It is well-established that the written employee benefit plan document is sacrosanct. Section 402(a)(1) of the Employee Retirement Income Security Act of 1974 (ERISA)1 requires plan documents to be in writing, and employers are free to provide in their plan documents whatever level of benefits they so choose. Only upon proof of the elements of an equitable claim have participants been able to recover benefits not provided for in plan documents. Consistent with these principles, courts have generally enforced employee welfare benefit plan reimbursement provisions that provide to the plan the right to recover payments for medical expenses when a participant achieves a collateral recovery. When clearly written, these provisions have been enforced even if the participant has not been made whole by the third party recovery. Efforts by plan participants to limit such recoveries based on federal common law principles have generally been rejected as being inconsistent with ERISA's intent to enable plan sponsors to specify the benefits provided by their plans. A recent decision from the U.S. Court of Appeals for the Third Circuit substantially departs from these principles. In US Airways, Inc. v. McCutchen, No. 10-CV-3836, 2011 BL 292983 (3d Cir. Nov. 16, 2011), the Third Circuit refused to enforce a plan provision that expressly entitled the plan to full reimbursement of the medical expenses it paid to participant James McCutchen, based on his recoveries from a collateral litigation. The Court found that because McCutchen had not received a full recovery for his injuries in the collateral litigation and US Airways had not exercised its subrogation rights (i.e., it did not participate in the prosecution of the collateral litigation or contribute to the cost of obtaining a third party recovery), full reimbursement to the plan did not constitute "appropriate equitable relief." If adopted elsewhere, this ruling could substantially upset the expectations of plan sponsors, who until now were led to believe that they could limit their benefits costs through proper plan draftsmanship.
The Third Circuit's Decision
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