Using Contract Law to Combat an ERISA Health Insurance Lien on Your Settlement

Settling a personal injury case can be a moment of relief for both the plaintiff and their attorney. However, a significant hurdle often remains: resolving health insurance liens. These liens can significantly impact the final recovery amount for your client, making it crucial to address them effectively. This article focuses on ERISA plans and their policy documents related to liens.

Understanding Health Insurance Liens

When a plaintiff receives medical treatment for injuries related to a personal injury claim, their health insurance provider often pays the medical bills. In return, the insurer may have a lien interest in the amount of the medical expenses covered, providing a right to reimbursement from any settlement or judgment. This reimbursement claim, known as a health insurance lien, is based on the contractual and statutory rights of the insurer.

Steps to Resolving Health Insurance Liens

1. Identify and Notify All Potential Lienholders: Early in the case, identify all entities that may assert a lien. This includes health insurance companies, Medicare, Medicaid, and any other potential third-party payers. Notify these entities, in writing, of the pending litigation and request detailed lien information.
2. Review Plan Documents and Lien Claims: Carefully examine the insurance policy or plan documents to understand the basis and amount of the lien. Check for any errors or inaccuracies, and for relatedness in the lien claim. It’s also essential to scrutinize whether the lien is enforceable under federal or state law.
3. Negotiate the Lien Amount: Engage in negotiations with the lienholder. Highlight any equitable considerations, such as the extent of the damages, the plaintiff’s overall recovery, and the attorney’s fees and costs. Insurers should compromise on the lien amount when a persuasive argument is presented.
4. Utilize the Common Fund Doctrine: This doctrine can often reduce the lien amount by requiring the lienholder to share in the attorney’s fees and costs. The rationale is that the lienholder benefits from the attorney’s efforts to recover the settlement.
5. Document Everything: Keep meticulous records of all communications, negotiations, and agreements related to the lien. This documentation can be crucial if disputes arise later.

ERISA Liens

Plans governed by the Employee Retirement Income Security Act of 1974 (ERISA) often have strong reimbursement rights. These plans, provided by private employers, can preempt state laws, making them particularly powerful. It is their policy language that controls the strength of their reimbursement right. The key issues include:

• Federal vs. State Law: Self-funded ERISA plans can assert strong reimbursement rights that preempt state anti-subrogation laws, limiting the avenues for reduction or negotiation of the lien. Fully insured ERISA plans can also assert strong reimbursement rights even if those plans are indeed subject to state law. Some states allow a fully insured ERISA plan to override state law that would limit their reimbursement. Because of this, regardless of the funding status, obtaining all plan documents is crucial.
• Plan Terms Interpretation: Courts often require strict adherence to the terms of the ERISA plan documents. The McCutchen case made this abundantly clear for self-funded ERISA plans. Understanding and interpreting these terms correctly is essential.

Right to Obtain the Plan Documents

Under ERISA, plan participants have specific rights to obtain plan documents from their plan administrators. These rights are crucial for participants to understand their benefits, how the plan operates, and their entitlements. Section 104(b)(4) of ERISA, codified as 29 U.S.C. § 1024(b)(4), outlines these rights.

The Plan Documents should be obtained directly from the Plan Administrator and not the insurance carrier or the subrogation vendor.

1.  Written Request:
   • Plan participants or beneficiaries can request copies of certain plan documents in writing from the plan administrator.
2. Types of Documents:
   • Summary Plan Description (SPD): Provides a comprehensive overview of the plan, including benefits, rights, and obligations of participants.
   • Summary of Material Modifications (SMM): Describes changes to the plan or the SPD.
   • Annual Report (Form 5500): Contains financial information, plan operations, and compliance information.
   • Plan Document: The formal written document that establishes the plan and its terms.
   • Trust Agreement: If applicable, the document that sets up the trust to hold plan assets.
   • Collective Bargaining Agreement: If the plan is subject to one, this document outlines the agreement between the employer and the union.
   • Insurance Contract: For plans funded through insurance, the contract between the plan and the insurer.
3.   Response Time
   • Plan administrators are required to provide the requested documents within 30 days of receiving the written request.
4. Civil Penalties:
   • If the plan administrator fails to comply with a request for documents within 30 days, they may be liable for a penalty of up to $110 per day (adjusted periodically for inflation) from the date of the failure to provide the documents.

