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The Irony of Equity – It’s Almost Never Fair

By: Chris Aguiar, Esq.

Self-funded benefit Plans are offered an exclusive equitable remedy.  Equity is really just a fancy word for “fair”, but most of the time – the outcomes in equitable claims aren’t really viewed as fair by anyone involved.  This week I handled a $3.5 million case for which the recovery was limited to $250,000.00.  I couldn’t help but think that no matter the outcome on this case, there is no way for anyone to feel like they got a fair share.

From the Plan’s perspective, It paid $3.5 million and even if It’s are able to recover the entire $250,000.00, it’s not fair that the party at fault for the accident is allowed to walk away without any loss except for those policy insurance limits, which to the insured only really means a premium increase for the next few years.  This sense of a lack of fairness is rooted in a very basic concept – that is, health insurance in a health care reform world is effectively unlimited while auto insurance minimums are governed by the states, with maximums decided by those who purchase the policies; they are really just looking to protect themselves from financial ruin, not those they may harm.

Of course, the Plan participant doesn’t feel like the outcome is fair, either.  This injured party was the son of a plan participant whose life was forever changed for the worse the day he found himself in the wrong place at the wrong time.  Certainly, after being resuscitated 4 times in the emergency room, he and his family are thankful he is still alive, but the stark reality that the responsible party doesn’t really have to suffer for the pain they caused that day, and that they may also lose out on any of the small pool of funds available because it may be taken completely by the Plan cannot be easy to swallow.

No matter what, someone leaves the table unhappy – but parties should to be sure they don’t throw good money after bad.  Doubling down on a bad situation only makes it worse.  If that same participant above gets a lawyer, for example, he likely gives away 1/3 of the $250,000.00, but hasn’t really changed his rights at all – so what was the point?  Benefits plans may have legal doctrine that limit their ability to push for more money – after all, ERISA requires plan fiduciaries to be prudent with Plan assets.  

I can’t stress the importance of having advisors who truly understand the rules of the game and, most importantly, that you trust.  Experienced, trusted advisors are in the best position to maximize the Plan’s recoveries as prudently as possible so that plans don’t end up spending valuable plan assets for nothing.  Equity isn’t always fair, but it is the law, and what’s the point of equity if it leaves you worse off than if you had done nothing at all?