Injured Victims Facing ERISA Liens Helped by Verdict

Jon Perry, Esquire, of Rosen, Louik & Perry, recently authored this piece for PA Justice News.

Huge Victory for Injured Victims Facing Large ERISA Liens
James McCutchen was seriously injured in an auto accident, requiring medical treatment exceeding $67,000 that was paid by a US Airways employer self-funded-ERISA plan. Because of limited insurance coverage, McCutchen’s recovery was limited to $10,000 from the tortfeasor and $100,000 from underinsured motorist coverage. When US Airways demanded repayment of its entire lien, McCutchen’s attorney refused and sought to negotiate a fair reduction. US Airways refused to negotiate so McCutcheon’s attorney escrowed $41,500 representing the lien less attorney fees.

US Airways sued McCutchen and his attorney in the United States District Court for the Western District of Pennsylvania pursuant to section 502(a)(3) of ERISA, which permits an employee benefit plan to seek “appropriate equitable relief.” In the district court, McCutchen and his attorney asserted that the relief sought – recovery of the entire lien without paying any recovery costs – was not “appropriate” for a number reasons, including, (1) that, because of limited insurance coverage, McCutchen had recovered only a minor portion of the true value of his case, and (2) that permitting US Airways to recover its entire lien without paying attorney’s fees was not equitable. Relying upon the strict language of the US Airways’ employee benefit plan, which provided that no recovery costs be paid, and Third Circuit precedent holding that the plan language was controlling, the district court granted summary judgment in favor of US Airways and ordered McCutchen to repay the entire lien.

On appeal, a unanimous panel of the Third Circuit reversed. The court first noted that the Third Circuit precedent relied on by the district court was no longer controlling because of intervening United States Supreme Court precedent that clearly held that an employer like US Airways was limited to seeking “appropriate equitable relief” under section 502(a)(3); the Supreme Court also made clear that it was not required to decide what relief was “appropriate.” The Third Circuit noted that the precedent relied on – that the terms of the plan must be enforced as written – did not even mention section 502(a)(3) and for that reason was no longer controlling. Relying further on language of the US Supreme Court, the Third Circuit held that traditional equitable defenses, such as unjust
enrichment and others, had to be considered by the district court in determining what constituted “appropriate” relief and that the plan language was not sacrosanct. The Third Circuit vacated the district court’s order and remanded the case for further proceedings to determine the appropriate relief to which US Airway was entitled.” Plaintiff’s attorney had waived his entire fee in light of the severity of injury and limited coverage.

The published, precedential opinion of US Airways, Inc. v. James E. McCutchen, No. 10-3836 (3rd Cir. November 16, 2011) is available at the Third Circuit Court of Appeals

Note: The appeal was argued by Matt Wessler, the Kazan-Budd Attorney at Public Justice. His co-lead counsel were PAJ Sustaining Member Neil R. Rosen, Esquire and PAJ Member Paul Hilko, Esquire.

This development will greatly help Pennsylvania Auto Accident Attorneys and car crash victims seeking insurance needed insurance settlements.