REIMBURSEMENT UNDER A COORDINATION OF BENEFITS PROVISION IS NOT EQUITABLE AND THEREFORE NOT AVAILABLE UNDER ERISA § 502(a)(3)

In Central States, Southeast and Southwest Areas Health and Welfare Fund v. American International Group, Inc., No. 15-2237, 2016 U.S. App. LEXIS 19165 (7th Cir. Oct. 24, 2016), the Seventh Circuit U.S. Court of Appeals joined at least six other circuits in ruling that under current ERISA law, a self-funded plan administered by Central States, Southeast and Southwest Areas Health and Welfare Fund (the “Plan”) could not seek reimbursement from other insurers under whose health insurance policies a plan beneficiary might also be covered, because such reimbursement is a legal, not equitable, remedy.

Defendants underwrote and/or administered health insurance policies issued to schools and youth sports leagues that covered student athletic injuries. The case arose when student athletes who were beneficiaries under the Plan and also covered by one of the defendants’ policies sustained injuries requiring treatment for which the Plan claimed it had paid $343,000 in medical bills. The Plan filed a declaratory judgment action under ERISA section 502(a)(3) (29 U.S.C. § 1132(a)(3)) seeking “appropriate equitable relief,” including reimbursement from the defendants under the Plan’s coordination-of-benefits provision “variously justified on restitution, unjust enrichment, and subrogation theories.” The trial court granted defendants’ motion to dismiss in its entirety but as to the reimbursement claim it held that the Plan had failed to state a claim because although the claims were phrased as equitable ones, they were not equitable within the meaning of section 502(a)(3).

The appeals court first noted that the Plan had filed virtually identical claims in six other circuits and all those circuits had reached the conclusion that the relief the Plan sought was legal, not equitable. It then analyzed the case under the framework established by the Supreme Court in Mertens v. Hewitt Associates, 508 U.S. 248 (1993); Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002); Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006); US Airways, Inc. v. McCutchen, 133 S. Ct. 1537 (2013); and Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 136 S. Ct. 651 (2016) wherein the Court explained that whether a remedy is available under section 502(a)(3) “depends on (1) the basis for the plaintiff’s claim; and (2) the nature of the underlying remedies sought” and requires that both must be equitable to proceed under section 502(a)(3). Under this well-established law, the Seventh Circuit determined that even though the Plan had phrased the claims in terms of equitable relief, it was actually seeking legal relief in the form of monetary damages, relief specifically not permitted under ERISA, thereby affirming the district court’s dismissal.

For what it is worth – nothing as it turns out – the court did recognize the dilemma this outcome created for the Plan because if ERISA plans cannot bring section 502(a)(3) suits or state-law claims to obtain reimbursement from other insurers with overlapping coverage obligations, “then they’re left with just one way to ensure that they don’t pay claims for which other insurers are primarily liable: refuse to provide coverage to beneficiaries who have other insurance and sue for a declaratory judgment that the other insurer is primarily liable.” It noted however, that “this approach leaves the ERISA beneficiary, ‘through no fault of his own, … considerably worse off for having two policies that coincidentally had conflicting language than he would be if he had only one.’”

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