:: Court Emphasizes Importance Of Specific Identification Of Funds In ERISA Subrogation Case

The case presently before this Court falls closer to Sereboff than to Knudson. Here, Iowa Health asks the Court to impose a constructive trust or equitable lien over a portion of specifically identifiable funds (i.e. proceeds of Duncan’s settlement located in a specific account) over which Salli Graham has possession. (Compl. P 3, 15-20). The relief sought is equitable in nature. Further, the plan’s reimbursement provision provides an equitable basis for relief, as the provision cannot be meaningfully distinguished from the reimbursement provision in Sereboff.

Iowa Health Sys. v. Graham, 2009 U.S. Dist. LEXIS 63544 (C.D. Ill. July 23, 2009)

This recent district court opinion provides a useful contrast between Sereboff and Knudson.  The facts are those typical of most ERISA subrogation and reimbursement cases.  The benefit plan pad medical expenses following an automobile accident involving young Duncan Graham.  The plan then sought reimbursement for the expenses paid.

The parties stipulate that the suit settled for $ 50,000, although the state court’s order approving settlement indicates the settlement was for a greater amount. The parties further agree that the settlement consisted of $ 20,000 paid pursuant to a liability policy and $ 30,000 paid pursuant to the underinsured motorist provision of Duncan’s parents’ insurance policy.

The plan filed suit based upon Section 502(a)(3) of the Employee Retirement Income Security Act of 1974 (”ERISA”), codified at 29 U.S.C. § 1132(a)(3).

The district court noted the defect in the benefit plan’s argument in Great-West Life & Annuity Insurance Company v. Knudson and then contrasted that case with Sereboff v. Mid Atlantic as follows:

A few years after Knudson, the Supreme Court decided the case of Sereboff v. Mid Atlantic Medical Services, Inc. — the lead case cited by Iowa Health in its summary judgment brief. 547 U.S. 356, 126 S. Ct. 1869, 164 L. Ed. 2d 612 (2006). In Sereboff, a health insurance plan paid $ 74,869.37 in medical expenses on behalf of plan beneficiaries as the result of an auto accident. The beneficiaries subsequently recovered a tort settlement against third parties involved in the accident, leading the health plan’s administrator to sue the beneficiaries in federal court under Section 502(a)(3) to enforce a reimbursement provision within  the plan. The parties to the federal court action stipulated to preserving the disputed $ 74,869.37 in an investment account until the case was resolved. Justice Roberts, writing for the Supreme Court, held that the administrator’s suit was authorized under Section 502(a)(3). Distinguishing Knudson, Justice Roberts wrote,

That impediment to characterizing the relief in Knudson as equitable is not present here. . . . [I]n this case [the plan administrator] sought specifically identifiable funds that were within the possession and control of the [beneficiaries] — that portion of the tort settlement due [the administrator] under the terms of the ERISA plan, set aside and preserved [in the beneficiaries’] investment accounts. Unlike [the insurer in Knudson], [the administrator here] did not simply seek to impose personal liability . . . for a contractual obligation to pay money. It alleged breach of contract and sought money, to be sure, but it sought its recovery through a constructive trust or equitable lien on a specifically identified fund, not from the [beneficiaries’] assets generally, as would be the case with a contract action at law.

Sereboff, 547 U.S. at 362-63 (internal quotations  and citations omitted); see also Administrative Comm. of Wal-Mart Stores, Inc. Assocs.’ Health and Welfare Plan v. Varco, 338 F.3d 680, 688 (7th Cir. 2003) (requirements to equitable relief under Section 502(a)(3)(B) are threefold: specifically identifiable funds; in the defendant’s control; to which the plaintiff is rightfully entitled under terms of the benefit plan).

The Court did a fine job of drawing the distinction, noting that:

The case presently before this Court falls closer to Sereboff than to Knudson. Here, Iowa Health asks the Court to impose a constructive trust or equitable lien over a portion of specifically identifiable funds (i.e. proceeds of Duncan’s settlement located in a specific account) over which Salli Graham has possession. (Compl. P 3, 15-20). The relief sought is equitable in nature. Further, the plan’s reimbursement provision provides an equitable basis for relief, as the provision cannot be meaningfully distinguished from the reimbursement provision in Sereboff. 547 U.S. at 363-64. 7

The district court thus granted the benefit plan’s summary judgment motion. Note: The district court analyzed both the plan language, which it found satisfactory, and the existence of specifically identifiable funds.  The latter point is particularly interesting.  The court cautioned that: Although Iowa Health could have done a better job identifying the specific funds at issue, there is sufficient, uncontested evidence and information available to the Court regarding the Settlement Funds so as to warrant a summary equitable ruling in favor of Iowa Health.. . .

Iowa Health’s failure to present more specific evidence as to the status of the Settlement Funds is difficult to justify and is nearly fatal to its suit. The specific identification of existing property is critical to this action. This is a very important point for both benefit plan counsel and personal injury counsel alike. Plan Language – The plan provision read as follows: The Plan has the right to . . . recover and subrogate 100 percent of the benefits paid or to be paid by the Plan for Members to the extent of any and all of the following payments[:] Any judgment, settlement or payment made or to be made, because of an accident or malpractice for which the Plan paid benefits, including but not limited to other insurance[;] Any auto or recreational vehicle insurance coverage or benefits including, but not limited to, uninsured/underinsured motorist coverage for injuries for which the Plan paid or will pay benefits[;] Business and homeowners medical and/or liability insurance coverage or payments for injuries for which the Plan paid or will pay benefits[;] Attorney’s fees.