In a case decided by the United States Court of Appeals for the Seventh Circuit (“Federal Appellate Court”) on July 20, 2020, the defendant had settled a medical malpractice lawsuit filed against a hospital and others for $1.5 million, but she and her lawyers refused to repay the defendant’s father’s medical-benefits plan (the Fund) that had paid her medical bills because she was a “covered dependent.” The Fund filed a federal lawsuit to enforce the plan’s terms under §502(a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §1132(a)(3).
The Underlying Facts
Doctors removed the defendant’s gallbladder in 2013. The defendant was injured in the process and required additional surgery that led to more than $300,000 in medical expenses. Her father’s medical-benefits plan includes typical subrogation and repayment clauses that on recovering anything from third parties, a covered person must reimburse the Fund.
The defendant conceded that the Fund paid her medical bills but insisted that she never agreed to reimburse it: she did not sign a promise to follow the plan’s rules and was not a participant (as opposed to a beneficiary). The district judge disagreed with her and granted summary judgment to the Fund for the full amount of its outlay.
The Federal Appellate Court stated, “The terms of the plan furnish beneficiaries with rights and obligations. For example, §§ 12.01 to 16.04 describe medical, dental, vision, and life-insurance benefits, and §11.06 makes these payable “to, or for the benefit of,” those covered by the plan. Section 11.14 conditions payments on the Fund’s subrogation and reimbursement rights, which extend to any covered person. Haynes is a beneficiary under the plan because her father—who worked under a Teamsters’ Union collective bargaining agreement—signed and delivered a writing electing coverage for himself and his family … Section 11.11 of the plan explains that “[t]he Fund is a self-funded employee benefit plan governed by” ERISA. That statute says that it applies to plans such as this. See 29 U.S.C. §1003(a). And it recognizes Haynes as a beneficiary because her father designated her as one under the plan’s terms. 29 U.S.C. §1002(8). The Justices have repeatedly held that fiduciaries may bring actions against beneficiaries under §502(a)(3) … That’s all the Fund needs to prevail.”
The Federal Appellate Court stated, “The district judge found that Haynes was a beneficiary under an ERISA plan. 397 F. Supp. 3d at 1156–58. The plan itself depends on the assent of an employer (its sponsor) and a fiduciary (the Fund) that manages its operation. Employees (called participants) get the benefits without a separate contract, although some optional features (such as covering dependents) are contractual in nature. A participant’s family member is a kind of third-party beneficiary, whose rights under the plan do not depend on personal assent. Such a person may reject an unwanted benefit by disclaiming it … But Haynes doesn’t argue that she disclaimed the plan’s financial aid and paid the bills herself. Having accepted the plan’s benefits, Haynes must accept the obligations too. That’s what the plan says, and ordinary principles of contract law are in accord.”
The Federal Appellate Court further stated: “Haynes contends that counsel should be able to keep a share of the settlement under equitable principles. But §11.14(j) of the plan expressly forbids this approach, and “if a contract abrogates the common-fund doctrine, the insurer is not unjustly enriched by claiming the benefit of its bargain.””
The Federal Appellate Court held: “Neither the plan, the Act, nor the common law excuses Haynes from her obligation to reimburse the Fund. Her status as a beneficiary—whether minor or adult—doesn’t deprive a fiduciary of the ability to obtain appropriate equitable relief under §502(a)(3) of the Act.”
Source Central States, Southeast and Southwest Areas Health and Welfare Fund and Charles Whobrey, Trustee v. Haynes, No. 19-2589.
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