By: Chris Aguiar, Esq.

I recently spent a few days in DC with some of my colleagues, subrogation attorneys from all over the country. As is typical in conferences, we spent several hours a day putting our heads together, learning and educating, as well as coming up with strategies to combat some of the more recent efforts to find new ways to challenge the third-party recovery rights of benefit plans. Any time 50 lawyers get together in a room debating the same topic, things can get interesting, to say the least. It’s always fascinating to see how things that seem so clear can be all but.

ERISA 502(a)(3), the provision that provides a plan fiduciary with the right to obtain “appropriate equitable relief” has been provided by Congress as an “exclusive remedy”. I have historically interpreted that to mean that a self-funded plan governed by ERISA is limited as to the type of action it can take against a plan participant that refuses to cooperate with their reimbursement obligation. The “exclusive remedy” provided by ERISA is equitable relief.  Quite simply, equitable relief typically means that a benefit plan can only recover the money that the plan participant recovered, specifically (or any asset purchased with it). If the Plan cannot locate that specific pot of money or trace it to an asset, it is not entitled to any other of the participant’s money. My interpretation has always been that a Plan will not be able to seek legal relief (i.e. a breach of contract). It appears some of my colleagues still believe legal relief may be possible. Regardless of where you fall on that debate – there are practical considerations that I think are important to remember and will put the plan in the best possible position to recover.

Consider this hypothetical:

Imagine for a moment that Bob Participant, upon getting a $100,000.00 settlement related to injuries he sustained in an accident, which were paid by his benefit plan, loses the money. While gleefully skipping down Main Street to deposit the money in the bank, Bob fails to realize his shoes are untied, trips, and drops the briefcase of money on the floor causing it to open. At that exact moment, an unseasonably strong gust of wind grabs hold of the money and quickly moves it to the nearby raging river, which just so happens to be infested with money thirsty piranhas who voraciously devour every last dollar…

While this hypothetical seems like the stuff of fantasy novels, let’s bring back a modicum of reality … how many “Bobs” in America would have sufficient money or assets to satisfy a judgment rendered by a court in favor of a benefit plan that sues a participant for a breach of contract when that participant fails to comply with the terms of the benefit plan and reimburse the settlement funds? Wouldn’t the Plan have been in a better position to get its money back had it been in front of the money rather than having to chase it down the street?

Whether you believe that a breach of contract action against a plan participant is allowed despite the exclusive remedy granted by ERISA, equity, it’s always better to be able to prevent the money from being put at risk. If the Plan is in a position where it must consider the viability of a breach of contract claim – its already in trouble because the likelihood of a participant having $100,000.00 after losing that amount on the fantastic voyage he took down Main Street on his way to the bank is very unlikely. 

One thing is for certain, while the debate regarding the viability of breach of contract claim in an ERISA matter apparently is still alive, few can debate that enforcing your equitable rights and preventing the money from being in danger is the most likely path to success in a third party recovery situation.