ERISA Plans Typically Retain Authority to Recover Overpayments or to recover settlement funds from a tortfeasor pursuant to Subrogation Rights.

Some of Burke Harvey’s LTD clients find themselves in an overpayment situation, owing money to the insurance company, when they are awarded Social Security benefits but have not reduced their payment from the insurance company by this estimated amount. A similar situation of having to repay an insurance company arises when an ERISA plan has paid health benefits and a recovery is made from a third party responsible for an accident.  In Airtran Airways, Inc. v. Elem, No. 13-11738  (11th Cir. Sept. 23, 2014) Brenda Elem participated, as an employee of AirTran, in a self-funded employee welfare benefit plan. After Elem suffered injuries in a car accident and the plan paid over $100,000 for her medical care, Elem sued the other driver and settled for $500,000.

 

AirTran sought reimbursement from Elem, but Elem’s attorney, Mark Link, misrepresented that Elem had settled for only $25,000. The ERISA plan discovered the fraud when he accidentally sent the plan a copy of a settlement check for $475,000. After AirTran sued Elem, Link, and Link & Smith, P.C., for violations of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1132(a)(3), the district court granted summary judgment and awarded attorney’s fees and costs in favor of AirTran.  The primary issue is whether the Plan may recover medical costs it spent on behalf of a beneficiary after she and her attorney conspired to hide and disburse settlement funds she received after a car accident.  Elem, Link, and the law firm contest the summary judgment on the ground that AirTran failed to satisfy the strict tracing rules of equitable restitution, but these rules do not apply to the equitable lien by agreement that the AirTran plan created. See Sereboff v. Mid Atlantic Med. Serv., Inc., 547 U.S. 356, 364-65, 126 S. Ct. 1869, 1875 (2006). Elem and Link argue that the district court abused its discretion when it awarded AirTran attorney’s fees and costs, but the district court had the authority to sanction them for their bad faith.

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