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					     ERISA for the Personal Injury Lawyer
         Frequently Asked Questions

                        Charles M. Cork, III
                            P.O. Box 1041
                      Macon, Georgia 31202-1041
                           (478) 742-0204

                               June 26 2012


I. Overview of ERISA . . . . . . . . . . . . . . . . . . . . . . . .         1

1 I’m running into a lot of problems with health insurance com-
  panies that say they don’t have to behave because they’re gov-
  erned by ERISA. Isn’t ERISA a kind of health insurance? . . . .            1

2 Well, what does E.R.I.S.A. stand for? . . . . . . . . . . . . . . . .      1

3 You’re kidding, aren’t you? . . . . . . . . . . . . . . . . . . . . . .    2

4 You just said that ERISA doesn’t give security to employees
  about their health coverage. Doesn’t it specifically say that it
  protects employees? . . . . . . . . . . . . . . . . . . . . . . . . . .    2
     This paper was originally written for a seminar in September 2007.      It
has been lightly revised for seminars in December 2008, March 2009, November
2009, January and February, 2011, and July 2012. Updates will appear at this
site: Please submit feedback to me at However, not all questions have answers, and some of them have
answers that I prefer not to share online with potential adversaries.

5 Well, what kind of health coverage does ERISA require? . . . .              3

6 How do I know if the health coverage is under ERISA? . . . . .              3

7 What exceptions? . . . . . . . . . . . . . . . . . . . . . . . . . . .      4

8 What is the “safe harbor”? . . . . . . . . . . . . . . . . . . . . . .      5

9 What about COBRA coverage? . . . . . . . . . . . . . . . . . . .            5

10 But doesn’t the business have to have a lot of employees to
   come under ERISA? . . . . . . . . . . . . . . . . . . . . . . . . . .      6

11 What if an employer doesn’t want to come under ERISA, and
   just wants to provide group health insurance to the employees?             7

12 How do I get the documents governing the ERISA plan? . . . .               7

II. ERISA’s Preemption of State Law . . . . . . . . . . . . .                 8

13 When do state laws apply to employment-related health cover-
   age, and when are they preempted, in general? . . . . . . . . . .          9

A. Preemption under 29 U.S.C. § 1144(a); Insurance ex-
ception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   9

14 What is “Express Preemption”? . . . . . . . . . . . . . . . . . . .        9

15 How can I tell if the plan is insured or self-funded? . . . . . . . 10

16 Is stop-loss insurance/reinsurance subject to state law? . . . . . 11

B. Preemption under 29 U.S.C. § 1132, Exclusive rem-
edy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

17 So, since state law is “saved” for insurers, ERISA does not pre-
   empt state “bad faith” laws that impose punitive damages on
   insurers who deny claims in bad faith, right? . . . . . . . . . . . 12

18 But that is simply unjust. It can’t be the law, can it? . . . . . . . 12

19 What is this “Complete Preemption”? . . . . . . . . . . . . . . . 16

20 Wait a minute. I just re-read § 1144(b)(2)(A). It says that “noth-
   ing in this subchapter” shall be construed to preempt laws reg-
   ulating insurance. §1132, which is the basis of “complete pre-
   emption,” is in the same subchapter. It follows that §1132 can’t
   be construed to preempt my state’s bad faith law against an
   insurer, since Congress said it can’t. Right?? . . . . . . . . . . . 17

III. Reimbursement Claims . . . . . . . . . . . . . . . . . . . . 18

A. The Sereboff decision . . . . . . . . . . . . . . . . . . . . . . 18

21 After the Sereboff decision, do I have to reimburse an ERISA
   plan when my client gets a recovery from a tort lawsuit? . . . . 18

22 What was the state of the law before Sereboff ? . . . . . . . . . . 19

23 What did Sereboff decide? . . . . . . . . . . . . . . . . . . . . . . 21

24 How can Sereboff be reconciled with Knudson? . . . . . . . . . . 22

B. Theories of relief for ERISA-governed plans . . . . . . 23

25 Can a plan still sue for restitution? . . . . . . . . . . . . . . . . . 23

26 What is an “equitable lien by agreement” that Sereboff enforced? 24

27 What language in a plan creates an “equitable lien by agree-
   ment”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

28 What if the plan talks about an “equitable lien,” but it doesn’t
   require payment from the settlement proceeds? . . . . . . . . . 26

29 Must a client sign a subrogation agreement, and what is its
   effect? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

30 Can the plan cut off payments until reimbursement has been
   made in full? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

C. What funds and what parties are subject to ERISA
reimbursement claims . . . . . . . . . . . . . . . . . . . . . . . 28

31 What tort recoveries are subject to an ERISA reimbursement
   claim? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

32 What if the fund has been dissipated? . . . . . . . . . . . . . . . 29

33 Can the plan trace settlement money into other assets? . . . . . 30

34 On what can the plan claim a lien? Uninsured motorist pay-
   ments? Wrongful death recoveries? Recoveries by relatives or
   other victims? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

35 Is a liability insurer responsible to the ERISA plan in any way? 33

36 Am I liable as the attorney for disbursing the funds? . . . . . . 33

37 What are my ethical responsibilities to the plan? . . . . . . . . . 36

D. Make-whole rules and equitable limits on relief . . . 36

38 When does a federal or state make-whole rule or similar equi-
   table limitation on reimbursement apply? . . . . . . . . . . . . . 37

39 Does ERISA allow common law equitable principles to limit
   reimbursement claims? . . . . . . . . . . . . . . . . . . . . . . . . 38

40 Does equity really require a make-whole rule? . . . . . . . . . . 40

41 But didn’t the Sereboff decision rule against us on that point? . 43

42 But didn’t the O’Hara case also rule against us on that point? . 44

43 But don’t cases say that the plan can waive the effects of the
   make-whole rule by explicitly rejecting it? . . . . . . . . . . . . . 44

44 Does ERISA have anything to say about discriminating against
   tort victims, by making them pay back their benefits, and non-
   victims, who don’t have to do so? . . . . . . . . . . . . . . . . . . 45

45 Does Georgia’s make-whole rule apply? . . . . . . . . . . . . . . 46

46 Is my 10-day letter valid? . . . . . . . . . . . . . . . . . . . . . . 48

E. Other possible defenses . . . . . . . . . . . . . . . . . . . . 48

47 What is the effect of a settlement term that my client was “not
   made whole”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

48 What is the effect of an allocation in a settlement or verdict
   of most of the damages to pain and suffering or other non-
   medical-expense losses? . . . . . . . . . . . . . . . . . . . . . . . 49

49 What is the effect of the plaintiff ’s contributory negligence and
   pre-existing medical conditions? . . . . . . . . . . . . . . . . . . . 49

50 What is the period of limitation on an ERISA claim? . . . . . . . 49

51 Who has the burden of proof? . . . . . . . . . . . . . . . . . . . . 50

52 Does the client’s bankruptcy defeat the claim for reimbursement? 50

IV. Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

53 How certain are you about all this, and what kind of disclaimer
   do you want to make? . . . . . . . . . . . . . . . . . . . . . . . . . 51

                          I. Overview of ERISA

1       I’m running into a lot of problems with health insur-
        ance companies that say they don’t have to behave be-
        cause they’re governed by ERISA. Isn’t ERISA a kind of
        health insurance?

No. The powers that be want employees to think that health plans un-
der ERISA are as good as insurance, but they aren’t.
    Instead, think of it as a trust in which Big Daddy has set up a fund
to pay for his kids’ medical bills. Dad gets to say what he wants the
fund to cover and what he doesn’t want it to cover. He gets to decide
how much the fund is going to pay of the bills and how much the kids
have to pay into the fund to be part of it. He gets to put almost any
obstacles he wants in the path of the fund’s having to pay the benefits.
He gets to define the terms of the trust on the fly, and courts will defer
to his decisions about the meaning of the terms. He gets to decide if the
kid really doesn’t need the health care, even if the kid’s doctor thinks
so, and courts will often defer to his decisions over those of the treating
physician. He gets to terminate the fund at almost any time. And if Dad
decided in the most open and obvious flagrant bad faith not to pay for
some bill, the worst that can happen to Dad is that the kids can hire a
lawyer, drag Dad into court, overcome all of the presumptions favoring
his decision, and then make him pay the medical bill, with perhaps a
discretionary award of attorney fees.
   That’s not exactly what ERISA is, but it is much closer than “health

2       Well, what does E.R.I.S.A. stand for?

E.R.I.S.A. stands for “Everything Ridiculous Imagined Since Adam.”1
   Florence Nightingale Nursing Serv. v. Blue Cross & Blue Shield, 832 F. Supp. 1456,
1457 (N.D. Ala. 1993).

3       You’re kidding, aren’t you?

Not really. There is an urban legend that ERISA stands for the “Em-
ployee Retirement Income Security Act of 1974,” but that can’t be true.
After all, we’re talking about health coverage here, not “retirement in-
come,” and the degree of “security” that employees get was described in
Question 1.

4       You just said that ERISA doesn’t give security to em-
        ployees about their health coverage. Doesn’t it specifi-
        cally say that it protects employees?

Yeah, ERISA begins with a statement that it was passed in order to
“protect . . . the interests of participants in employee benefit plans and
their beneficiaries, . . . by establishing standards of conduct, responsi-
bility, and obligation for fiduciaries of employee benefit plans, and by
providing for appropriate remedies, sanctions, and ready access to the
Federal courts.”2
   But why should you believe that? Just because it happens to be writ-
ten as “law,” you have no justifiable reason to believe it. Justice Scalia
will liberate you from such delusions, since he has explained in vari-
ous ERISA cases that “vague notions of a statute’s ‘basic purpose’ are
nonetheless inadequate to overcome the words of its text regarding the
specific issue under consideration.”3 Therefore, just because Congress
says that the intent of the act is to protect these workers and provide
them appropriate remedies for violations, that doesn’t stop Congress
from simply stripping away every state law protection these workers
have (see Question 17) and unjustly denying them any useful remedy
(Question 18).
   Or in more general terms, Congress has a green light to promote this
or any other bill as the Mom and Apple Pie, Sweetness and Sunshine
Act, but if Congress lies and the Devil is in every detail, the Devil and
the lie prevail.
    29 U.S.C. §1001(b).
    Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 220 (2002); Mertens
v. Hewitt Assocs., 508 U.S. 248, 261 (1993).

5       Well, what kind of health coverage does ERISA require?

None. ERISA does not mandate that employers provide any particular
benefits.4 A few statutory changes have required plans to provide cer-
tain kinds of benefits if other conditions are met, e.g., certain coverages
for children,5 COBRA continuation coverage,6 and the HIPAA rules,7
which include regulations for benefits for mothers and newborns,8 men-
tal health benefits,9 reconstructive surgery,10 and most significantly
here, a provision requiring nondiscrimination in contributions (premi-
ums) and benefits.11
    Since employers are basically free to pick and choose benefits, ERISA
gives employers the freedom to impose conditions on those benefits.
Without considering the effects of the anti-discrimination provision just
mentioned, courts have upheld an employer’s requirement that the em-
ployee sign an agreements to reimburse as a condition precedent to re-
ceiving benefits.12
   The only exception to these limitations occurs when the employer
uses insurance to provide the health coverage. If so, state laws that sur-
vive preemption (see discussion beginning at Question 13 below) may
require certain plan coverages and terms.
   Again, ERISA is not a kind of insurance or insurance regulatory

6       How do I know if the health coverage is under ERISA?

First, is this health coverage provided by an employer to its employees?
     Black & Decker Disability Plan v. Nord, 538 U.S. 822 (2003); Shaw v. Delta Air
Lines, Inc., 463 U.S. 85, 91 (1983); Bauer v. Summit Bancorp, 325 F.3d 155 (3rd Cir.
     29 U.S.C. § 1169.
     Id. §§ 1161–1168.
     Id. §§ 1181–1191c.
     Id. § 1185.
     Id. § 1185a.
     Id. § 1185b.
     Id. § 1182. See discussion below at Question 44.
     Cagle v. Bruner, 112 F.3d 1510 (11th Cir. 1997); Kress v. Food Employers etc.
Fund,391 F.3d 563 (4th Cir. 2004).

         If no, it is not governed by ERISA.13
    If yes, you should assume that it is governed by ERISA unless it
comes within one of the very narrow exceptions. This is true even if
the coverage is provided by a trade association rather than the actual
employer. ERISA defines an employer to include a “group or association
of employers acting for an employer.”14

7        What exceptions?

         • Plans for governmental employees are excluded.15

         • Plans for employees of religious institutions are excluded.16

         • Workers’ compensation and similar government-mandated cover-
           age are excluded.17

         • Policies covering Mom and Pop shops without employees are usu-
           ally excluded.18 Policies covering partnerships without employ-
           ees are likewise usually excluded. However, even the employer or
           partner in such a small business counts as a plan participant if
           the plan has at least one common law employee.19

         • Plans within the Department of Labor’s “safe harbor” are exclud-

         • Theoretically, there may be other exceptions that don’t fit precisely
           into one of these categories, but the odds of proving that health
           coverage provided by an employer for an employee fits into one
           are pretty remote.
     29 C.F.R. 2510.3-3(b); Slamen v. Paul Revere Life Ins. Co., 166 F.3d 1102 (11th Cir.
     29 U.S.C. § 1002(5).
     29 U.S.C. §1003(b)(1), §1002(32).
     29 U.S.C. §1003(b)(2), §1002(33).
     29 U.S.C. §1003(b)(3).
     29 C.F.R. 2510.3-3(c)(1).
     Gilbert v. Alta Health & Life Ins. Co., 276 F.3d 1292, 1302 (11th Cir. 2001); Raymond
B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1 (2004).
     29 C.F.R. § 2510.3-1(j).

8        What is the “safe harbor”?

Health coverage is in the “safe harbor” and excluded from ERISA’s ma-
lignant terms if:

     1. No contribution is made by the employer;

     2. Participation in the program is completely voluntary for the em-

     3. The sole functions of the employer are to permit the insurer to pub-
        licize the program to employees and to collect premiums through
        payroll deductions; and

     4. The employer receives no consideration in connection with the pro-

Some Eleventh Circuit cases state that it is an open question whether
the DOL Safe Harbor is exhaustive.22 Others state that just because the
safe harbor is barred, it does not follow that the coverage is governed by
ERISA.23 Other decisions can be found to suggest that the Safe Harbor
is exhaustive. Practice shows that if it doesn’t fit into one of the above
categories, it is probably going to be covered by ERISA.

