (7th Cir. 2003) and Admin. Comm. of Wal-Mart Stores, Inc. Assocs.’ Health and Welfare Plan v. Shank, 500 F.3d 834, 838-39 (8th Cir. 2007).

Most interesting was the footnote cite to the blockbuster opinion in Longaberger Co. v. Kolt, 586 F.3d 459, 472 (6th Cir. 2009).

For further reading – Susan Harthill, “A Square Peg in a Round Hole? Whether Make Whole Relief Is Available Under Erisa Section 502(A)(3)”, Florida Coastal School of Law, SSRN Working Paper Series (2008, Last Revised: October 5, 2009); Thomas Allen Comment: ERISA Subrogation and Reimbursement Claims: A Vote to Reject Federal Common Law Adoption of a Default “Make Whole” Rule, Spring, 2009, 41 Ariz. St. L.J. 223 J.; Kristin L. Huffaker, Note: Where the Windfall Falls Short: “Appropriate Equitable Relief” after Sereboff v. Mid Atlantic Medical Services, Inc., Spring, 2008, 61 Okla. L. Rev. 233.