Grand Irony, or Just a Need for Better Litigation Tactics: Protecting the Severely Injured Plan Participant Against Reimbursement Claims under ERISA

Roy Harmon and the Workplace Prof have the story of a severely injured worker whose settlement with the tortfeasor was effectively taken, in its entirety, by the plan administrator - Wal-Mart - on a reimbursement claim in accordance with the administrator’s rights under Sereboff. Roy Harmon has a nice factual discussion of the problem demonstrated by the case, and the Prof raises the ante, pointing out the injustice this is working for the particular individuals involved in the case. No disagreement there. But what concerns me is a point that the Prof makes, in which he effectively characterizes this as a problem driven by ERISA; sayeth the Prof:

In short, a truly horrible situation under ERISA, and not that far-fetched when one comes to understand the manner in which the scope of equitable relief under ERISA and ERISA preemption work together to create what I call the "Grand Irony of ERISA": that employers now use ERISA as a shield against employees; the same employees whose benefits ERISA was supposed to protect.
A Kafka-esque scheme [if] there was one and yet another publicity black eye for Wal-Mart.

But, although I am speaking almost third hand with little knowledge of the actual facts of this exact case, it seems to me this is not an ERISA problem, but a litigation tactics problem. It seems to me that the first obligation of a plaintiff’s lawyer in this type of a situation is either to obtain a waiver or compromise from the plan of its right of reimbursement that will keep the bulk of the recovery in the hands of the severely injured plan participant, or if that is not possible (perhaps because the plan administrator refuses to do so), to include in valuing settlement the amount that will have to be paid back to the plan on a reimbursement claim. If that makes the settlement value so high that the case can’t settle, then so be it, and it becomes a case which simply has to be tried and the amount of medical bills that must be reimbursed to the plan becomes just one part of the damages that go up on the blackboard in front of the jury in calculating the damages that the plaintiff claims should be awarded to him; in this way, if the jury returns a verdict, the amount that must be paid back to the plan is only one portion of the money recovered by the plan participant, with the participant free to retain the remaining amounts, which ought to encompass awards for future care, future loss of earnings, and the like.

One can fairly ask whether this places the participant at risk of losing at trial and taking nothing, and the answer to that question is, of course, that this risk exists and is significant; avoiding that exact risk is, after all, why a plaintiff settles a case for less than full value. But the fact is that a settlement, such as the one involved in the case Roy and the Prof discuss, that does not significantly exceed the reimbursement owed to the plan- after or without compromise by the administrator -can leave the participant in the exact same spot as a loss at trial would, holding no money at all after the plan is reimbursed.

Litigation is a dynamic and ever changing organism, and, much like Newton's third law of physics, for every action during the course of a lawsuit there is a corresponding, if not necessarily equal and opposite, reaction. The situation presented by the admittedly horrible circumstances detailed by Roy and the Prof is one that needs to be resolved as part of playing out the end game of a lawsuit, not after the fact as a dispute over ERISA rights and remedies.

Given the tragic nature of the events in question, I don’t delve into this point lightly, or just because it looks like good blogging fodder. But in the discussions I have seen so far of this issue, and on the impact of ERISA on it, I haven’t seen this particular aspect discussed in detail, and I think it’s a point that simply cannot be overlooked by any plan participant or lawyer stuck in the same situation in the future.

Written By:Ben Glass On November 26, 2007 1:39 PM

You are right.. it's not particularly and ERISA problem. Most lawyers "get it" now there was a time when many lawyers were settling cases, then finding out there was a claim for reimbursement.

So, a prudent attorney will evaluate all risks, including the plan's claim (must be evaluated, all plans are different and sometimes plans don't follow the rules regarding notice in the Summary Plan Description.)

But assuming a valid claim and either limited funds from which to collect (i.e. low amt of liability insurance) or perhaps a limited risk of winning the tort case) the obligation of the plaintiff's lawyer is to sort this out at the beginning and keep client informed.

Client and lawyer must be willing to "walk" (i.e. abandon the claim) if they can't get a deal with plan administrator that makes it worth the risk for plaintiff to pursue the claim.

Plans typically won't advance costs and many take the position that they get first dollar of the recovery and don't have to share in the costs. That just all goes into the calculation and, if a reasonble deal can't be made in the early stages of pursuing the tort claim, then the lawyer just tells the plan thaty plaintiff is abandoning the claim. We've done that and, amazingly, some plans have chosen to recover nothing rather than get a small percentage of the claim.

But you are right, this is a litigation problem at this point.

Written By:Michael On November 27, 2007 1:19 PM

Absolutely right: it's not an ERISA issue but a litigation issue & the plaintiff's lawyers fault by not protecting her or his client from a ERISA plan reimbursement demand on personal injury lawsuit settlementy monies.

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