= Drafting Notes
= Alternate & Optional Clauses
This summary plan description (SPD) language for a health or other welfare benefit plan to describe the plan’s right of recovery against a participant in certain circumstances through subrogation or reimbursement, where permitted by law. Subrogation interests generally allow a plan to recover the amount of benefits paid from the plan to a participant if the participant also receives a damages award or settlement from a third party for the medical claims or other costs that were covered by the plan. Such relief is available for plans governed by the Employee Retirement Income Security Act (ERISA) (e.g., for most employer self-funded health plans) in the form of an equitable lien by agreement against particular funds. Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 364 (2006). Note, however, for ERISA plans that are subject to state insurance laws (e.g., fully insured plans for which the “savings clause” at ERISA § 514(b)(2)(A) (29 U.S.C. § 1144(b)(2)(A)) provides a carve-out from ERISA pre-emption) that some states restrict such subrogation and reimbursement rights. ERISA requires plan SPDs to provide a clear statement of any right of recovery that could affect a participant’s reasonable expectations of plan, so it is important that the SPD contain appropriate language. This language includes optional clauses and important drafting notes.
For SPD language to address a benefit plan’s right to reimbursement for an overpayment of plan benefits, see Recovery of Overpayment Clause for Benefit Plan Summary Plan Description. For general information on SPD requirements, see Key ERISA Disclosure Issues Including Summary Plan Description (SPD) Requirements and Other Disclosures Concerning Blackout Periods, Participant-Directed Defined Contribution Investments, and Employer Security Investment Alternatives and Prospectus Requirements.
Subrogation and Reimbursement Rights
The Plan has a right to be reimbursed for the amount of any benefits it pays out to you if you receive, directly or indirectly, any money from a third party (such as a person responsible for an injury or an insurance company) on account of the same injury, illness or condition for which the Plan has paid benefits (any such money is referred to here as a “recovery”). Therefore, as a condition of receiving benefits from the plan for medical or other expenses, you agree that if you receive any recovery from a third party on account of an injury, illness, or condition for which the Plan has paid benefits, you will pay to the plan the amount of that recovery, up to the total amount of benefits paid to you by the plan. For example, if you are injured in an auto accident and either your insurance company or the other driver’s insurance company settles with you, you must reimburse the plan for the benefits the plan provided to you for your medical expenses resulting from that accident, but only up to the amount of your settlement.
If you decide not to pursue a claim relating to any injury, illness or condition for which the Plan has paid benefits, the Plan shall be subrogated to your right to pursue such claim. The Plan may assert a claim, in its discretion, to collect a recovery directly from any third party against whom you have any rights in any court of competent jurisdiction, or in any tribunal or other proceeding. You agree not to object to the jurisdiction of any such court or venue and otherwise cooperate in pursuing the recovery.
In connection with the Plan’s rights of subrogation and reimbursement, you are required to:
- notify the Plan within thirty (30) days of the date when any notice is given to any party, including an attorney, of your intention to pursue or investigate a claim to recover damages or obtain compensation due to any injury, illness, or condition for which the Plan has paid benefits;
- promptly notify the Plan of any recovery paid as a result of any injury, illness or condition for which the Plan has paid you benefits that you become aware of, by any person from any source;
- fully cooperate with the Plan’s efforts to enforce its rights of subrogation and reimbursement;
- complete all forms and provide all information requested by the Plan, including completing and submitting any applications or other forms or statements the Plan may reasonably request;
- cooperate in all efforts to pursue the recovery, including in the preparation and execution of any case or otherwise, and by attendance or giving testimony at depositions and in court, or as otherwise may be necessary; and
- do nothing to prejudice or impede the Plan’s rights of subrogation and reimbursement, including by making any settlement or recovery that attempts to reduce or exclude the full cost of the benefits provided by the Plan, except as reasonably agreed to by the Plan.
Please note the following regarding the Plan’s right of reimbursement:
- The source and timing of the recovery do not matter. The Plan has the right to be reimbursed for whether that recovery is made to or on behalf of the covered person; made in a single payment or over a period of time; or collected by action at law, judgment, settlement, or otherwise.
- The Plan will automatically have a lien against the recovery in the amount of any benefits the Plan provided as a result of the injury, illness, or condition for which the recovery is collected.
- The plan may enforce the lien with any court or agency with jurisdiction over the matter against the covered person, an insurance company acting on behalf the covered person, o the third party or its agent, or with anyone who is in possession of the recovery.
- The lien may be enforced by any claims administrator or other person acting as the Plan’s delegate or as a provider of administrative services to this Plan.
- The Plan, or other person acting as the Plan’s delegate or provider of administrative services to this Plan, has the sole authority and discretion to decide whether to pursue any right of recovery in favor of the Plan.
- The Plan’s recovery rights are a first priority claim against all responsible parties and are to be paid to the Plan before any other claim against the recovery.
- The Plan’s lien on the recovery is not dependent upon whether or not:
- the recovery is insufficient to make the covered person whole or otherwise compensate the covered person for the injury, illness, or condition;
- the Plan participates in or assists in claims made to obtain the recovery;
- the Plan bears any court costs or attorney fees in furtherance of claims seeking the recovery;
- any liability for payment is admitted by anyone;
- the recovery identifies the benefits provided by the Plan; or
- the recovery identifies payment, in whole or in part, as for pain and suffering or for non-economic damages.
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Drafting Note to First Paragraph
This form addresses the circumstances which may result in a subrogation or reimbursement claim by the plan against a participant. ERISA requires that a summary plan description (SPD) provide a clear statement of any right to recovery (including by subrogation or reimbursement) that could affect the benefits that a participant (or beneficiary) might otherwise reasonably expect to receive from the plan. 29 C.F.R. § 2520.102-3(l).
Under ERISA, a plan fiduciary may seek reimbursement to the plan of specifically identifiable funds (i.e., the amount of a participant’s duplicative recovery from a third party) in the form of an “equitable lien by agreement” under ERISA § 502(a)(3) (29 U.S.C. § 1132(a)(3)). Sereboff v. Mid Atlantic Medical Services, 547 U.S. 356, 364 (2006). Further, in U.S. Airways v. McCutchen, 133 S. Ct. 1537 (2016), the Supreme Court held that equitable defenses (such as unjust enrichment) could not override an explicit subrogation right provided for in the plan documents. So plans that wish to establish subrogation and reimbursement rights should incorporate provisions into the plan document and SPD. Recently, the Supreme Court clarified that such an equitable lien right cannot be enforced if the participant spends the entire damages award on non-traceable items. Montanile v. Bd. of Trs. of the Nat’l Elevator Indus. Health Ben. Plan, 136 S. Ct. 651 (2016). Therefore, plans should act promptly to enforce these rights.
Any costs, expenses, or attorney’s fees that you pay in connection with obtaining any recovery will not reduce the amount you are required to reimburse the Plan as described in the preceding paragraph, unless the plan agrees to such reduction.
Drafting Note to Third Paragraph
This language is intended to establish a traditional subrogation right, whereby the plan obtains the right to “step into the shoes” of the participant to assert a claim directly against a third party.
Drafting Note to Fourth Paragraph
This language can be used, as stated or in modified form, to explicitly provide for specific terms of the subrogation and reimbursement rights that might otherwise be inferred.
Drafting Note to Fifth Paragraph
This paragraph anticipates and attempts to undermine several defenses upon which an equitable lien might be challenged.
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