In U.S. Airways, an employee who was injured in a car accident recovered $110,000 from third parties and paid a 40% contingency fee to his attorney. According to the ERISA health plan’s reimbursement provisions, U.S. Airways sought to recover from the employee the full amount of medical expenses the plan paid for his injuries, even though the plan’s payments exceeded the amount of the employee’s net recovery. The U.S. Supreme Court granted certiorari to review U.S. Airways, Inc. v. McCutchen, 663 F.3d 671 (3rd Cir. 2011) and address a split among the circuits regarding whether equitable principles can limit an ERISA plan’s reimbursement rights.
The district court held that U.S. Airways was entitled to recover the full amount paid by the plan. The Third Circuit reversed, holding that equitable relief under ERISA section 502(a)(3) can be limited by equitable defenses and principles that were typically available in equity. The Third Circuit applied the traditional equitable principle of unjust enrichment and concluded that full reimbursement was inappropriate and inequitable relief because the employee would be left with less than full payment for his medical bills and U.S. Airways would receive a windfall. The Third Circuit remanded the case to the district court to determine “appropriate equitable relief.”
The Supreme Court heard oral argument to review whether the Third Circuit correctly held that ERISA section 502(a)(3) authorizes courts to use equitable principles to rewrite clear plan language requiring full reimbursement for benefits paid.