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ERISA Plan Awarded Full Reimbursement of Benefits and Attorney

ERISA Plan Awarded Full Reimbursement of Benefits and Attorney's Fees against Personal Injury Lawyer

ERISA and Life Insurance News
(December 21, 2012)

AirTran sued Elem and her personal injury attorney under section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), for reimbursement of more than $131,000 in self-funded health plan benefits paid by AirTran to Elem. The benefits were for medical expenses incurred by Elem due to injuries sustained in a motor vehicle accident.

Elem filed a personal injury lawsuit against the responsible driver. Despite the fact that AirTran provided Elem and her attorney with notice of the plan’s subrogation and reimbursement rights, the personal injury lawsuit was settled and the settlement funds were distributed to Elem and the attorney without reimbursing the plan.

The personal injury lawsuit settled for $500,000, but the attorney reported to AirTran that the case had settled for only $25,000, and asked AirTran to accept $4,500 to resolve the reimbursement claim. AirTran discovered the true amount of the settlement, and invoked section 502(a)(3) to impose an equitable lien to recover the full amount of benefits from the settlement funds in the possession of Elem and the attorney, along with attorney’s fees and costs under section 502(g)(1) of ERISA.

The parties filed cross-motions for summary judgment. AirTran argued that it was entitled to full reimbursement from the settlement fund under Zurich Am. Ins. Co. v. O’Hara, 604 F.3d 1232 (11th Cir. 2010). Elem and her attorney argued that the plan should not be reimbursed, most notably because (1) Elem had not been “made whole” by the settlement, and therefore, reimbursement to the plan did not constitute “appropriate equitable relief,” and (2) a large portion of the plan benefits paid to Elem allegedly were for treatment of a knee condition that pre-existed the motor vehicle accident.

The court granted summary judgment to AirTran, noting that the plan expressly disclaimed application of the “make whole” doctrine codified in Georgia’s so-called anti-subrogation statute, O.C.G.A. § 33-24-56.1. Because the plan was self-funded by AirTran, the Georgia law was preempted by ERISA.

The court noted O’Hara’s reaffirmation that in the Eleventh Circuit the “make whole” doctrine is a “default rule that applies only in the absence of specific and unambiguous language precluding [its application].” While noting the Supreme Court’s grant of certiorari in U.S. Airways v. McCutchen, 663 F.3d 671 (3d Cir. 2011), in which the Third Circuit disagreed with O’Hara, the court elected to “proceed under existing Eleventh Circuit precedent.”

The court further rejected Elem’s argument that her knee condition pre-existed the motor vehicle accident, noting that Elem had testified to the contrary in her personal injury lawsuit “to maximize the damages she could obtain” in that action. Elem had previously denied under oath that a pre-existing injury contributed to her damages from the accident. But “[n]ow that the issue [was] what Ms. Elem has to pay back for her medical coverage,” the court noted that Elem and her attorney “changed their story in an attempt to exclude alleged pre-existing injuries from her reimbursement obligations.” The court invoked judicial estoppel to prevent “[t]his calculated change of position” in response to the “exigencies of the moment.”

Finally, the court awarded attorney’s fees to AirTran against the attorney and his law firm, finding that he “went to substantial lengths to avoid disclosing” $475,000 of the settlement, and further, that “under clear Eleventh Circuit precedent, the make whole doctrine never even arguably applied.”

Click here to view the full December 2012 Edition of the ERISA and Life Insurance News.

H. Sanders Carter
T (404) 962-1015
F (404) 962-1220
Kenton J. Coppage
T (404) 962-1065
F (404) 962-1256
Kip D. Nelson
T (336) 378-5206
F (336) 433-7443

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