Contract Law Principles and Strategies

1. Examine the Plan Language
   • Ambiguities in the Plan Document: Carefully review the ERISA plan documents to identify any ambiguities in the reimbursement or subrogation clauses. Under the doctrine of contra proferentem, ambiguities in the contract are construed against the drafter. If the language is unclear, you may argue that it should be interpreted in favor of your client.
   • Scope and Limits of Reimbursement: Ensure the plan’s reimbursement claim strictly adheres to the terms outlined in the plan document. Some plans may have specific provisions or limitations regarding the scope of their recovery rights.
2. Make Whole Doctrine
   • Plan Language Examination: Assess whether the plan explicitly disclaims the “make whole” doctrine. If it does not, you can argue that the plan should only be reimbursed if and when your client has been fully compensated (made whole) for all their losses, including pain and suffering, lost wages, and future medical expenses.
   • Equitable Arguments: Use the make whole doctrine to negotiate a reduction in the lien amount, arguing that the plaintiff has not been fully compensated for their total losses.
3. Common Fund Doctrine
   • Attorney’s Fees and Costs: The common fund doctrine may require the ERISA plan to share in the attorney’s fees and costs incurred in obtaining the settlement. Argue that the plan’s recovery should be reduced proportionally to account for the legal expenses incurred in creating the settlement fund.
   • Explicit Plan Language: Verify if the plan explicitly addresses the common fund doctrine. If the plan does not waive this doctrine, you can argue that it applies.
4. Analyze the Plan’s Equitable Lien by Agreement
   • Equitable Lien Requirements: For an equitable lien by agreement to be enforceable, the plan must identify a specific fund (the settlement) and assert a right to a portion of that fund. Ensure the lien is tied to the settlement and not your client’s general assets.
   • Constructive Trust: ERISA plans often seek a constructive trust on settlement funds. Argue that the plan’s right to recovery should be limited to specific funds clearly identified in the settlement agreement.
5. Proportional Allocation of Damages
   • Detailed Settlement Allocation: Structure the settlement to allocate specific amounts to various categories of damages, such as medical expenses, pain and suffering, and lost wages. Argue that the ERISA lien should only apply to the portion allocated to medical expenses.
   • Court Approval: Seek court approval of the settlement allocation to strengthen the argument against the ERISA lien’s applicability to non-medical portions of the settlement.
6. Equitable Relief
   • Equitable Defenses: Use equitable defenses such as unjust enrichment, undue hardship, or the unclean hands doctrine to argue that full reimbursement would be inequitable under the circumstances, if applicable.
7. Negotiation and Settlement
   • Negotiation Tactics: Engage in negotiations with the ERISA plan administrator, insurance carrier, subrogation vendor, etc., presenting all legal and equitable arguments to seek a reduction in the lien amount.

Conclusion

Combating an ERISA lien on a personal injury settlement requires a thorough understanding of both the specific plan language and applicable contract law principles. By carefully analyzing the plan documents, leveraging doctrines like make whole and common fund, and employing strategic negotiation tactics, personal injury attorneys can often reduce the impact of these liens on their clients’ recoveries. Effective use of these strategies not only maximizes the client’s net recovery but also ensures compliance with legal and ethical standards.

While a personal injury attorney may be able to resolve a lien on their own, it is more efficient and advantageous to engage Synergy for this specialized task. This allows attorneys to focus on other revenue generating cases, knowing that a team of lien experts are diligently working to achieve the best possible result for their client. Synergy’s expertise and hundreds of years of combined experience in handling ERISA liens ensure that the settlement process are preserved as much as possible, leading to optimal outcomes for the client.

Synergy is your lien resolution partner for all health insurance liens – ERISA, FEHBA, Military, Medicaid, Med Pay, Medicare, Hospital, Private and more.  Partner with Synergy today to see what a difference it makes for the efficiency and profitability of your firm. 

Written by: Teresa Kenyon | Vice President of Lien Resolution Services