Academic journal article Risk Management and Insurance Review

Insurance in the Courts

Academic journal article Risk Management and Insurance Review

Insurance in the Courts

Article excerpt


Sereboff v. Mid Atlantic Medical Services, Inc., 126 S. Ct. 1869,164 L.Ed.Zd 612, 2006 U.S. LEXIS 3954 (Supreme Court of the United States, May 15,2006)

Marlene Sereboff's employer sponsored a health insurance plan administered by Mid Atlantic Medical Services, Inc. that was subject to and covered by the Employee Retirement Income Security Act of 1974 (ERISA). Marlene and her husband Joel were beneficiaries under the plan, which provided medical coverage and contained an "Acts of Third Parties" provision, stated that it applied when a beneficiary was "sick or injured as a result of the act or omission of another person or party," and required those "receiving benefits" under the plan due to the medical costs of the injuries to reimburse Mid Atlantic for those benefits from "[a]ll recoveries from a third party (whether by lawsuit, settlement, or otherwise)." The provision stated that Mid Atlantic's share of the recovery would not be reduced in cases where the beneficiary did not receive the full damages claimed, unless Mid Atlantic and the beneficiary agreed in writing to a reduction.

The Sereboff s were involved in an automobile accident in California and suffered injuries. The plan paid the couple's medical expenses. The Sereboffs also filed a tort action in state court against several third parties that eventually obtained compensatory damages for injuries suffered as a result of the accident through a $750,000 settlement of the tort action. During the pendency of the suit, Mid Atlantic sent the Sereboffs' attorney a letter asserting a lien on the anticipated proceeds from the suit for the medical expenses that Mid Atlantic had paid on the Sereboffs' behalf. As the lawsuit progressed, Mid Atlantic reiterated its position that it was entitled to reimbursement from any funds obtained by the Sereboffs from the lawsuit. After receiving the settlement funds, the Sereboffs and counsel took that position that Mid Atlantic's claim for reimbursement-which sought a refund for the approximately $75,000 it had paid in Sereboff medical bills -was invalid. In response, Mid Atlantic filed suit in District Court under § 502(a)(3) of ERISA, seeking to collect from the Sereboffs the medical expenses it had paid on their behalf. Mid Atlantic sought a temporary restraining order and preliminary injunction requiring the couple to retain and set aside the amount at issue. The trial court and the parties agreed to "preserve $74,869.37 of the settlement funds" in an investment account "until the [District] Court rules on the merits of this case and all appeals, if any, are exhausted."

On the merits, the District Court found in Mid Atlantic's favor and ordered the Sereboffs to pay Mid Atlantic the $74,869.37, plus interest, with a deduction for Mid Atlantic's share of the attorney's fees and court costs the Sereboffs had incurred in state court. The Sereboffs appealed and the Fourth Circuit affirmed. Because the Fourth Circuit and other United States Courts of Appeal were divided on the question whether § 502(a)(3) authorized recovery by an ERISA benefit plan under these circumstances, the Supreme Court granted review. The case presented the Court with an opportunity to consider once again the circumstances under which an ERISA fiduciary can sue a beneficiary for reimbursement of medical expenses paid by the ERISA plan in cases where the beneficiary has also obtained a monetary recovery for its injuries from a third party. The Supreme Court affirmed the lower courts and in essence approved reimbursement under these circumstances, resolving doubts that had been raised by the Court's 2002 Knutson opinion, which had suggested considerable limits on an ERISA plan's rights to reimbursement.

ERISA provides that a fiduciary may bring a civil action under § 502(a)(3) of ERISA "(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan. …

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