9        What about COBRA coverage?

First, we would need to be clear about whether this is COBRA continu-
ation coverage or COBRA conversion coverage.
   Continuation coverage basically keeps the employee in the same pool
of workers, but requires the employee to pay for the coverage, for 18
months (in most cases). Those plans are governed by ERISA.24
      29 C.F.R. § 2510.3-1(j).
      Randol v. Mid-West Nat. Life Ins. Co., 987 F.2d 1547 n.3 (11th Cir. 1993); Anderson
v. UNUM Provident Corp., 369 F.3d 1257 (11th Cir. 2004).
      Butero v. Royal Maccabees Life Ins. Co., 174 F.3d 1207, 1214 (11th Cir. 1999); Moor-
man v. Unum Provident Corp., 464 F.3d 1260 (11th Cir. 2006).
      Demars v. Cigna Corp., 173 F.3d 443, 447 (1st Cir. 1999).

    Conversion plans contain coverages different from those applying
to remaining employees and are optional. Many courts hold that such
plans are not governed by ERISA,25 but some (mostly older) disagree.26
The Eleventh Circuit seems to take a nuanced look at each plan to de-
termine how involved the employer remains.27

10     But doesn’t the business have to have a lot of employ-
       ees to come under ERISA?

No. The earlier limit of 25 employees has been rejected.28 ERISA ap-
plies even if the employee pool is as small as one employee.29
   Speaking of numbers of employees, the business has to have twenty
or more employees to be liable for COBRA (post-termination) cover-
age.30 And if the business has fewer than 100 employees, it need not
file a form 5500 with the Department of Labor.31
   Thus, small businesses are exempted from some of the more rigorous
requirements of ERISA, but employees of small businesses do not get
similar exemptions from ERISA’s more malignant features.
     Miller v. Rite Aid Corporation, 504 F.3d 1102, 1109 (9th Cir. 2007); Demars v. Cigna
Corp., 173 F.3d 443 (1st Cir. 1999); Mimbs v. Commercial Life Ins. Co., 818 F.Supp. 1556
(S.D. Ga. 1993) (injury one month after conversion); Barringer-Willis v. Healthsource
N.C., Inc., 14 F. Supp. 2d 780, 781 (E.D.N.C. 1998) (noting that covered injury occurred
five years after conversion); Mizrahi v. Provident Life and Accident Ins. Co., 994 F.
Supp. 1452, 1453 (S.D. Fla. 1998) (four months after conversion); Powers v. United
Health Plans of New England, Inc., 979 F. Supp. 64, 65 (D. Mass. 1997) (five months
after conversion); McCale v. Union Labor Life Ins. Co., 881 F. Supp. 233, 234 (S.D. W.
Va. 1995) (noting that insured’s death postdated conversion of life insurance policy);
Waks v. Empire Blue Cross/Blue Shield, 263 F.3d 872, 874 (9th Cir. 2001) (three years
after conversion); Owens v. UNUM Life Ins. Co., 285 F. Supp. 2d 778, 780 (E.D. Tex.
2003) (eleven years after conversion).
     Painter v. Golden Rule Ins. Co., 121 F.3d 436 (8th Cir. 1997).
     Glass v. United of Omaha Life Ins. Co., 33 F.3d 1341 (11th Cir. 1994); Griggers v.
Equitable Life Assur. Soc., 343 F.Supp.2d 1190 (N.D.Ga. 2004).
     Williams v. Wright, 927 F.2d 1540 (11th Cir. 1991).
     Whitt v. Sherman Int’l Corp., 147 F.3d 1325 (11th Cir. 1998); Williams v. Wright, 927
F.2d 1540 (11th Cir. 1991) (letter to employee listing benefits); Cowart v. Metropolitan
Life Ins. Co., 444 F.Supp.2d 1282 (M.D. Ga. 2006).
     29 U.S.C. §1161b.
     29 CFR § 2520.104-20.

11   What if an employer doesn’t want to come under ERI-
     SA, and just wants to provide group health insurance
     to the employees?

Are we going to permit an employer do right by its employees at the
expense of forcing an unwilling insurance company to do right by the
same employees? Heavens, no. The employer’s intent (to give good in-
surance benefits to the employees or otherwise) does not matter.32 The
Employee Rip-Off and Insurer Supremacy Act (ERISA) is all about al-
lowing insurers to provide a significantly degraded form of health bene-
fits at the highest cost on the planet.

12   How do I get the documents governing the ERISA plan?

Some lawyers ask the subrogation service to provide the documentation
governing the plan. I would suggest that this is not a good idea. On
some occasions, these folks have provided the wrong documents. More
importantly, they have no obligation to get it for you, and they don’t
really need it to hound your client and you for the money.
    Start with your client, who should have some idea about how the
medical bills are being paid. In a plan governed by ERISA, your client
is supposed to have been given (or have access to) the summary plan
description (SPD).33 Your client should, therefore, be able to find the
governing documents at home, from friends at work, or in some cases
online.34 If you don’t mind alerting the employer, the client should be
able to get copies from the employer’s human resources department.
    If all else fails or is inadequate, or if there is some strategic advan-
tage in getting documents from the official source, you may be able to ob-
tain documents relating to the funding of the health plan pursuant to 29
U.S.C. § 1024(b)(4), which requires a plan to produce various documents,
including “other instruments under which the plan is established or op-
     Moorman v. Unum Provident Corp., 464 F.3d 1260 (11th Cir. 2006); Anderson v.
UNUM Provident Corp.,369 F.3d 1257 (11th Cir. 2004); Randol v. Mid-West Nat. Life
Ins. Co., 987 F.2d 1547 (11th Cir. 1993); Williams v. Wright, 927 F.2d 1540 (11th Cir.
     29 U.S.C. § 1024(b)(1)(A); 29 C.F.R. § 2520.104b-2.
     29 C.F.R. § 2520.104b-1(c)(1)(i)(A).

erated.” See also the accompanying regulations at 29 C.F.R. Part 2520.
The request must be made to the plan administrator (not the claims ad-
ministrator or certainly not the subrogation unit). 29 U.S.C. § 1024(b)(4)
requires the plan to produce upon written request “a copy of the latest
updated summary plan description, and the latest annual report, any
terminal report, the bargaining agreement, trust agreement, contract,
or other instruments under which the plan is established or operated.”
The purpose of this disclosure provision is to ensure that the individual
participant knows exactly where he stands with respect to the plan.35
Knowing where one stands with respect to a plan includes having the
information necessary to understand one’s rights under the plan,36 to
identify the persons to whom management of plan funds has been en-
trusted and procedures for obtaining benefits,37 and to determine one’s
eligibility for benefits under the plan.38 Under these standards, one
should be able to get, inter alia, actuarial reports and calculation proce-
dures39 and claims administration agreements.40
    For failure to provide information required by the statute,41 the plan
administrator “may in the court’s discretion be personally liable” up to
$100 per day, according to the statute,42 but up to $110 per day accord-
ing to later regulations.43 The actual amount of the penalty is discre-
tionary.44 The penalties are payable to participants, not to beneficia-
      Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 118 (1989); Mondry v. American
Family Mutual Ins. Co., 557 F.3d 781 (7th Cir. 2009).
      Bartling v. Fruehauf Corp., 29 F.3d 1062, 1070 (6th Cir. 1994).
      Hughes Salaried Retirees Action Comm. v. Admin. of Hughes Non-Bargaining Re-
tirement Plan, 72 F.3d 686, 690 (9th Cir. 1995) (en banc).
      Davis v. Featherstone, 97 F.3d 734, 737 (4th Cir. 1996).
      Bartling v. Fruehauf Corp., 29 F.3d 1062 (6th Cir. 1994).
      Mondry v. American Family Mutual Ins. Co., 557 F.3d 781 (7th Cir. 2009).
      Some cases limit this relief to that required by the statute, specifically excluding
the disclosures required by the regulations. Groves v. Modified Ret. Plan, 803 F.2d 109
(3d Cir. 1986); Kollman v. Hewitt Associates, Llc, 487 F.3d 139 (3rd Cir. 2007); Brown
v. J.B. Hunt Transport Services, Inc., 586 F.3d 1079 (8th Cir. 2009); Bielenberg v. Ods
Health Plan, Inc., 2010 U.S. Dist. LEXIS 109021 (D. Or. 2010).
      29 U.S.C. § 1132(c)(1); Hunt v. Hawthorne Assocs., Inc., 119 F.3d 888 (11th Cir.
1997), cert. denied, 523 U.S. 1120 (1998).
      29 CFR § 2575.502c-1, effective August 1999; Byars v. Coca-Cola Co., 517 F.3d 1256
(11th Cir. 2008).
      Devlin v. Empire Blue Cross & Blue Shield, 274 F.3d 76, 90 (2d Cir. 2001).
      Wright v. Hann‘a Steel Corp., 270 F.3d 1336, 1343–44 (11th Cir. 2001).

               II. ERISA’s Preemption of State Law

13      When do state laws apply to employment-related health
        coverage, and when are they preempted, in general?

Few state laws will apply because ERISA preempts state law in at least
two ways: (a) Express Preemption, and (b) Complete Preemption.

       A. Preemption under 29 U.S.C. § 1144(a); Insurance exception

14      What is “Express Preemption”?

ERISA expressly supersedes any state laws that “relate to” an “em-
ployee benefit plan” (a plan governed by ERISA, as addressed above in
Question 6 above and following). 29 U.S.C. §1144(a). This is sometimes
called “express preemption” or (in other contexts) “defensive preemp-
tion.” Due to loose language in the cases, I prefer to call it “§1144 pre-
emption.” There is an immense literature on what state laws “relate to”
these plans. For purposes of this introduction, you should be aware that
cases decided before 1995 interpreted this preemption very broadly, but
in 1995, Supreme Court cases began drawing back slightly from near
universal preemption.46
    However, §1144(b)(2)(A) contains an exception for state laws that
“regulate insurance, banking, or securities.” This is sometimes called
the “Saving” or “Savings” clause. The leading current case on the mean-
ing of “regulate insurance,” which made a “clean break” from prior Sup-
reme Court cases on the subject, is Kentucky Ass’n of Health Plans, Inc.
v. Miller, 538 U.S. 329 (2003). Basically, a state law (including common
law) that is directed at insurance entities and that affects the “risk pool-
ing” arrangement that they undertake (theoretically) survives preemp-
tion (but see the limitations on remedies discussed below in Questions
17 to 20).
   However, there is an exception to the exception. §1144(b)(2)(B) states
that an employee benefit plan is not “deemed to be an insurance com-
   See Whitt v. Sherman Int’l Corp., 147 F.3d 1325 (11th Cir. 1998) (referring to the
change in 1995 as a “sea change”).

pany or other insurer.” This is called the “Deemer Clause.” The effect
of this clause is to distinguish insured plans, or the insurance compo-
nent of a plan, from “self-funded” plans. The point of this clause is to
prevent the States from regulating self-funded plans by broadly defin-
ing “insurance” to include employer-funded plans.47 It allows states to
regulate insured plans indirectly, by regulating the insurer of the plan
as opposed to the ERISA plan itself.48
    As for how to tell whether a plan is insured or self-funded, see Ques-
tion 15.
    The net effect of this elaborate system of preemption and exceptions
is this: if you spread out all of the documents relating to the employer’s
health coverage on a table, and if there is an insurance policy among
them, the state gets to define what terms are in the policy and what
rules apply to its interpretation. State law cannot affect the rest of the
       That’s the first way that ERISA preempts state law.

15      How can I tell if the plan is insured or self-funded?

Unfortunately, the most definitive documents can be discovered only in
litigation. However, some documents provide clues.
   SPDs. Many plan SPDs now put funding information either in the
front or the rear of the booklet. This is not necessarily reliable either.
Insured plans may wish to have you believe that they are self-funded.
    Form 5500. Form 5500 must be filed for plans other than small
employers. Recent versions of this form may be found online.49 Part 9
of the form contains checkboxes for the funding arrangements for the
plans. Schedule A (“Insurance Information”) forms list entities provid-
ing insurance to the plan. The form may not be terribly reliable.50 In
      Unum Life Ins. Co. v. Ward, 526 U.S. 358 n.2 (1999); FMC Corp. v. Holliday, 498
U.S. 52, 61 (1990).
      Mullenix v. Aetna Life & Cas. Ins. Co., 912 F.2d 1406 (11th Cir. 1990).
      See , which may require a free registration.
      There are a lot of reasons why the “insurance” box might be checked and the ap-
plicable welfare benefit plan may nonetheless be self-funded. The insured component
of the plan might relate to a different welfare benefit, such as vision, or dental, or dis-

addition, the document may be old, and plan funding mechanisms can
     How to get documents. See Question 12.

16    Is stop-loss insurance/reinsurance subject to state law?

This is an issue that should be explored if a plan claims to be self-
funded. There is some language in some cases reflexively stating that
stop-loss insurance is not saved from preemption by the Insurance Sav-
ing Clause, 29 U.S.C. § 1144(b)(2)(A), but the situation is more nuanced
than that. There are considerable differences between different kinds of
stop-loss plans,51 and those plans that are essentially high-deductible
insured plans should come within the Saving Clause, just as lower-
deductible or no-deductible plans do.
    Some cases have held that stop-loss insurance has been held within
the Saving Clause.52 Others reach the contrary conclusion because stop-
loss insurance does not provide benefits to the insureds, but only re-
insurance to the Plan for catastrophic losses.53 However, some of the
ability, or life, or anything else. It might relate to a stop-loss coverage that is business
insurance (as opposed to high-deductible medical benefit insurance). It might relate to
insurance coverage for some classes of employees and not others. It might be dated, and
the current plan is different. It might be simply an error (as a large plan I’m opposing
right now was erroneous for years).
      Bank of La. v. Aetna US Healthcare, Inc., 468 F.3d 237 (5th Cir. 2006) (noting a
difference between individual or specific stop-loss amount and the aggregate stop-loss
amount). Note: Stop-loss Insurance, State Regulation, and Erisa: Defining the Scope
of Federal Preemption, 34 Harv. J. On Legis. 233 (1997); Legislative Reform: Deem and
Deemer: Erisa Preemption under the Deemer Clause as Applied to Employer Health Care
Plans with Stop-loss Insurance, 23 J. Legis. 307 (1997); Article: Erisa Preemption: the
Effect of Stop-loss Insurance on Self-insured Health Plans, 14 Va. Tax Rev. 615 (1995).
      Northern Group Services, Inc. v. Auto Owners Ins. Co., 833 F.2d 85, 91 (6th Cir.
1987), possibly overruled, Auto Club Ins. Ass’n v. Health and Welfare Plans, Inc., 961
F.2d 588 (6th Cir. 1992); Lincoln Mut. Cas. Co. v. Lectron Products, Inc., Employee
Health Ben. Plan, 970 F.2d 206, 210 (6th Cir. 1992).
      Bill Gray Enterprises, Inc. Employee Health and Welfare Plan v. Gourley, 248 F.3d
206, 214 (3d Cir. 2001) (reimbursement); Am. Med. Sec., Inc. v. Bartlett, 111 F.3d 358
(4th Cir.1997), cert. denied, 524 U.S. 936 (1998) (state can’t force self-funded plans to
have specific coverage when they purchase certain stop-loss insurance); Thompson v.
Talquin Bldg. Prod. Co., 928 F.2d 649 (4th Cir. 1991); Lincoln Mut. Cas. Co. v. Lectron
Prod., Inc., Employee Health Benefit Plan, 970 F.2d 206 (6th Cir. 1992); United Food
& Commercial Workers & Employers Ariz. Health & Welfare Trust v. Pacyga, 801 F.2d

latter cases recognize an exception where the plan purchases a high
level of stop-loss insurance.54 The law needs to be developed.

