The Handling of ERISA Liens and Being Sued

When you are injured in an accident due to the fault of another, you likely will be compensated financially by the other person's insurance provider. If, in the meantime, treatment of your injuries is paid for by your employer-sponsored health insurance plan, the plan provider will look to your settlement for reimbursement. Employer-sponsored health insurance plans are governed by the federal statute known as the Employee Retirement Income Security Act or ERISA, which provides important rights to plan participants.

ERISA Liens

• Health plans covered by ERISA often contain an "acts of third parties" provision. The provision essentially states that if you are injured or become ill because of the actions of a third party, and you later recover damages (a money judgment) from that third party, the ERISA health plan provider must be reimbursed for medical expenses. The ERISA-sponsored plan can then place a lien (legal claim) against any monetary damages you may receive. If you recover damages and fail to repay the health insurance provider, it can sue you to enforce the lien, as provided under sub-section 502(a) (3) of ERISA. The handling of ERISA liens and being sued should include assistance from an attorney experienced with ERISA law.

Plan Language

• For ERISA liens to be enforceable, plans must contain specific language, identifying that reimbursement for medical expenses will come from any money damages you may receive as a result of your accident. Many ERISA plans fail to include in their plan documents sufficient language to effectively create a lien against settlement proceeds. Therefore, if you are being sued for reimbursement, a court may deny the claim if plan language fails to actually create a lien.

Make-Whole Doctrine

• You may not be required to pay your health plan provider back for medical costs, if your accident recovery falls short of compensating you for your injuries. Under the make-whole doctrine (principle), if you are not "made whole" or fully compensated for injuries received, the ERISA health insurer may be denied reimbursement or be only eligible for partial reimbursement. In many states, the make-whole doctrine has become part of state law. However, if the ERISA-plan language specifically rejects this make-whole policy, the plan provider may have the right to recovery of its expenditures.

Equitable Remedy

• Typically, in the handling of ERISA liens and being sued, the health plan provider will seek an equitable remedy from the court. An equitable remedy would result in the court enforcing the provider's lien against your settlement proceeds. The court typically rejects provider claims if the results will be inequitable, or in other words, if reimbursement to the ERISA plan means you will not be fully compensated for your injuries. A court may also reject your provider's claim if it waited too long to declare its claim, if the ERISA plan is legally unreasonable or if reimbursement would deplete your settlement proceeds past the point of providing full compensation.