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Minor Members and Third Party Settlements

By: Cindy Merrell, Esq.

Does a self-funded ERISA plan have a right of recovery from a minor’s third-party liability claim?

The answer is yes. However, there are various factors that can influence the Plan’s recovery in these circumstances. Federal courts across the country have recently considered a few challenges to a health plan’s right of recovery and clarified an ERISA plan’s right of recovery through reimbursement. What is abundantly clear is good plan language is vital to a health plan’s recovery.

Who? What? When? Where?

Any subrogation professional is aware that good plan language is important to a plan’s successful recovery from the proceeds of a third-party settlement. See U.S. Airways, Inc. v. McCutchen, 569 U.S. 88, 133 S. Ct. 1537 (2013). The Plan document must be crystal clear on the who, what, when, and where. The who can be answered in the plan document by defining the word “dependent” or “covered persons.” Next, the plan document must have strong subrogation and reimbursement language that addresses the remaining questions of what, where, and when.

What rights does the plan have? Subrogation and reimbursement waters were muddied in certain jurisdictions by a decision that the plaintiff’s bar argument prohibited a plan from pursuing subrogation in third-party liability recoveries. See Janssen v. Minneapolis Auto Dealers Benefit Fund, 447 F.3d 1109 (8th Cir. 2006) (8th Cir. 2006). However, in a recent unpublished decision the 8th Circuit clarified that a plan with the appropriate reimbursement language can pursue a recovery through reimbursement from the proceeds of a third-party settlement. See Vercellino v. Optum Insight, Inc., No. 20-3524 (8th Cir. Feb. 14, 2022). The court clarified that subrogation is not reimbursement and that they are two different rights. Reimbursement is a much broader right of recovery. See id. The difference is when does each right become effective? Subrogation allows the plan to step into the shoes of the member and assert a claim against the responsible party while reimbursement is a right of recovery from the settlement funds.

Where can a self-funded ERISA plan enforce its right of recovery? In nearly all state jurisdictions a state court must approve a minor’s settlement through the state’s probate court. This process is designed to protect the minor’s interest. Typically, once the court approves the distribution of the settlement including the portion of the funds owed back to a health plan, the funds are placed in a blocked account to be released once the minor turns 18. On its face, it appears that the state court through the probate process is where the plan’s portion of the settlement is determined. However, a federal court in Florida confirmed it has the exclusive jurisdiction of a self-funded ERISA plan’s claims for a reimbursement or equitable lien by agreement. Publix Super Markets, Inc. v. Figareau, Case No: 8:19-cv-545-T-27AEP (M.D. Fla. Mar. 17, 2020).

How to enforce the Plan’s right of recovery?

Even with the strongest language a probate court may not be aware of the strong right of recovery of a self-funded ERISA plan. If an agreement cannot be made with the minor member’s attorney regarding the reimbursement amount to the Plan, it may become necessary for the health plan to retain local counsel to represent the health plan’s interest at a probate court. Another possibility is if the employee is still on the health plan, the plan could consider offsetting the member’s future benefits so long as the plan language supports this option.

In conclusion, a self-funded ERISA plan can seek recovery from settlement funds with the appropriate plan language. The Phia Group has set the gold standard for strong recovery language. Please contact The Phia Group if your health plan needs any assistance with a minor’s subrogation or reimbursement matters.

Please note this article is not intended to be a comprehensive review of all health plans’ rights of recovery as various factors could impact the applicability of the above statements.  For a more detailed analysis of a specific matter please contact The Phia Group.  

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