     B. Preemption under 29 U.S.C. § 1132, Exclusive remedy

17    So, since state law is “saved” for insurers, ERISA does
      not preempt state “bad faith” laws that impose puni-
      tive damages on insurers who deny claims in bad faith,

Wrong. ERISA gives insurers virtual immunity for the grossest bad
faith in denying claims.55 This is the way that ERISA “protects” employ-
ees from unscrupulous employers and insurers: it strips them of their
rights under state law and exposes them to the whims and caprices of
power (Question 4), providing only the flimsiest of legal remedies (espe-
cially Question 18) to match the degraded health benefits.
   ERISA gets away with this because of the second kind of preemption,
“complete preemption.”

18    But that is simply unjust. It can’t be the law, can it?

Yes. Law can be unjust. Various courts have noted how bad ERISA
actually is.
1157 (9th Cir.1986).
      Bill Gray Enterprises, Inc. Employee Health and Welfare Plan v. Gourley, 248 F.3d
206, 215 (3d Cir. 2001); Brown v. Granatelli, 897 F.2d 1351, 1355 (5th Cir. 1990) (“la-
beling its coverage stop-loss or catastrophic coverage would not mask the reality that it
is close to a simple purchase of group accident and sickness coverage. We look beyond
form to the substance of the relationship between the plan, the participants, and the
insurance carrier to see whether the plan is in fact purchasing insurance for itself and
not for the plan participants, recognizing that as insurance is less for catastrophic loss,
it is increasingly like accident and sickness insurance for plan participants.”)
      Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987); Walker v. Southern Company
Services, Inc., 279 F.3d 1289 (11th Cir. 2002); Gilbert v. Alta Health & Life Ins. Co.,
276 F.3d 1292 (11th Cir. 2001); Amos v. Blue Cross-Blue Shield of Ala., 868 F.2d 430
(11th Cir. 1989); Anschultz v. Connecticut General Life Ins. Co., 850 F.2d 1467 (11th
Cir. 1988); Belasco v. W.K.P. Wilson & Sons, Inc. 833 F.2d 277 (11th Cir. 1987); Howard
v. Parisian, Inc., 807 F.2d 1560 (11th Cir. 1987).

The tragic events set forth in Diane Andrews-Clarke’s Com-
plaint cry out for relief. Clarke was the named beneficiary of
an health insurance policy offered through an employee ben-
efit plan. That policy expressly provided coverage for certain
medical and psychiatric treatments, including enrollment in
a thirty-day inpatient alcohol detoxification and rehabilita-
tion program. Doctors at several hospitals, and even the
courts of the Commonwealth of Massachusetts, determined
that Clarke was in need of such treatment, but the insurer
and its agent, the utilization review provider, repeatedly and
arbitrarily refused to authorize it. As a consequence of their
failure to pre-approve — whether willful, or the result of neg-
ligent medical decisions made during the course of utilization
review — Clarke never received the treatment he so desper-
ately required, suffered horribly, and ultimately died need-
lessly at age forty-one.
Under traditional notions of justice, the harms alleged — if
true — should entitle Diane Andrews-Clarke to some legal
remedy on behalf of herself and her children against Trav-
elers and Greenspring. Consider just one of her claims —
breach of contract. This cause of action — that contractual
promises can be enforced in the courts — pre-dates Magna
Carta. It is the very bedrock of our notion of individual au-
tonomy and property rights. It was among the first precepts
of the common law to be recognized in the courts of the Com-
monwealth and has been zealously guarded by the state ju-
diciary from that day to this. Our entire capitalist structure
depends on it.
Nevertheless, this Court had no choice but to pluck Diane
Andrews-Clarke’s case out of the state court in which she
sought redress (and where relief to other litigants is avail-
able) and then, at the behest of Travelers and Greenspring,
to slam the courthouse doors in her face and leave her with-
out any remedy.
This case, thus, becomes yet another illustration of the glar-
ing need for Congress to amend ERISA to account for the
changing realities of the modern health care system. En-
acted to safeguard the interests of employees and their ben-
eficiaries, ERISA has evolved into a shield of immunity that

     protects health insurers, utilization review providers, and
     other managed care entities from potential liability for the
     consequences of their wrongful denial of health benefits.

Andrews-Clarke v. Travelers Ins. Co., 984 F.Supp. 49, 52–53 (D. Mass
1997) (footnotes omitted).

     Although these provisions [in 29 U.S.C. §1132] seem compre-
     hensive at first glance — they allow recovery of “benefits due”
     and empower a participant to “enforce his rights” and seek
     “appropriate equitable relief ” — they in fact operate to leave
     participants almost completely at the mercy of HMOs. The
     first section, 502(a)(1)(B), by its plain language only allows
     plan participants to seek the benefits to which they are con-
     tractually entitled, even when those benefits have been de-
     nied in bad faith and despite the fact that the participants
     most in need of this section are often the ones least able to
     take advantage of it. A plan participant whose claim is de-
     nied by an HMO’s utilization review board — Mr. DiFelice,
     for example, see infra — is often in the throes of a life-or-
     death medical crisis, hardly a feasible time to retain counsel
     and prosecute an injunctive lawsuit. The costs of such suits
     are likely to be immense, and ERISA provides for attorney
     fees, if at all, only after the action concludes. See § 502(g)(1).
     Even if a participant ultimately prevails against his insurer,
     it will frequently be the participant’s estate that reaps the
     meager reward.
     In many areas of law contingency fee structures are used to
     overcome a litigant’s initial impecuniosity. But any possibil-
     ity of using contingency fees in this context is undermined by
     ERISA preemption, for a string of Supreme Court cases has
     interpreted ERISA to disallow any recovery of compensatory
     or punitive damages. [A discussion of cases follows.] . . .
     The unavailability of extracontractual damages has effects
     that are perverse. First, as stated above, contingency fees
     are rendered entirely impractical — precious few lawyers
     would be willing to undertake a horrendously complex case
     of uncertain outcome when the greatest potential reward is
     merely provision of the care that had been contractually pro-

mised. Without contingency fees, participants in the midst
of medical crises are completely at the mercy of HMOs un-
less they are fortunate enough to have the financial means
to bring a suit for an injunction, a circumstance which is no
doubt exceptional. Although it might seem a simple matter
to seek an injunction compelling contractually-guaranteed
coverage of a procedure, nothing is further from the truth
where — as with Mr. DiFelice — the contractual availability
of coverage hinges on a highly fact-intensive determination
of medical necessity involving accepted standards of care and
tolerable levels of risk for the participant’s malady. To the ex-
tent that participants are unable to seek an injunction com-
pelling coverage, ERISA’s remedial scheme is almost entirely
The second perverse effect is that, at the same time as ERISA
makes it inordinately difficult to bring an injunction to en-
force a participant’s rights, it creates strong incentives for
HMOs to deny claims in bad faith or otherwise “stiff ” par-
ticipants. ERISA preempts the state tort of bad-faith claim
denial, see Pilot Life, 481 U.S. at 54–56, so that if an HMO
wrongly denies a participant’s claim even in bad faith, the
greatest cost it could face is being compelled to cover the pro-
cedure, the very cost it would have faced had it acted in good
faith. Any rational HMO will recognize that if it acts in good
faith, it will pay for far more procedures than if it acts oth-
erwise, and punitive damages, which might otherwise guard
against such profiteering, are no obstacle at all. Not only is
there an incentive for an HMO to deny any particular claim,
but to the extent that this practice becomes widespread, it
creates a “race to the bottom” in which, all else being equal,
the most profitable HMOs will be those that deny claims
most frequently.
In sum, ERISA’s remedial scheme gives HMOs every incen-
tive to act in their own and not in their beneficiaries best in-
terest while simultaneously making it incredibly difficult for
plan participants to pursue what meager remedies they pos-
sess, a confounding result for a statute whose original pur-
pose was to protect employees.

DiFelice v. Aetna U.S. Healthcare, 346 F.3d 442, 457–459 (3d Cir. 2003)
(Becker, J., concurring).56
   ERISA’s anti-human tendencies are a consequence of the doctrine of
“complete preemption.”

19     What is this “Complete Preemption”?

In the early days of ERISA, the Supreme Court looked at §1132, titled
“Civil Enforcement,” which is the only provision for enforcing ERISA.
It saw the highly detailed listing of types of claims that were allowed
in §1132, particularly subsection (a). It drew the conclusion that this
listing was intended to be exclusive and exhaustive.57 Therefore, it con-
cluded that other remedies (such as bad faith damages, punitive dam-
ages, etc.) that aren’t listed in §1132 were not allowed.58 Differing state
regulations affecting an ERISA plan’s system for processing claims and
paying benefits impose precisely the burden, said the Supreme Court,
that ERISA preemption was intended to avoid.59
    The result is the doctrine of “complete preemption”: Congress in-
tended that only these items be recoverable. The doctrine has also been
called “super-preemption” in the Eleventh Circuit, as well as “super-
duper preemption.”60 Others call it “field preemption,” preemption ag-
ainst “alternative enforcement mechanisms” or similar terms. Due to
the variety of names, I prefer to call it “§1132 preemption.” The gist
     See further Amos v. Blue Cross-Blue Shield of Ala., 868 F.2d 430 (11th Cir. 1989)
(removing extra-contractual damages removes a historical disincentive to insurance
company misbehavior, but any change must be charted by Congress or the Supreme
Court), and the listing of cases in which suicide followed a denial of coverage in Doe v.
Travelers Ins. Co., 167 F.3d 53, 58 n.4 (1st Cir. 1999).
     Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985); Mertens v. Hewitt
Assoc., 508 U.S. 248 (1993); McRae v. Seafarers’ Welfare Plan, 920 F.2d 819 (11th Cir.
     Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987); Gilbert v. Alta Health & Life
Ins. Co., 276 F.3d 1292, 1296 (11th Cir. 2001).
     Egelhoff v. Egelhoff, 532 U.S. 141 (2001); Fort Halifax Packing Co. v. Coyne, 482
U.S. 1, 10 (1987); Corporate Health Ins., Inc. v. Tex. Dept. of Ins., 215 F.3d 526, 538–39
(5th Cir.2000) (“ERISA’s civil enforcement scheme . . . preempts . . . supplemental state
law remedies.”); Gilbert v. Alta Health & Life Ins. Co., 276 F.3d 1292, 1296 (11th Cir.
     Campbell v. GMC, 19 F. Supp. 2d 1260, 1272 n.10 (W.D. Ala. 1998).

of it is that §1132 provides the exclusive remedy for statutory or plan
violations under ERISA.
    One notable consequence of complete preemption is that this pre-
emption is so strong that it supersedes the normal “well-pleaded com-
plaint” rule used to determine federal question jurisdiction under 28
U.S.C. § 1331. Normally, a plaintiff can avoid federal court by pleading
only state law claims. ERISA’s “super-duper preemption” allows a plan
to remove a suit that nominally asserts state law claims by asserting
that the suit is necessarily a claim for benefits under ERISA (even if
the suit expressly disclaims such relief) and thus necessarily states a
claim arising under federal law.

20     Wait a minute. I just re-read § 1144(b)(2)(A). It says
       that “nothing in this subchapter” shall be construed
       to preempt laws regulating insurance. §1132, which
       is the basis of “complete preemption,” is in the same
       subchapter. It follows that §1132 can’t be construed to
       preempt my state’s bad faith law against an insurer,
       since Congress said it can’t. Right??

You’re overlooking the first rule of statutory construction regarding ER-
ISA: the Plan wins. (Examples could be multiplied, but doing so would
not be conducive to curing the disease. Lk 11:34–36.)
   Actually, the Supreme Court flirted briefly with this argument.61
This led some of us to hope that a narrow tunnel of justice might break
through the Kafkaesque walls that ERISA erects (Question 18).62 How-
ever, the Eleventh Circuit has held that this footnote did not change the
law that bad faith claims were completely preempted.63 Later, with-
out mentioning footnote 7 in Ward, the Supreme Court has reaffirmed
the applicability of complete preemption despite the Saving Clause for
insurance.64 Thus, the Supreme Court has preserved the insurance in-
      See the dictum in UNUM Life Ins. Co. of America v. Ward, 526 U.S. 358 n.7 (1999).
      Hill v. Blue Cross Blue Shield, 117 F.Supp.2d 1209, 1211–12 (N.D. Ala. 2000) (noting
that if the dictum were not the law, surely some member of the Court would have backed
off of Justice Ginsburg’s unanimous opinion).
      Walker v. Southern Co. Services, Inc., 279 F.3d 1289 (11th Cir. 2002); Gilbert v. Alta
Health & Life Ins. Co., 276 F.3d 1292 (11th Cir. 2001).
      Aetna Health Inc. v. Davila, 542 U.S. 200 (2004).

dustry’s right to deny claims in bad faith.

                    III. Reimbursement Claims

A. The Sereboff decision

21   After the Sereboff decision, do I have to reimburse an
     ERISA plan when my client gets a recovery from a tort

This depends in the first instance on whether the claim for recovery fits
within the sole statutory provision under which recovery is possible, 29
U.S.C. § 1132(a)(3):

     § 1132. Civil enforcement
     (a) Persons empowered to bring a civil action. A civil action
     may be brought– . . .
     (3) by a participant, beneficiary, or fiduciary (A) to enjoin any
     act or practice which violates any provision of this title or
     the terms of the plan, or (B) to obtain other appropriate eq-
     uitable relief (i) to redress such violations or (ii) to enforce
     any provisions of this title or the terms of the plan; . . .

    Assuming that there is plan language that seemingly requires re-
imbursement, this is unfortunately a complex question. It depends on
whether the plan’s language can be construed as calling for “other ap-
propriate equitable relief,” as opposed to “legal relief ” or “restitution at
law.” It also depends on whether granting relief is equitable. It depends
on other factors too. Sereboff resolves some issues, but not all. In order
to understand its effect, one must understand the state of the law before

22    What was the state of the law before Sereboff ?

The Supreme Court granted certiorari in Sereboff 65 to resolve differ-
ences among the circuits on whether a reimbursement claim could con-
stitute “appropriate equitable relief ” under 29 U.S.C. §1132(a)(3); if so,
a reimbursement claim could be valid, otherwise not.
    The Supreme Court had addressed this issue earlier in Knudson,66
finding that the claim presented there was not equitable, but the length
and scope of the decision led to a split among circuits about its pre-
cise holding. The Knudson court “rejected a reading of the statute that
would extend the relief obtainable under §502(a)(3) to whatever relief a
court of equity is empowered to provide in the particular case at issue
(which could include legal remedies that would otherwise be beyond the
scope of the equity court’s authority).”67 Instead, the Court concluded
that 29 U.S.C. §1132(a)(3) is limited to “the categories of relief that
were typically available at equity.”68 Even quintessentially equitable
remedies such as injunctions were not automatically available under
29 U.S.C. § 1132(a)(3), because such relief was not typically available in
equity for a “past due monetary obligation.”69 Equity was available only
in certain “rare cases”:

      Those rare cases in which a court of equity would decree spe-
      cific performance of a contract to transfer funds were suits
      that, unlike the present case, sought to prevent future losses
      that were either incalculable or would be greater than the
      sum awarded. . . . Typically, however, specific performance of
      a contract to pay money was not available in equity.70

Although 29 U.S.C. §1132(a)(3)(A) appears to authorize injunctions ex-
pressly, such was not the case.

      [This] statutory reference to that remedy must, absent other
      indication, be deemed to contain the limitations upon its avail-
    Sereboff v. Mid Atl. Med. Servs., 547 U.S. 356 (2006).
    Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002).
    Id., 210.
    Id (original emphasis).
    Id., 210–211.
    Id., at 211.

      ability that equity typically imposes. Without this rule of con-
      struction, a statutory limitation to injunctive relief would
      be meaningless, since any claim for legal relief can, with
      lawyerly inventiveness, be phrased in terms of an injunc-

Restitutionary remedies were divided into equitable and legal restitu-
tion, and equitable restitution was described thus:

      [A] plaintiff could seek restitution in equity, ordinarily in
      the form of a constructive trust or an equitable lien, where
      money or property identified as belonging in good conscience
      to the plaintiff could clearly be traced to particular funds or
      property in the defendant’s possession. . . . Thus, for restitu-
      tion to lie in equity, the action generally must seek not to
      impose personal liability on the defendant, but to restore to
      the plaintiff particular funds or property in the defendant’s

This equitable kind of restitution was treated as “[i]n contrast” with
legal restitution, where “the plaintiff ’s claim is only that of a general
creditor,” in which case “the plaintiff cannot enforce a constructive trust
of or an equitable lien upon other property of the defendant.”73
    The label applied to the relief was immaterial. The majority rejected
Justice Ginsburg’s method of “distinguishing legal from equitable re-
lief [in terms of] the ‘substance of the relief requested,’” because this
method failed to look “to the conditions that equity attached to its pro-
vision.”74 The majority found that both dissenting opinions would lead
to the “same untenable conclusion,” namely that “§502(a)(3)(A)’s explicit
authorization of injunction, which it identifies as a form of equitable re-
lief, permits (what equity would never permit) an injunction against
failure to pay a simple indebtedness.”75
    Unfortunately, the court’s treatment of the issue was so long and
diffused that differing understandings arose about what was actually
    Id. at 211, n.1 (emphasis added).
    Id., 213, 214.
    Id., 213–14.
    Id, 216.

decided. Eventually, two interpretations emerged.
    Two circuits read Knudson as holding that such claims were essen-
tially legal, and thus invalid no matter how the plan might be drafted.76
Four other circuits read it as holding that such claims could be equitable
if stated in a particular way.77 The issue was being litigated circuit by
circuit, district by district, and sometimes judge by judge. The Supreme
Court granted certiorari in a Fourth Circuit case that upheld an ERISA
reimbursement claim.

23   What did Sereboff decide?

Sereboff arose from an auto wreck in California. The ERISA plan pro-
vided $74,869.37 in medical benefits to the injured couple and sent let-
ters to their attorney asserting a lien on proceeds of the suit. It repeated
its claim in later letters. The couple’s tort suit settled for $750,000, and
their attorney distributed the funds to his clients without satisfying
the lien. The plan sued in a Maryland district court where the Sere-
boffs lived, and the parties agreed to hold $74,869.37 from the proceeds.
The district court ordered the Sereboffs to pay the full amount, and the
Fourth Circuit affirmed.
    On May 15, 2006, the Supreme Court decided Sereboff.78 It noted
that the plan language required the Sereboffs to reimburse the plan
“from” the settlement funds that the Sereboffs received, without reduc-
tion due to the fact that they had not received the full amount of dam-
      The Sixth Circuit did so in QualChoice, Inc. v. Rowland, 367 F.3d 638, 648–50 (6th
Cir. 2004), cert. denied, 544 U.S. 942, 125 S.Ct. 1639 (2005); Community Health Plan
of Ohio v. Mosser, 347 F.3d 619 (6th Cir. 2003); Community Ins. Co. v. Morgan, 54 Fed.
Appx. 828 (6th Cir. 2002); Unicare Life & Health Ins. Co. v. Saiter, 37 Fed. Appx. 171
(6th Cir. 2002); Sheet Metal Local #24 Anderson, Trustee v. Newman, 35 Fed. Appx.
204 (6th Cir. 2002). The Ninth Circuit did so in Carpenters Health & Welfare Trust v.
Vonderharr, 384 F.3d 667, 672, 673 (9th Cir. 2004); Providence Health Plan v. McDowell,
361 F.3d 1243, 1248 (9th Cir. 2004); Westaff(USA) Inc. v. Arce, 298 F.3d 1164, 1166 (9th
Cir. 2002), cert. denied 537 U.S. 1111 (2003).
      Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot & Wans-
brough, 354 F.3d 348, 356 (5th Cir.2003), cert. denied, 541 U.S. 1072 (2004); Admin.
Comm. of Wal-Mart Assocs. Health & Welfare Plan v. Willard, 393 F.3d 1119, 1124–25
(10th Cir.2004); Primax Recoveries, Inc. v. Young, 83 Fed.Appx. 523, 524 (4th Cir.2003);
Admin. Comm. of Wal-Mart Stores, Inc. Assocs. Health & Welfare Plan v. Varco, 338
F.3d 680, 687–88 (7th Cir.2003), cert. denied, 542 U.S. 945 (2004).
      Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006)

ages they claimed.79 The Court decided that the claim before it sought
equitable relief, and thus was a valid claim under 29 U.S.C. §1132(a)(3).
There remain questions concerning the interpretation of Sereboff, but
some points are clear:
   • The Court rejected the position of the Sixth and Ninth Circuits
that all such claims were inherently legal rather than equitable.
   • In determining whether a claim is “equitable,” the Court held that
the test is still whether the claim was one that was typically available
in equity.80 It further indicated that it would look to cases from the
divided bench period and standard secondary material on equity to de-
termine whether a claim was typically available in equity.81 The Court
seems to follow entirely the following statement: “Rarely will there be
need for any more ‘antiquarian inquiry’ . . . than consulting, as we have
done, standard current works such as Dobbs, Palmer, Corbin, and the
Restatements, which make the answer clear.”82
    • Equitable liens by agreement are within the scope of “equitable”
relief. This is the real novelty of the Sereboff decision. Previous cases
were concerned with the scope of a different concept, namely equitable
restitution. A Lexis search for cases decided before Sereboff which con-
tained both “ERISA” and “lien” within five words of “agreement” turned
up forty-two hits, of which only two mentioned the concept of a “lien by
agreement.” In neither was the concept decisive.

24    How can Sereboff be reconciled with Knudson?

A difference in plan terms does not appear to explain the difference
in outcomes because the Sereboff Court found that the plan in Knud-
son was “[m]uch like” the plan before it because it “reserved a first lien
upon any recovery.”83 A slightly more plausible difference was noted by
the court in observing that the settlement proceeds in question were not
in Ms. Knudson’s possession, but were in a special needs trust, whereas
    Id., 359.
    Id., 361.
    Id., 362, 363–364.
     Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 217 (2002).
    Sereboff, 547 U.S. at 362.

the proceeds were in the Sereboffs’ possession.84 This fact would dis-
qualify the plan’s claim in Knudson under either of the major interpre-
tations of Knudson, but the fact that the funds were in the Sereboffs’
possession would not automatically entitle the plan to relief because,
as the Court observed, the plan “must still establish that the basis for
its claim is equitable.”85 Noting the Sereboffs’ contention that the plan
could not claim “equitable restitution” without showing that the funds
in their possession had been improperly acquired, and observing that
this contention was at least “often” true, it responded that a lien by
agreement did not require such a showing.86 The cases are to be rec-
onciled based on the legal theory sought to be enforced. A contract
to turn over specific funds sounded in equity and could be enforced; a
free-floating claim for restitution from the beneficiary’s general assets
sounded in law and could not be enforced.
    Sereboff changed the frame of the debate from “equitable restitu-
tion” to “equitable liens by agreement.”

      B. Theories of relief for ERISA-governed plans

25     Can a plan still sue for restitution?

Apparently not. Although the Sereboff Court rejected the approach of
the Sixth and Ninth Circuits, it did not affirm the “equitable restitution”
approach of the other Circuits. If anything, the Court disagreed with the
other Circuits on their theory of relief because it did not cite cases il-
lustrating that “equitable restitution” was “typically available” in these
circumstances in the day of the divided bench. Instead, in deflecting
the Sereboffs’ claims, it stated that the plan’s “claim is not considered
equitable because it is a subrogation claim[; instead, it] qualifies as an
equitable remedy because it is indistinguishable from an action to en-
force an equitable lien established by agreement” which had been found
to be “equitable.”87
      Subsequent cases agree that “equitable restitution” is not viable in
    Id., 364–365.
    Id., 368.

this context. Where the plan “does not specify that reimbursement be
made out of any particular fund, as distinct from the beneficiary’s gen-
eral assets,” but makes the recovery simply a “trigger” for liability, it is
not enforceable.88 For such reasons, independent claims for “equitable
unjust enrichment” as a matter of federal common law are not viable.89

26     What is an “equitable lien by agreement” that Sereboff

By contrast with equitable restitution, equitable liens by agreement “in
the final analysis will be found to be a special application of the doctrine
of specific performance to agreements to give security.”90 These are “dif-
ferent species of relief.”91 Equitable liens by agreement exist to give ef-
fect to the express intent of the parties; an equitable lien for restitution
is judicially implied to prevent unjust enrichment, on the theory that a
specific fund belongs in equity and good conscience to the plaintiff.92
   The Court found that early equity cases enforced an equitable lien to
transfer specific funds that were not yet in existence under similar cir-
cumstances and concluded that the plan’s claim was “equitable” under
29 U.S.C. §1132(a)(3).93
     Popowski v. Parrott,461 F.3d 1367, 1374 (11th Cir. 2006); James River etc. Plans v.
Bentley, 649 F.Supp. 2d 657, 659 (E.D. Ky. 2009).
     Kolbe & Kolbe Health & Welfare Benefit Plan v. Medical College of Wis., Inc., 2009
U.S. Dist. LEXIS 107427, *6–*7 (W.D. Wis. Nov. 17, 2009); Scarangella v. Group Health,
Inc., 2009 U.S. Dist. LEXIS 23457 *42–*46 (S.D.N.Y. Mar. 24, 2009); Isabella v. Express
Prods. 401(k) Plan, 2009 U.S. Dist. LEXIS 16788,*7–*8 (E.D. Pa. Mar. 4, 2009); First
Unum Life Ins. Co. v. Alleyne, 2009 U.S. Dist. LEXIS 6852, *7–*8 (E.D.N.Y. Jan. 30,
2009); Spectrum Health, Inc. v. Good Samaritan Emplrs. Assoc., 2008 U.S. Dist. LEXIS
100689, *32–*34 (W.D. Mich. Dec. 11, 2008); Int’l Painters & Allied Trades Indus. Pen-
sion Fund v. Aragones, 643 F. Supp. 2d 1329, 1339–40 (M.D. Fla. 2008); Union Labor
Life Ins. Co. v. Olsten Corp. Health & Welfare Benefit Plan, 617 F. Supp. 2d 131, 137,
144–146 (E.D.N.Y. 2008); Larue v. Dewolff, Boberg & Assocs.,450 F.3d 570, 576 (4th Cir.
2006) (observing that Sereboff demonstrates “how the absence of unjust possession is
fatal to an equitable restitution claim”), rev’d on other grounds, 552 U.S. 248 (2008).
     Harlan F. Stone, The “Equitable Mortgage” in New York, 20 Colum. L.Rev. 519
(1920), reprinted in Edward D. Re, Selected Essays on Equity, 273 (1955).
     Sereboff, 547 U.S. at 364–365.
     D. Dobbs, Law of Remedies §4.3, p. 249 (1973); H. McClintock, Principles of Equity,
§118, p. 319 (1948).
      Id., 363–364, citing Barnes v. Alexander, 232 U.S. 117 (1914), in which the attor-
ney’s fee contract was enforced by an equitable lien.

    For additional details on the nature and essential elements of such a
lien from cases of a similar vintage. It is “indispensable” to an equitable
lien on a particular fund that there be “an agreement that the creditor
should be paid out of it.”94 By contrast, an agreement that contains no
assignment of any specific interest in a settlement fund or award and
no provision creating any lien upon it or its proceeds, does not give the
plaintiff any equitable lien on the fund.95

27     What language in a plan creates an “equitable lien by

After Sereboff, plan language should be carefully scrutinized to deter-
mine whether it claims all or part of the settlement fund.
    As shown in Popowski v. Parrott,96 differences in phrasing can make
all the difference in the outcome. There, two cases were consolidated for
argument,97 and both were in virtually the same procedural posture: an
ERISA plan sued plan participants or beneficiaries for reimbursement
under plan terms, an ex parte temporary restraining order was granted,
a hearing was held on making it permanent, but the defendants filed
motions to dismiss before defensive pleadings were filed and any other
discovery was conducted, and both district courts dismissed the claims
because the relief sought was not “appropriate equitable relief.” There
was, however, a difference in the language of the plans.
   In the first case, the plan claimed a lien “on any amount recovered by
the Covered Person whether or not designated as payment for medical
expenses . . . . The Covered Person . . . must repay to the Plan the benefits
paid on his or her behalf out of the recovery made from the third party or
insurer.”98 The Court held that this was essentially the same plan text
      Peugh v. Porter, 112 U.S. 737, 742 (1885).
      Porter v. White,127 U.S. 235, 244–245 (1888) (initial legal employment contract that
provided for a fee of 50% of the recovery, of which the plaintiff attorney claimed half, did
not assign an interest in the ultimate award, and therefore plaintiff had no lien on the
proceeds of the suit when the client entered into a new contract in which the defendant
attorney received half of the 50% fee).
      Popowski v. Parrott, 461 F.3d 1367 (11th Cir. 2006).
      Popowski v. Parrott,403 F. Supp. 2d 1215 (N.D. Ga. 2004), and BlueCross BlueShield
of S.C. v. Carillo, 372 F. Supp. 2d 628 (N.D. Ga. 2005).
      Popowski, 461 F.3d at 1373 (emphasis added).

as the text discussed in Sereboff and reversed the dismissal.
    In the second case, the plan “claim[ed] a right to reimbursement ‘in
full, and in first priority, for any medical expenses paid by the Plan
relating to the injury or illness,’ but does not specify that that reim-
bursement be made out of any particular fund, as distinct from the ben-
eficiary’s general assets . . . . Instead, it makes receipt of ‘a settlement,
judgment, or other payment relating to the accidental injury or illness’
a trigger for the general reimbursement obligation.’”99 The Court also
observed that the plan sought reimbursement “in full” without limiting
the recovery to money received from the tortfeasor, which it deemed to
be additional evidence that the plan sought only legal relief rather than
the transfer of specific funds received from the tortfeasor.100
    Since the plan text may well make a difference, a lawyer for a plan
beneficiary should examine the plan for contradictory language that
could be construed as seeking something other than the specific funds,
thus invalidating the plan, or that could be construed as limiting the
plan’s recovery. Other sources to be checked for contradiction include
the summary plan description that was provided to the employee and
earlier versions of the plan itself, which may have been modified during
the employee’s course of treatment. If nothing else, such self-contradic-
tions can at least be used in negotiations with the plan.

28     What if the plan talks about an “equitable lien,” but
       it doesn’t require payment from the settlement pro-

That different plan language might have made a difference in the out-
come appears from the Court’s recognition that the Sereboffs had pro-
duced a case in which a contractual provision purporting to secure an
equitable lien did not properly do so: an attorney claimed a contingent
fee lien, but the contract merely used the client’s recovery as a basis for
calculating the fee rather than directing that the fee be paid out of the
recovery.101 The Eleventh Circuit in Popowski v. Parrott found that to
     Id., 1374 (emphasis added).
     Sereboff, 547 U.S. at 366–367, citing Taylor v. Wharton, 43 App. D.C. 104, 109 (D.C.
Cir. 1915).

be a critical point, and at least one other Circuit court agrees that it is

29      Must a client sign a subrogation agreement, and what
        is its effect?

If the plan requires that the client sign such an agreement, the client
must probably sign it. See Question 5. It should have no effect, how-
ever. Under state law, the pre-existing duty rule would render it a con-
tract without consideration. However, that issue would not be reached
because ERISA would expressly preempt (and possibly completely pre-
empt) liability on any such contract, which is after all a state law cause
of action that relates to the plan.

30      Can the plan cut off payments until reimbursement
        has been made in full?

You need to inquire whether the client needs to have continuing cov-
erage under the plan. Many plans have provisions allowing the plan
to deny future benefits until it has been reimbursed. As noted above,
ERISA gives plans a great deal of freedom to define and limit their ben-
efits (question 5), so if such a provision exists, then your options are:
       • Negotiating on the plan’s terms;
    • Being prepared to make the appropriate claim and, if need be, file
suit in federal court to get the coverage restored.103 This option will be
viable if (a) the plan is written ambiguously enough to allow a district
court to disregard the terms denying benefits; (b) a non-preempted state
law regulating insurance is applicable to an insured plan (see the sec-
tion beginning with question 13); or (c) counsel persuades the district
      Dillard’s Inc. v. Liberty Life Assur. Co., 456 F.3d 894 (8th Cir. 2006) (the plan’s
claiming reimbursement from a specific fund, as opposed to the party’s general assets,
was “[c]entral to its holding” in Sereboff ).
      Cf. Smith v. Life Ins. Co. of N. Am., 466 F. Supp. 2d 1275, 1277 (N.D. Ga. 2006)
(restoring LTD benefits in a similar setting). Denial of coverage may also violate the
anti-discrimination provisions of HIPAA, encoded in ERISA at 29 U.S.C. § 1182 (see Q.

court that such a rule discriminates against the client in eligibility for
plan benefits, in violation of HIPAA’s nondiscrimination rule.104
   • Determining the ability of the client to obtain coverage from other

  C. What funds and what parties are subject to ERISA reim-
bursement claims

31     What tort recoveries are subject to an ERISA reim-
       bursement claim?

The funds that are subject of equitable relief under 29 U.S.C. § 1132(a)(3)
must be a specifically identifiable fund of money rather than the general
assets of the defendant.105 This is an implicit limit on defining funds or
property that can be recovered, because calling the general funds of a
party “specifically identifiable” makes that phrase meaningless. This
limit needs to be articulated.
   The defendant to be charged with reimbursement must have the dis-
puted funds in his or her possession (subject to tracing as discussed be-
      29 U.S.C. § 1182 and 29 CFR 2590.702(b). See discussion at Question 44.
      Sereboff v. Mid Atl. Med. Servs., 547 U.S. 356, 364 (2006) (the plan “identified a
particular fund, distinct from the Sereboffs’ general assets”); Great-West Life v. Knud-
son, 534 U.S. 204, 213–214 (2002) (plan must seek “to restore particular funds or prop-
erty” rather than “impose personal liability” like the “claim . . . of a general creditor”);
Popowski v. Parrott, 461 F.3d 1367, 1374 (11th Cir. 2006) (invalidating reimbursement
claim of plan that did “not specify that that reimbursement be made out of any partic-
ular fund, as distinct from the beneficiary’s general assets”); In Re: Vioxx Products Li-
ability Litigation, No. 08-1633, 2008 U.S. Dist. LEXIS 60269, *46–47 (E.D. La., Aug. 7,
2008) (disallowing reimbursement from settlement fund for numerous ERISA-governed
plans because they do not identify specific funds).
      Amschwand v. Spherion Corp., 505 F.3d 342, 346 (5th Cir. 2007) (“Sereboff seems
to confirm that the sine qua non of restitutionary recovery available under § 502(a)(3)
is a defendant’s possession of the disputed res” – emphasis added), citing Coan v. Kauf-
man, 457 F.3d 250, 264 (2d Cir. 2006) (restitutionary relief is deprived of its equitable
character for purposes of § 502(a)(3) “when, as here, the defendants never possessed the
funds in question and thus were not unjustly enriched”) (citation and internal quota-
tion marks omitted); Knieriem v. Group Health Plan, Inc., 434 F.3d 1058, 1063 (8th Cir.
2006); Callery v. United States Life Ins. Co., 392 F.3d 401, 406 (10th Cir. 2004); Bast v.
Prudential Ins. Co. of Am., 150 F.3d 1003, 1011 (9th Cir. 1998).

    Accordingly, where the funds that could be subject to an equitable
lien have not materialized, no equitable relief is possible.107

32     What if the fund has been dissipated?

Dissipation should defeat a claim in equity for the return of the item, in
this case, a specific fund of money. “[A] claim that, in essence, seeks
‘nothing other than compensatory damages’ – for instance, one that
seeks simply ‘to impose personal liability . . . for a contractual obligation
to pay money’ is not equitable for the purposes of § 1132(a)(3).108 There-
fore, if the res is no longer in the defendant’s possession, there can be
no equitable relief under the Eleventh Circuit’s case in Horton,109 which
observed that a suit against a party for funds that are not in her pos-
session would constitute legal relief, and thus be unavailable under 29
U.S.C. § 1132(a)(3).110 It explained —

       Under Knudson, Sereboff, and the other authorities cited
       above, the most important consideration is not the identity
      Pan-American Life Ins. Co. v. Bergeron, 82 Fed. Appx. 388, 391–392 (5th Cir. 2003)
(“As the district court noted, PanAm is attempting to impose a trust on funds which
had not been accepted, and in fact have been returned. This would clearly violate
the Supreme Court’s holding in Knudson and our holding in Bauhaus. Furthermore,
because Bergeron does not possess identifiable and traceable funds, the action here
does not qualify as one seeking equitable relief authorized under 29 U.S.C. § 1132(a)(3).
Therefore, the district court was correct to grant Bergeron’s Rule 12(b)(1) motion to
dismiss, and deny PanAm’s cross motion for summary judgment.”); Admin. Comm. v.
Merritt, No. 5:01-cv-26-3, 2003 U.S. Dist. LEXIS 24533, *13 (M.DGa., May 9, 2003)
(“there is no money or property identified as belonging in good conscience to Plaintiff
that can be clearly traced to particular property in Defendant’s possession. The Court
recognizes that this creates a difficult situation in that, at best, there will be a narrow
window in which a fiduciary will be able to seek authorized relief. A fiduciary will
not be able to seek relief before a beneficiary has gotten relief in his case against the
      Popowski v. Parrott, 461 F.3d 1367, 1372 (11th Cir. 2006). See further Kellner v.
First Unum Life Ins. Co., 589 F. Supp. 2d 291, 313 (S.D.N.Y. 2008) (“In any such claim,
however, the plan fiduciary “must seek not to impose personal liability on the [benefi-
ciary], but to restore to the [LTD plan] particular funds or property in the [beneficiary’s]
      Admin. Comm. for the Wal-Mart Stores, Inc. v. Horton, 513 F.3d 1223 (11th Cir.
2008). See further Bilyeu v. Morgan Stanley Long Term Disab. Plan., No. 10-16070
F.3d     (9th Cir. 2012).
      Horton, 513 F.3d at 1226–1227.

      of the defendant, but rather that the settlement proceeds are
      still intact, and thus constitute an identifiable res that can be
      restored to its rightful recipient. Had the [Plan] solely sued
      parties not in possession of the disputed funds, the claim
      would have failed under Knudson because it merely would
      have sought to impose personal liability on those parties.111

“Labeling the portion of defendants’ assets that they refused to disperse
a ‘fund of money’ does not remedy this deficiency.”112

33    Can the plan trace settlement money into other assets?

If those specific funds are previously commingled with other funds or
spent on other property, equitable tracing rules are likely to be used to
reach the proceeds. Such rules are standard. O.C.G.A. § 23-2-74 is titled
“Burden of distinguishing mingled property,” and it provides: “If a party
who has charge of the property of others shall so confound it with his
own that the line of distinction cannot be drawn, all the inconvenience
shall be thrown upon him who causes the confusion; and he shall distin-
guish his own property or lose it.” Counsel will need to assess the likely
methods of tracing that will be employed and determine what property
remains that is subject to the equitable reimbursement claim. Although
there are some cases suggesting that settlement funds will be protected
simply by mingling them with other funds, I am skeptical whether those
decisions will prove reliable.
    However, if the net effect of commingling is that the plan is effec-
tively attempting to recover from the individual’s general assets, it is
seeking legal relief, and that relief is not allowed by 29 U.S.C. §1132(a)(3).
      Horton, 513 F.3d at 1229. See further Herman v. Metro. Life Ins. Co., 689 F. Supp.
2d 1316, 1318 (M.D. Fla. 2010) (granting summary judgment to the plaintiff on a coun-
terclaim for reimbursement because she “no longer possesses any benefit received” and
thus the plan was essentially “seek[ing] to recover a money judgment (which would al-
low [the plan] to levy on the [individual]’s general assets) and not the transfer of title
to an existing fund in the possession of the plaintiff”).
      Union Labor Life Ins. Co. v. Olsten Corp. Health & Welfare Benefit Plan, 617 F.
Supp. 2d 131, 135 (E.D.N.Y. 2008) (granting summary judgment to the defendant be-
cause of the plaintiff’s failure to identify a particular fund of money to which it is enti-

34     On what can the plan claim a lien? Uninsured motorist
       payments? Wrongful death recoveries? Recoveries by
       relatives or other victims?

Since the employer gets to define the plan terms any way it chooses
(question 5), the only limit on what a plan can claim comes from an
analysis of the phrase “other appropriate equitable relief ” in 29 U.S.C.
§1132(a)(3). The Sereboff decision has clearly rejected the notion that
the property to be liened has to be a product, in some sense, of the
original payments.
    Under the Sereboff analysis, an agreement to transfer any asset in
the future would be subject to enforcement in equity. Hence, if the plan
called for it, it could require the participant to transfer her house, her
car, her wages, her inheritance, her family heirlooms, the food from her
pantry, her firstborn (well, perhaps the 13th Amendment would limit
that), or any other property of any provenance whatsoever.
   Uninsured motorist benefits. Therefore, it could cover uninsured
motorist benefits too. You must still check the plan language to deter-
mine whether the plan claims a lien on a particular fund. Note that if
the plan claims a lien on payments by “third parties,” it is possible to
argue that some payments, such as uninsured motorist coverage, are
actually “first party” coverage.
    Wrongful death claims. As for wrongful death recoveries, it should
be noted first that there are different kinds of wrongful death awards.
The prevailing cases distinguish those awards that effectively compen-
sate the deceased and his/her estate, which were/are subject to the terms
of the plan, and those awards to relatives for sums that are not intended
to compensate the deceased or the estate. The former are typically re-
garded as subject to the plan’s lien; the latter are not.113
    The author obtained a ruling to the same effect, holding that Geor-
gia’s wrongful death recoveries were not subject to an ERISA plan’s
lien.114 The district court granted reconsideration without repudiat-
ing that analysis, but based on the idea that the heir, while serving
as administrator of the deceased’s estate, had the duty to comply with
      See Liberty Corp. v. NCNB Nat’l Bank, 984 F.2d 1383 (4th Cir. 1993), and McInnis
v. Provident Life & Accid. Ins. Co., 21 F.3d 586 (4th Cir. 1994).
      Diamond Crystal Brands, Inc. v. Wallace, 531 F. Supp. 2d 1366 (N.D. Ga. 2008).

the plan at that point and not favor herself.115 Finding that the funds
“belong in good conscious [sic] to the plan” for that reason,116 the court
ultimately granted summary judgment, but the case was settled on ap-
    Recoveries by others. If a plan beneficiary who is required to re-
imburse an ERISA-governed Plan declines to seek recovery so that an-
other person who is not similarly burdened may obtain all of the avail-
able tort recovery, the Plan may not seek to recover the money from the
other person.117 This is to be distinguished from the case in which the
recipient (actual or beneficial) of the money is bound by the terms of the
plan to turn it over.118
      Diamond Crystal Brands, Inc. v. Wallace, 563 F.Supp.2d 1349 (N.D.Ga. 2008). I re-
spectfully submit that this ruling was wrong. See, e.g., Atteberry v. Memorial-Hermann
Healthcare Sys., 405 F.3d 344, 352 (5th Cir. 2005) (“As applied to the instant case, the
Occupational Benefits Plan language means only that the Pittman Estate, via Pittman
as the estate representative, must surrender its claims to MHHS. The language does
not mean that Pittman must surrender the wrongful death claims she independently
possesses as John Pittman, Jr.’s wife merely because she also served as the representative
of the Pittman Estate.” – emphasis added).
      Diamond Crystal Brands, Inc. v. Wallace, 2010 U.S. Dist. LEXIS 48684, *16 (N.D.
Ga. Feb. 11, 2010).
      DelRossi v. Defendant V, 789 N.Y.S.2d 816, 823–824 (N.Y. Sup. Ct. 2004) (“To
the extent that Aetna/Rawlings’ opposing papers challenge the propriety of the de-
terminations of the plaintiff to discontinue her estate survival action rather than the
claim for wrongful death because such determinations impermissibly serve to defeat
Aetna/Rawlings’ claims for reimbursement under the plan, such a challenge is rejected
as unmeritorious . . . . [T]he plaintiff was free to make the tactical decision to discon-
tinue the estate’s claim for damages in the survival action, which included claims to
recover the medical expenses of the decedent’s last illness, in exchange for the settle-
ment of the wrongful death claims of the decedent’s distributees which contain no viable
claims for recovery of medical expenses.”); Admin. Comm. of the Wal-Mart Stores, Inc.
v. Gamboa, No. 05-5007, 2007 U.S. Dist. LEXIS 50644, *14–15 (W.D. Ark. July 9, 2007)
(“[The ERISA plan] is seeking compensatory damages, for the funds it lost as a result
of Jose Gamboa’s waiver of his claims to the settlement proceeds and his failure to
cooperate as required by the Plan[,] a legal remedy not available under ERISA. Jose
Gamboa is not in possession or control of the funds in question and Plaintiff has no
rights to the funds as they are the result of a settlement made between the third-party
tortfeasor, Nancy Gamboa, Lucas Gamboa and Wendy Gamboa. We cannot and should
not, reconstruct the settlement agreement of the parties.”); Sheet Metal Workers Local
27 Health & Welfare Fund v. Estate of Beenick, No. 08-cv-346, 2008 U.S. Dist. LEXIS
99345, *34 (D.N.J. Dec. 9, 2008) (“such lien could only apply to the Estate and not to
any recovery by Parents because Parents were not ‘Covered Persons’ under the terms
of the contract”).
      Administrative Comm. for the Wal-Mart Stores, Inc. v. Horton, 513 F.3d 1223 (11th
Cir. 2008) (both the parent and the child are plan beneficiaries and thus bound by the

35   Is a liability insurer responsible to the ERISA plan in
     any way?

A liability insurer is far less likely to be responsible to the ERISA plan
in some way than it is to use the possibility of exposure to delay sending
your settlement money. There are numerous reasons why ERISA would
not permit the liability insurer to be subject to suit for paying a claim
to the injured party.119

36   Am I liable as the attorney for disbursing the funds?

This issue is being litigated in various venues. In my opinion, an ERISA-
based claim should not be viable.
   First, the attorney should have no direct liability to the plan be-
cause the plan is not legislation, but is instead essentially a contract,120
terms of the plan); Wright v. Aetna Life Ins. Co., 110 F.3d 762, 763 (11th Cir. 1997);
Singleton v. Board of Trustees of IBEW Local 613, 830 F. Supp. 630, 631–632 (N.D. Ga.
1993) (rejecting argument “that an injured individual covered by an ERISA plan should
not have to reimburse the plan for settlement amounts received for pain and suffering”)
(emphasis added); Health Cost Controls v. Rogers, 909 F. Supp. 537, 541, 543 (N.D. Ill.
1994) (reviewing cases holding “that ERISA pre-empts state antisubrogation rules as
they affect a plan’s right to reimbursement from beneficiaries who recover from third-
party tortfeasors”) (emphasis added); Moore v. Blue Cross & Blue Shield of the Nat’l
Capital Area, 70 F. Supp. 2d 9, 39 (D.D.C. 1999); Dugan v. Nickla, 763 F. Supp. 981,
983 (N.D. Ill. 1991); Provident Life & Acci. Ins. Co. v. Linthicum, 743 F. Supp. 662, 665
(W.D. Ark. 1990) (same result, regardless of rulings by state court).
      These cases hold that the liability insurer has no exposure to an ERISA plan. Witt
v. Allstate Ins. Co., 50 F.3d 536, 537–538 (8th Cir. 1995) (Allstate was not a fiduciary of
plan assets and had “no contractual relationship with the Fund that it could breach,”
and was therefore neither liable for breach of contract or inducing a breach of contract);
Trustees of Central States, Southeast and Southwest Areas Health and Welfare Fund
v. State Farm Mut. Ins. Co., 17 F.3d 1081, 1083–84 (7th Cir.1994) (“The Trustees, how-
ever, have failed to identify any language either in the plan, or in ERISA imposing an
obligation upon State Farm (or parties similarly situated.) The very terms of the plan
of necessity speak only to the obligations of covered individuals. Because State Farm
was not a party to the agreement between the Fund and its covered individuals, State
Farm cannot be bound by that agreement.”); Biomet, Inc. Health Ben. Plan v. Black,
51 F.Supp.2d 942, 947–948 (N.D.Ind. 1999); HCA-The Healthcare Co. v. Clemmons, 162
F.Supp.2d 1374, 1380–81 (M.D. Ga. 2001); Graphic Communs. Nat’l Health & Welfare
Fund v. Tackett, No. 07-cv-0123, 2007 U.S. Dist. LEXIS 65115, *6–*11 (S.D. Ill. Sept. 4,
      See Sereboff v. Mid Atl. Med. Servs., 547 U.S.356, 363–364, 368 & passim (2006)

to which only people who consent may be bound. If the attorney does
not consent to be bound, the attorney is not directly liable. Plans have
attempted to hold attorneys bound to respect the terms of the plan on a
contract theory or on the theory that he is deemed to be a “fiduciary” of
the plan,121 but numerous cases reject the attempt.122
    Second, an indirect liability claim under ERISA is theoretically pos-
sible, but should not be viable in the typical case. The legal theory
would authorize a constructive trust on the fee paid to the attorney on
grounds that the attorney stands in the same position as someone deal-
ing with a constructive trustee (the plaintiff), and in such position, the
attorney may be made to return funds knowingly obtained by a breach
of the client’s fiduciary duty. This theory originated in Harris Trust,123
which held that an ERISA fiduciary could seek relief under 29 U.S.C.
§ 1132(a)(3) against its broker for selling worthless properties to the
trust,124 and then rejected the counter-argument that this reading of
§ 1132(a)(3) would allow a fiduciary to sue innocent parties:

      [T]he common law of trusts sets limits on restitution actions
      against defendants other than the principal “wrongdoer.” On-
      ly a transferee of ill-gotten trust assets may be held liable,
(discussing this present type of claim as a contract to transfer funds and an equitable
lien by agreement); Popowski v. Parrott, 461 F.3d 1367, 1372–1373 (11th Cir. 2006)
(likewise); Harrison v. Digital Health Plan, 183 F.3d 1235, 1239–1240 (11th Cir. 1999)
(collecting cases on ERISA claims as contractual).
      The idea of calling the plaintiff’s attorney a fiduciary of the plan is itself an in-
stance of inspired desperation, using the statutory definition of a fiduciary in 29 U.S.C.
§ 1002(21)(A) as one who “exercises any authority or control respecting management
or disposition of [a plan’s] assets” to attempt to create a liability where no competent
lawyer would otherwise imagine it to exist.
      See Chapman v. Klemick, 3 F.3d 1508, 1510–12 (11th Cir. 1993); CGI Technolo-
gies and Solutions, Inc. v. Rose, 2012 U.S. App. LEXIS 12556, *5–11 (9th Cir. June 20,
2012); AC Houston Lumber Co. Empl. Health Plan v. Berg, No. 10-15170 (9th Cir., Dec.
29, 2010), online at
15170.pdf; Hotel Empls. & Restaurant Empls. Int’l Union Welfare Fund v. Gentner, 50
F.3d 719, 721–22 (9th Cir. 1995); T.A. Loving Co. v. Denton, No. 5:08-CV-591, 2010
U.S. Dist. LEXIS 71012, *6–*7 (E.D. N.C. July 12, 2010); Treasurer v. Goding, No.
1:09CV00121, 2010 U.S. Dist. LEXIS 17886, *5–*7 (E.D. Mo. Mar. 1, 2010); UFCW
Local 1776 v. Deboer, No. 07-cv-00738, 2008 U.S. Dist. LEXIS 73499, *4 (E.D. Pa. Sept.
25, 2008); Essex v. Randall, No. DKC 2003-3276, 2005 U.S. Dist. LEXIS 3942, *16 (D.
Md. Mar. 15, 2005); Mid Atl. Med. Servs. v. Do, 294 F. Supp. 2d 695, 702–703 (D. Md.
2003); Biomet, Inc. v. Black, 51 F. Supp. 2d 942, 947 (N.D. Ind. 1999).
      Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000).
      Id. at 245–249.

       and then only when the transferee (assuming he has pur-
       chased for value) knew or should have known of the existence
       of the trust and the circumstances that rendered the transfer
       in breach of the trust. Translated to the instant context, the
       transferee must be demonstrated to have had actual or con-
       structive knowledge of the circumstances that rendered the
       transaction unlawful.125

   The problem with enforcing this theory against the attorney is that
the client does not have the ability to control the attorney’s right to
take a fee before paying the funds to the client, and therefore the client
cannot be found to have breached any fiduciary duty with respect to the
funds over which the client had no right of control. Accordingly, the
attorney actually knows that the client did not breach a fiduciary duty.
    Recognizing that the lawyer is not bound by the terms of the plan
and that the client can’t require the lawyer to work for free has led
most courts to reject liability against the attorney. Plans may attempt
to avoid this result by citing a couple of cases that have gone to the con-
trary.126 A review of those cases shows no awareness that the Supreme
Court limited the types of relief available against lawyers as just quoted
above. In short, they focus on the portions of Harris Trust that hold that
29 U.S.C. § 1132(a)(3) imposes no statutory limit on who may be sued,
but they ignore the limitations in Harris Trust on what defendants like
a personal injury attorney may and may not be sued for.127
    Plans may also attempt to assert that ERISA’s strong preemption
provisions supersede an attorney’s contractual or statutory rights to be
paid from the proceeds of the suit. However, many state law claims bear-
ing closer relations to ERISA-governed plans than the typical personal
injury attorney’s contractual and statutory rights escape preemption.128
      Id. at 251.
      See Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot and
Wansbrough, 354 F.3d 348 (5th Cir. 2003), and The Longaberger Company v. Kolt, 586
F.3d 459 (6th Cir. 2009).
      See further Crawford & Co. Med. Ben. Trust v. Repp, 2012 U.S. Dist. LEXIS 29365,
*12 (N.D. Ill. Mar. 6, 2012) (noting that Longaberger “did not explain how an equitable
lien by agreement could arise when the attorney never entered into any agreement with
the Plan”).
      Among such cases where state law claims far more closely connected to the plan
were not preempted, see Morstein v. National Ins. Srv.s, Inc., 93 F.3d 715, 722–724

37    What are my ethical responsibilities to the plan?

I have written on this subject at some length, and like everything else,
it depends. See A Lawyer’s Ethical Obligations When the Client’s Cred-
itors Claim a Share of the Tort Settlement Proceeds, 39 Tort Trial & Ins.
Practice L.J. 121 (Fall, 2003). See Ga. R. Prof. Resp. 1.15(I).

     D. Make-whole rules and equitable limits on relief
(11th Cir. 1996) (state law fraud suit against independent agent who persuaded plain-
tiff to switch ERISA-governed welfare benefit plans without mentioning limits on pre-
existing conditions was not preempted); Ervast v. Flexible Products Co., 346 F.3d
1007, 1014–16 (11th Cir. 2003) (state law claim for failure to provide information that
would affect decision to retire and cash out ESOP account shares was not preempted);
Penny/Ohlmann/Nieman, Inc. v. Miami Valley Pension Corp., 399 F.3d 692, 697–703
(6th Cir. 2005) (state law claims based on service provider’s breach of accounting obliga-
tions that arise from a service agreement that is separate from the ERISA plan were not
preempted); Cotton v. Mass. Mut. Life Ins. Co., 402 F.3d 1267, 1290–91 (11th Cir. 2005)
(state law claim for fraudulent inducement to buy inappropriate vanishing premium
insurance was not preempted); Coldesina Employee Profit Sharing Plan and Trust v.
Estate of Greg Simper, 407 F.3d 1126, 1136–38 (10th Cir. 2005) (claim against contrac-
tor for negligent supervision of its employee who stole plan assets was not preempted);
Pharmaceutical Care Mngmt Ass’n v. Rowe, 429 F.3d 294, 301–304 (1st Cir. 2005) (suit
for violation of fiduciary duties imposed by state law on providers of drugs to health
plans was not preempted); Bank of La. v. Aetna US Healthcare, Inc., 468 F.3d 237,
241–244 (5th Cir. 2006) (state law suit requiring insurer to reimburse employer for its
payments not paid by the insurer under stop-loss coverage was not preempted); Thur-
man v. Pfizer, Inc., 484 F.3d 855, 860–864 (6th Cir. 2007) (state law claim for fraudulent
inducement to participate in plan, where plaintiff seeks to rescind and seeks reliance
damages in terms of the benefits he relinquished when coming from another job, was
not preempted); McAteer v. Silverleaf Resorts Inc., 514 F.3d 411, 416–419 (5th Cir.
2008) (state law negligence claims against employer for failing to maintain a safe work
place were not preempted, though the worker waived such claims to participate in an
ERISA plan); Stevenson v. The Bank of New York Co., Inc, 609 F.3d 56, 59–62 (2nd
Cir. 2010) (suit on employment contract, which mentioned ERISA plans as part of the
consideration, was not preempted). See generally Mackey v. Lanier Collection Agency
& Serv., 486 U.S. 825, 833 (1988) (“lawsuits against ERISA plans for run-of-the-mill
state-law claims such as unpaid rent, failure to pay creditors, or even torts committed
by an ERISA plan . . . are not pre-empted”).

38     When does a federal or state make-whole rule or simi-
       lar equitable limitation on reimbursement apply?

First note that there are two types of make-whole rule. One is a rule
of construction of the policy or plan, and it holds that in the absence of
a sufficient expression of contrary intent, the court will enforce a reim-
bursement term in favor of an insurer only after the insured is made
whole. The other is substantive, and it holds that the insured’s right to
be made whole trumps the insurer’s right to reimbursement, no matter
how the policy or plan is worded.129
   As for federal make-whole rules of the first type, some circuits have
a default preference for make-whole and common fund restrictions on
plan recoveries; other circuits do not. If these restrictions are the de-
fault, the plan can avoid them by language expressly rejecting them.
The make-whole rule is the default rule in ERISA cases in the Eleventh
Circuit130 and other circuits,131 but if the text of the plan is sufficiently
explicit, the plan may explicitly avoid the effect of this rule.132 Although
most plans that the author has seen reject the doctrines, a few allow ei-
ther or both. The plan language should be examined to determine the
status of these issues.
   As for federal make-whole rules of the second type, as well as other
equitable limitations on the relief that a plan may seek, keep reading.
    If a state law prohibits or limits reimbursement claims by requir-
ing that the insured be made whole, it will be useful only if it survives
preemption. See the section beginning with question 13. This will es-
sentially turn on whether the plan is insured and whether the state law
regulates insurance. The issue is addressed below in Question 46, with
a focus on Georgia law.
     This is the distinction in Georgia cases between Duncan v. Integon Gen. Ins. Corp.,
267 Ga. 646 (1997), representing the first kind of make-whole rule, and Davis v. Kaiser
Found. Health Plan, 271 Ga. 508 (1999), representing the latter.
     Cagle v. Bruner, 112 F.3d 1510 (11th Cir. 1997).
     Copeland Oaks v. Haupt, 209 F.3d 811 (6th Cir. 2000); Barnes v. Independent Auto.
Dealers Ass’n of Califonia Halth & Welfare Benefit Plan, 64 F.3d 1389 (9th Cir. 1994).
     HCA-The Healthcare Co. v. Clemmons, 162 F.Supp.2d 1374 (M.D. Ga. 2001); Great
Western Life & Annuity Ins. Co. v. Brown, 192 F.Supp.2d 1376 (M.D. Ga. 2002).

39      Does ERISA allow common law equitable principles to
        limit reimbursement claims?

In a series of cases, the Supreme Court has held that common law eq-
uitable principles limit relief available under 29 U.S.C. §1132(a)(3), the
only provision under which ERISA-governed plans may seeks to recover.
    The first case in this series was Mertens,133 in which the Court re-
jected a broad interpretation of “equitable relief ” that would make the
term “equitable” superfluous, holding that it referred to “categories of
relief that were typically available in equity (such as injunction, man-
damus, and restitution, but not compensatory damages).”134
   Later, in Varity,135 in the course of authorizing reinstatement as eq-
uitable relief under 29 U.S.C. § 1132(a)(3), the Court rejected a counter-
argument that such a claim for individuals would impose a standard
incompatible with an existing claim for the benefit of the Plan itself un-
der 29 U.S.C. § 1132(a)(2)136 by holding that the word “appropriate” in
“appropriate equitable relief ” is a term of limitation.

         We should expect that courts, in fashioning “appropriate”
         equitable relief, will keep in mind the “special nature and
         purpose of employee benefit plans,” and will respect the “pol-
         icy choices reflected in the inclusion of certain remedies and
         the exclusion of others.” [Cits.] Thus, we should expect that
         where Congress elsewhere provided adequate relief for a ben-
         eficiary’s injury, there will likely be no need for further equi-
         table relief, in which case such relief normally would not be
         “appropriate.” [Cit.]137

Varity teaches that such relief cannot be automatic. It is “fashion[ed],”
and a district court may refuse where it is not “appropriate.”138
       Directly on point, the Court stated that common law limitations in-
     Mertens v. Hewitt Assocs., 508 U.S. 248 (1993).
     Id. 256–257.
     Varity Corp. v. Howe, 516 U.S. 489 (1996)
     Id. at 513–514.
     Id. at 515.

here in 29 U.S.C. §1132(a)(3) in Harris Trust.139 After holding that an
ERISA fiduciary could seek relief under 29 U.S.C. § 1132(a)(3) against
its broker for selling worthless properties to the trust,140 the Court re-
jected the counter-argument that this construction would allow a fidu-
ciary to sue innocent parties:

       But this reductio ad absurdum ignores the limiting princi-
       ple explicit in § 502(a)(3): that the retrospective relief sought
       be “appropriate equitable relief.” The common law of trusts,
       which offers a “starting point for analysis [of ERISA] . . . ,
       plainly countenances the sort of relief sought by petitioners
       against Salomon here. . . . [T]he common law of trusts sets
       limits on restitution actions against defendants other than
       the principal “wrongdoer.” Only a transferee of ill-gotten trust
       assets may be held liable, and then only when the transferee
       (assuming he has purchased for value) knew or should have
       known of the existence of the trust and the circumstances
       that rendered the transfer in breach of the trust. Translated
       to the instant context, the transferee must be demonstrated
       to have had actual or constructive knowledge of the circum-
       stances that rendered the transaction unlawful.141

The Court referred to this analysis as “our interpretation of §502(a)(3)
to incorporate common-law remedial principles.”142
    In the next major case, Knudson,143 the Court held that a Plan’s
claim for reimbursement from a tort recovery did not seek “appropriate
equitable relief,” because 29 U.S.C. §1132(a)(3) “contain[s] the limita-
tions upon its availability that equity typically imposes.”144 Such “limi-
tations” (plural) include the equitable principles and defenses noted in
the standard treatises on equity that the Court has commended in this

       Congress felt comfortable referring to equitable relief in this
       statute – as it has in many others – precisely because the
     Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000).
     Id. at 245–249.
     Id. at 250, 251 (emphasis added) (citing five common law treatises as authorities).
     Id. at 252 (emphasis added).
     Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002).
     Id. at 211, n.1 (emphasis added).

       basic contours of the term are well known. Rarely will there
       be need for any more “antiquarian inquiry” . . . than consult-
       ing, as we have done, standard current works such as Dobbs,
       Palmer, Corbin, and the Restatements, which make the an-
       swer clear.145

    The Court’s final decision in this series, Sereboff,146 did not address
whether the make-whole rule was a limitation on reimbursement be-
cause the issue had not been raised below.147 But consistently with
the foregoing holdings, it looked to common law decisions and authori-
ties (citing Dobbs, Palmer, and Pomeroy as authoritative) to determine
whether a different asserted common law limitation on the plan’s rights
of recovery (“tracing”) existed.148
    It should be clear that common law equitable limitations on recover-
ies are inherent in 29 U.S.C. §1132(a)(3).

40     Does equity really require a make-whole rule?

There is a vast body of law requiring that insurer-like entities refrain
from exercising subrogation or reimbursement rights unless the pri-
mary creditor or victim has been made whole. Courts guided by eq-
uitable principles have enforced this limitation for well over a century.

       [T]he right of a subrogee to have the principal obligation and
       its securities actually applied for his own benefit does not
       arise until the creditor has been paid in full . . . .149

This is still the prevailing law,150 and the Supreme Court has also rec-
ognized this “familiar rule of the law of subrogation”:

       [A] surety liable only for part of the debt does not become sub-
       rogated to collateral or to remedies available to the creditor
      Id. at 217 (footnote omitted) (emphasis added).
      Sereboff v. Mid Atl. Med. Servs., Inc., 547 U.S. 356 (2006).
      Id. at 368, n.2.
      Id. at 363–368.
      5 Pomeroy, Equity Jurisprudence § 2350 (4th ed. 1919), citing numerous cases.
      Appleman on Insurance §§ 6509, 6572 (1981); Couch on Insurance, § 223:133–134
(3d ed. 2000).

       unless he pays the whole debt or it is otherwise satisfied.151

The Court explained that this rule is based “in the principle of equitable
subrogation,” and it prevents a “competition” between creditors and the
sureties who have undertaken to protect them.152 This “familiar equity
rule” prevents a surety from “defeat[ing] the purposes for which he has
given the indemnity.”153
    In the context of insurance, chiefly in property loss cases, equity cre-
ated a right of subrogation where the insurer indemnified all of the in-
sured’s losses even without contractual subrogation rights, but only to
the extent the insured had been made whole.154 In the context of life
and casualty insurance, no similar right of subrogation arose because
insurance payments in those cases did not indemnify the very differ-
ent liability of the tortfeasor who caused death or bodily injury.155 In
the specific context of health insurance benefits, no court has ever rec-
ognized an equitable right to subrogation for the same reason, and no
claims for contractual subrogation were enforced until 1954.156
   Although most courts have upheld contractual subrogation terms in
health plans since 1954, all of the courts that were guided by equitable
principles157 have imposed a make-whole limitation on the recoveries.
As stated by a leading treatise in 1978, a subrogation claim against the
      United States v. National Surety Co., 254 U.S. 73, 76 (1920).
      American Surety Co. v. Westinghouse Electric Mfg. Co., 296 U.S. 133, 137 (1935).
      Prudence Realization Corp. v. Geist, 316 U.S. 89, 96 (1942).
      See, e.g., Newcomb v. Cincinnati Ins. Co., 22 Ohio St. 382, 388 (Ohio 1872) (“the
assured will not, in the forum of conscience, be required to account for more than the
surplus, which may remain in his hands, after satisfying his own excess of loss in full”);
Garrity v. Rural Mut. Ins. Co., 253 N.W.2d 512, 514–516 (Wis. 1977) (discussing numer-
ous authorities).
      See, e.g., Gatzweiler v. Milwaukee E. R. & L. Co., 116 N.W. 633, 634 (Wis. 1908)
(life); Suttles v. Railway Mail Ass’n, 141 N.Y.S. 1024, 1025–1026 (N.Y. App. Div. 1913)
(disability); Crab Orchard Improv. Co. v. Chesapeake & O. R. Co., 115 F.2d 277, 281 (4th
Cir. 1940) (workers compensation).
      4 Palmer, Law of Restitution § 23.18 (1978), at 458, citing Michigan Med. Service v.
Sharpe, 64 N.W.2d 713 (Mich. 1954), as the first case permitting any form of recovery.
      These are the relevant courts because common law equitable principles incorpo-
rated into 29 U.S.C. §1132(a)(3), which must prevail over contract terms. Even without
such a statute dictating the outcome, a 1994 survey showed that equitable make-whole
principles controlled in the majority of states that reached the issue, while only a few
states let insurers contract away equitable limitations. Elaine M. Rinaldi, Apportion-
ment of Recovery Between Insured and Insurer, 29 Tort & Ins. L. J. 803, 807, 811, nn.
19–43, 64–69 (1994).

insured “is limited (a) to that part of the recovery which the claimant
establishes was in compensation for the same loss, and (b) to that part
of the victim’s total net compensation for that loss which is in excess of
full compensation.”158 Courts after 1978 continued to so hold.159
    4 Palmer, Law of Restitution § 23.16(b) (1978).
    • Thiringer v. American Motors Ins. Co., 588 P.2d 191, 194 (Wash. 1978), held that
a policy provision contrary to the make-whole rule “would be obviously unfair, since
the insured pays a premium for the PIP coverage and has a right to expect that the
payments promised under this coverage will be available to him if the amount he is able
to recover from other sources, after diligent effort, is less than his general damages.”
  • Wimberly v. American Cas. Co., 584 S.W.2d 200, 203 (Tenn. 1979), held that insur-
ance subrogation originates in general principles of equity and in the nature of insur-
ance as indemnifying the insured, precluding recovery “until the whole debt is paid.”
  • Rimes v. State Farm Mut. Auto. Ins. Co., 316 N.W.2d 348, 353 (Wis. 1982), held that
only “where an insured has received full damages from the tortfeasor . . . is the insurer,
under principles of equity, entitled to subrogation.”
  • Powell v. Blue Cross Blue Shield of Alabama, 581 So.2d 772, 777 (Ala. 1990), held
that –
       [The make-whole rule] better reflects the underlying equitable principles
       that give rise to the remedy of subrogation itself . . . and better reflects
       the purpose for which one purchases insurance. The very heart of the
       bargain when the insured purchases insurance is that if there is a loss
       he or she will be made whole. [Earlier] cases never envisioned the use of
       subrogation as a device to fully reimburse the insurer at the expense of
       leaving the insured less than fully compensated for his loss.
The Supreme Court of Georgia followed this analysis in Davis v. Kaiser Found. Health
Plan, 521 S.E.2d 815, 818 (Ga. 1999).
  • Wine v. Globe Am. Cas. Co., 917 S.W.2d 558, 562 (Ky. 1996), stated that requiring
repayment puts the burden of loss on the party least able to bear it, contrary the equi-
table principles underlying subrogation, whereas insurer assumed the risk; therefore,
at equity, the insured must be fully compensated before the insurer may subrogate. The
Supreme Court of West Virginia agreed with this analysis in Porter v. McPherson, 479
S.E.2d 668, 673 (W. Va. 1996).
  • Franklin v. Healthsource of Arkansas, 942 S.W.2d 837, 839–840 (Ark. 1997) held
that “the equitable principles and objectives of subrogation are controlling” regardless
of “the literal language of an insurance contract,” which is “realistically a unilateral
contract.” The Supreme Court of Mississippi followed this reasoning in Hare v. State of
Mississippi, 733 So.2d 277, 284 (Miss. 1999).
  • Swanson v. Hartford Ins. Co. of Midwest, 46 P.3d 584, 589 (Mont. 2002), held that
the insurer cannot recover until insured is made whole because it assumed the risk,
“regardless of contract language to the contrary.”
  • Ruckel v. Gassner, 646 N.W.2d 11, 19 (Wis. 2002), held that a reimbursement clause
       is inequitable. It is contrary to the most fundamental precepts of subroga-
       tion. Subrogation in this circumstance would not avoid double recovery or
       prevent unjust enrichment of the insured. It would authorize incomplete

    Note that in a slightly different context, in the Ahlborn case,160
the Supreme Court has noted that a rule giving a medical benefits
provider absolute priority to seize tort recoveries that compensate for
non-medical damages would be “unfair” to a tort victims. The Court
endorsed an approach that limited the insurer to recover no more than
“that portion of a settlement that represents payments for medical
care.”161 In declining to allow the insurer to “lay claim” to anything
more, the Court rejected “[a] rule of absolute priority,” which, it said,
runs the very real risk of “preclud[ing] settlement in a large number
of cases,” and works dramatic inequities “to the recipient in others.”162
Allowing an entity to “share in damages for which it has provided no
compensation . . . would be absurd and fundamentally unjust.”163

41   But didn’t the Sereboff decision rule against us on that

No. Sereboff decided that ERISA-governed plans could state a claim
that “sounds in equity,” and it decided that a claim based on an eq-
uitable lien by agreement would not require that the disputed money
could be “traced” back to the plan, which is a requirement for those equi-
table liens that are created by courts of equity to remedy unjust enrich-
ment.164 However,“[n]either the District Court nor the Court of Appeals
considered the argument” that the statutory phrase “appropriate equi-
table relief ” limited relief that the Plan could recover.165 And Sereboff
expressly requires that the Plan seek not simply equitable relief, but
also it “must still establish that the basis for its claim is equitable.”166
      recovery for the insured and shift loss from the insurer, who was paid to
      assume loss, to the insured, who paid to protect against loss.
   • Blue Cross and Blue Shield of Neb., Inc. v. Dailey, 687 N.W.2d 689, 699 (Neb. 2004)
held that contractual provisions negating the make-whole rule “are in direct opposi-
tion to the equitable principles upon which subrogation is allowed and are therefore
      Arkansas HHS v. Ahlborn, 547 U.S. 268, 288 (2006).
      Id. at 282.
      Id. at 288.
      Id. at 364–366.
      Id. 368 n.2.
      Id. at 363.

    In short, though enforcement of an equitable lien by agreement is
equitable as opposed to legal relief, it is not for that reason equitable
as opposed to inequitable relief. Such enforcement is an instance of
specific performance,167 which is never automatic, but always subject to
a review of all equitable considerations.168

42      But didn’t the O’Hara case also rule against us on that

Alas, yes. But it was demonstrably wrongly decided. Its errors have
been made apparent in the Supreme Court’s decision in Amara,169 and
every post-Amara Circuit Court decision has agreed that O’Hara is
wrong on this point.170 The O’Hara court overlooked the series of cases
discussed in Question 39. It overlooked the ubiquitous equitable prin-
ciples discussed in Question 40. It certainly overlooked the Supreme
Court cases cited there in which it applied the make-whole principle in
the comparable setting of surety law, in which a party like the health
plan, for consideration, undertakes to pay or reimburse a limited por-
tion of another party’s losses.

43      But don’t cases say that the plan can waive the effects
        of the make-whole rule by explicitly rejecting it?

Yes, but as just noted in Question 38, there are really two ways in which
a make-whole rule is relevant. In one, the waiver works, and in the
other, it doesn’t.
       The cases allowing a plan to reject the make-whole rule relate to
      Harlan F. Stone, The “Equitable Mortgage” in New York, 20 Colum. L. Rev. 519, 521
(1920) (equitable liens by agreement “in the final analysis will be found to be a special
application of the doctrine of specific performance to agreements to give security.” )
      Texas v. New Mexico, 482 U.S. 124, 131 (1987).
      Cigna Corp. v. Amara, 131 S.Ct. 1866, 1878–1880 (2011) (holding that under eq-
uitable principles the district court could re-write (“reform”) the terms of the plan “in
order to remedy the false or misleading information [that Cigna] provided.” Id. at 1878–
      US Airways, Inc. v. McCutchen, 663 F.3d 671, 677–680 (3d Cir. 2011); CGI Techs.
& Solutions, Inc. v. Rose, 2012 U.S. App. LEXIS 12556, *20–*29 (9th Cir. Wash. June
20, 2012).

the question of plan meaning and application. As noted in question 38,
some circuits apply a make-whole rule as a default rule for interpret-
ing the plan when there is not enough liability insurance to cover all
losses. Those cases allow the plan to avoid the default make-whole rule
    Those cases do not address the other way in which a make-whole
rule is relevant, namely in deciding whether the relief is equitable in
its effects and thus “appropriate equitable relief ” as required by the
statute. This is the subject of questions 39 to 45. The plan is powerless
to draft away this statutory restriction.

44     Does ERISA have anything to say about discriminat-
       ing against tort victims, by making them pay back their
       benefits, and non-victims, who don’t have to do so?

Although ERISA does not expressly address subrogation rights, it con-
tains anti-discrimination provisions from HIPAA that should inform the
analysis of 29 U.S.C. §1132(a)(3) and preclude the practice of making
tort victims bear a disproportionate burden in funding the plan’s pay-
    In order to ensure that health plans do not discriminate against
sicker or more injured employees, and thus to spread the costs of health
care more equitably, Congress prohibited plans from discriminating ag-
ainst some participants in terms of their eligibility for benefits or their
monetary contributions for the coverage based on “health status-related
factors,”171 a term which includes “health status,” “receipt of health
care,” and “claims experience,” among other things. Plans may neither
discriminate against similarly situated people as to their eligibility for
benefits, including the benefits themselves,172 nor as to “the premium
or contribution” they must pay for the coverage.173 Benefits “must be
uniformly available to all similarly situated individuals.”174 The regula-
     29 U.S.C. §1182(a)&(b).
     29 C.F.R. 2590.702(b)(1)(ii)(F). See, e.g., Werdehausen v. Benicorp Ins. Co., 487 F.3d
660, 668 (8th Cir. 27 2007) (holding that § 1182 precludes the plan’s efforts to avoid
providing benefits to the insured even though the insured misrepresented in insurance
     29 U.S.C. § 1182(a) & (b).
     29 C.F.R. 2590.702(b)(2)(B).

tions allow premiums to be set for the entire group but prohibit premi-
ums to be set per individual member of the group.175 “[A]ny restriction
on a benefit or benefits must apply uniformly to all similarly situated in-
dividuals and must not be directed at individual participants or benefi-
ciaries based on any health factor.” 176 Penalties for such discrimination
can be substantial.177
    Discrimination among persons for other reasons (reasons unrelated
to a “health factor”) is not prohibited by this rule; typical allowable dis-
tinctions among participants are “bona fide employment-based classi-
fication[s] consistent with the employer’s usual business practice.”178
Beneficiaries may be treated differently based on relation to the em-
ployee, marital status, age of the children, etc.179 Discrimination is also
permissible in favor of participants in “programs of health promotion
or disease prevention.”180 Whether one has been struck by a driver of a
motor vehicle who is liable and who has assets to compensate one does
not seem to be a bona fide employment-based classification.
    Reimbursement claims seek to make victims contribute more than
other plan members for the same coverage, or viewed conversely, they
seek to give tort victims less of a benefit (a mere advance to be repaid)
than other members, including those who might have suffered similar
injuries, but who will not make a monetary recovery against a wrong-
doer. They should be found to violate 29 U.S.C. § 1182.

45     Does Georgia’s make-whole rule apply?

If the plan is insured, Georgia’s make-whole rules should apply. If the
plan is self-funded, Georgia’s make-whole rules will not apply. As for
     29 C.F.R. 2590.702(c)(2)(i) and (ii).
     29 C.F.R. 2590.702(b)(2)(B). See 29 C.F.R. 2590.702(b)(2)(i)(D)(Ex. 5), finding that
a plan with a high benefit limit but a low limit for those with congenital heart defects
would violate this norm.
     29 U.S.C. § 1182 is mirrored in the Internal Revenue Code at 26 U.S.C. §9802. 26
U.S.C. § 4980D provides for a tax equal to $100 for each day with respect to each indi-
vidual for each act of noncompliance with respect to these requirements.
     29 C.F.R. 2590.702(d)(1) gives as examples “full-time versus part-time status, differ-
ent geographic location, membership in a collective bargaining unit, date of hire, length
of service, current employee versus former employee status, and different occupations.”
     29 C.F.R. 2590.702(d)(2).
     29 U.S.C. §1182(b)(2)(B).

how to tell the difference, see question 15. As for categorizing stop-loss
insurance, see question 11.
    Georgia’s make-whole rules come from two sources. One is statu-
tory181 and the other is a function of common law decisions, principally
Davis v. Kaiser,182 where the Georgia Supreme Court held that an “in-
surer is not entitled to subrogation unless and until the insured has
been made whole for his loss . . . . This rule better reflects the underlying
equitable principles that give rise to the remedy of subrogation itself . . . .
The cases that originally applied subrogation to insurance contracts did
so on behalf of the insurer only after the insured had been fully compen-
sated. These cases never envisioned the use of subrogation as a device
to fully reimburse the insurer at the expense of leaving the insured less
than fully compensated for his loss. ‘Where either the insurer or the
insured must to some extent go unpaid, the loss should be borne by the
insurer for that is a risk the insured has paid it to assume.’”183
    The question is whether either or both of these make-whole rules
“regulate insurance” within the meaning of 29 U.S.C. §1144(b)(2)(A),
which specifically excepts from ERISA’s preemption state laws that reg-
ulate insurance. For a state law to be deemed a “law . . . which regu-
lates insurance” under §1144(b)(2)(A), it must satisfy two requirements.
First, the state law must be specifically directed toward entities engaged
in insurance. Second, the state law must substantially affect the risk
pooling arrangement between the insurer and the insured.184
    The Fifth Circuit has held that make-whole rules satisfy these crite-
ria.185 Case law constitutes a “law” that can regulate insurance.186 It is
clear that the common law rule announced in Davis v. Kaiser regulates
insurance. It extends to insurers but not beyond, relying on the impor-
tance of taking premiums in order to bear risks. At least two cases have
held that O.C.G.A. § 33-24-56.1 regulates insurance.187 In my opinion,
     O.C.G.A. § 33-24-56.1.
     Davis v. Kaiser Found. Health Plan, 271 Ga. 508 (1999).
     Id. at 511 (emphasis added).
      Ky. Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329 (2003).
     Benefit Recovery, Inc. v. Donelon, 521 F.3d 326, 331 (5th Cir. 2008).
     29 U.S.C. §§ 1144(c)(1); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 n.1 (1987); UNUM
Life Ins. Co. of America v. Ward, 526 U.S. 358, 370–72 (1999).
     Smith v. Life Ins. Co. of N. Am., 466 F. Supp. 2d 1275 (N.D. Ga. 2006); Summerlin v.
Georgia-Pacific Corp. Life, Health and Accident Plan, et al., 366 F. Supp. 2d 1203, 1208
(M.D. Ga. 2005).

this is not free from doubt, but I am not anxious to play Devil’s Advocate
here. At some point, the Eleventh Circuit will decide the matter for us.

46      Is my 10-day letter valid?

See the answer to question 45 as it relates to O.C.G.A. § 33-24-56.1.

       E. Other possible defenses
   There are several other possible defenses, many of which are cur-
rently in an experimental stage and therefore not yet ready for public
discussion. The following questions are, however, ready.

47      What is the effect of a settlement term that my client
        was “not made whole”?

Except in some rare cases where the plan’s language may be construed
to make it significant (I have seen a few cases where this is arguable),
it is probably immaterial. If the plan’s language creates certain rights
on behalf of the plan (or its administrator or fiduciary) as a creditor,
it is highly unlikely that any court anywhere will authorize contract
language between the debtor and third parties to defeat the creditor’s
rights. In this connection, compare the Ahlborn case188 in which the
Supreme Court addressed as similar argument about settlements in-
volving Medicaid liens, saying:

        [T]he risk that parties to a tort suit will allocate away the
        State’s interest can be avoided either by obtaining the State’s
        advance agreement to an allocation or, if necessary, by sub-
        mitting the matter to a court for decision. For just as there
        are risks in underestimating the value of readily calculable
        damages in settlement negotiations, so also is there a coun-
        tervailing concern that a rule of absolute priority might pre-
        clude settlement in a large number of cases, and be unfair to
        the recipient in others.189
      Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268
      Id., 288 (footnotes omitted).

I suspect that an ERISA plan would get its day in court on the proper
allocation of proceeds.

48   What is the effect of an allocation in a settlement or
     verdict of most of the damages to pain and suffering
     or other non-medical-expense losses?

See Question 47.

49   What is the effect of the plaintiff’s contributory negli-
     gence and pre-existing medical conditions?

Since the employer gets to define the plan terms any way it chooses
(question 5), the effect depends on the way the plan is drafted and how,
if at all, it affects the equities of the case. Counsel should make certain
that the definition of what should be reimbursed in the plan includes all
of the amounts claimed by the plan. The plan could be drafted in ways
that exclude some of its expenditures from reimbursement.
   Instructive is the Rotech case,190 where the tort victim had a long
history of chronic back and leg pain that was arguably aggravated by a
car wreck. Although the tort victim “sincerely believed that the treat-
ment she received from the time of the accident . . . was caused by the
accident” and even gave sworn testimony (answers to interrogatories) to
that effect,191 the district court denied a recovery for the plan because
there is no reasoned basis for a conclusion that the benefits in question
were “paid . . . for injuries she sustained in the [car wreck].”192

50   What is the period of limitation on an ERISA claim?

Since ERISA does not provide its own statute of limitations (except in
fiduciary violation cases), the courts look for the most parallel state
     Rotech Healthcare, Inc. v. Huff, 769 F. Supp. 2d 1147 (C.D. Ill. 2011). This case was
vacated and the case dismissed a few months later, which typically means that the plan
bought its way out of a bad precedent.
     Id. at 1155.
     Id. at 1153.

law period of limitation to apply. In the case of equitable relief, the
Eleventh Circuit has applied the state’s period of limitation for contract

51     Who has the burden of proof?

The plan should bear the burden of proof that the defendant still pos-
sesses funds belonging in some sense to it.

       [I]t is [the plan]’s burden to establish that its claim is for eq-
       uitable relief, and to do so it must show, not only that [the
       participant] “once had property legally or equitably belong-
       ing to [the plan], but that [she] still holds the property or
       property which is in whole or in part its product.” Restate-
       ment of Restitution § 215 cmt. a (1936). In the absence of
       such an identified fund, Prudential’s “claim is only that of a
       general creditor.”194

52     Does the client’s bankruptcy defeat the claim for reim-

Discharge in bankruptcy does not automatically defeat a lien. A trustee
has no greater rights than the bankrupt debtor under 11 U.S.C. §541.195
Subrogation rights conferred by contract are not affected by the Bank-
ruptcy Code or the bankruptcy proceedings of the insured.196 Money
recovered by the trustee may be held in a constructive trust for the
subrogated insurer.197
    This appears to be the current state of the law, but I’m not entirely
convinced. It is possible that an ERISA reimbursement claim would dif-
fer from the statutory or contractual subrogation cases attached in that
      Blue Cross & Blue Shield of Ala. v. Sanders, 138 F.3d 1347 (11th Cir. 1998).
      Epolito v. Prudential Ins. Co. of Am., 737 F. Supp. 2d 1364, 1382–1383 (M.D. Fla.
2010), quoting Great West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204, 213
      Lovald v. McGreevy (In re McGreevy), 388 B.R. 917, 921 (Bankr. D.S.D. 2008).
      French v. Frey (In re Bergman), 467 F.3d 536, 538 (6th Cir. 2006).
      Sheils v. City of Wilkes-Barre (In re Cole), 344 B.R. 44, 47 (Bankr. M.D. Pa. 2005).

the plan can at most obtain an equitable lien, and that lien can only
be perfected by the order of a district judge. However, it appears to me
that this would at most affect its status to priority among other credi-
tors, but it would not deprive the reimbursement claim of priority as to
the bankrupt insured. It is also possible that bankruptcy exemptions
might trump the reimbursement claim, but the law would need to be

                            IV. Disclaimer

53   How certain are you about all this, and what kind of
     disclaimer do you want to make?

ERISA is a constantly evolving area of the law. My sense is that there
is even less coherence and consistency than the cases appear to have
(which is saying a lot), due at least in part to the complexity of the
law and the varying abilities of various parties to present positions re-
garding ERISA in their best light. It is difficult to predict outcomes in
ERISA cases. At best, one can only estimate the probabilities of various
outcomes of a case.
    Therefore, nothing in this FAQ should be taken as gospel. Every
claim should be assessed individually on its merits, with a view to the
factual peculiarities of the case, the controlling precedents in the juris-
diction, and a sense of what may come in the future. By providing this
FAQ, I am not undertaking to provide legal advice, let alone certainty.
   This FAQ is subject to change as well, so check back from time to


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