The Seventh Circuit Court of Appeals joined six sister circuits in concluding that the Central States welfare plan’s attempts to force responsibility for health benefits paid to student athletes onto insurance companies that provide coverage for the youth teams do not seek equitable relief under ERISA §502(a)(3). Central States, Se. & Sw. Areas Health & Welfare Fund v. Am. Int’l Grp., Inc., No. 15-cv-02237, 2016 BL 352884 (7th Cir. Oct. 24, 2016).
The Central States plan is a self-funded ERISA welfare plan that provides health benefits to participating Teamsters and their beneficiaries. The defendants are insurance companies that underwrite and administer insurance policies for school teams and youth sports leagues. Some young athletes who were beneficiaries of the Central States plan sustained injuries while participating in the programs covered by the defendants’ policies, but received benefits from the Central States plan. The plans contained conflicting “coordination of benefits” clauses, each placing primary responsibility on the other party.
Such disputes are often resolved in state court, but the presence of the Central States plan raised the issue of ERISA preemption. Thus, Central States brought the claim in federal court under ERISA §502(a)(3), seeking declaratory judgments that the insurers are primarily responsible for “current unpaid and future medical expenses” as well as already incurred and paid benefits; the imposition of an equitable lien on sums held by the insurers in the amount of benefits paid by the Central States plan; and an order requiring the insurers to reimburse the Central States plan on the basis of restitution, unjust enrichment and subrogation theories.
Under ERISA §502(a)(3), a civil action may be brought by a fiduciary “to enjoin any act or practice which violates” ERISA or the terms of the the plan, or to obtain “other appropriate equitable relief.” The Supreme Court has grappled with the meaning of “equitable relief” under ERISA §502(a)(3) five times in the past 25 years. In Mertens v. Hewitt Assocs., 508 U.S. 248, 256 (1993), the Court held that “appropriate equitable relief” meant those categories of relief that were “typically available in equity, (such as injunction, mandamus, and restitution, but not compensatory damages).”
In four cases since 2002, the Court has further considered the issue of equitable relief under ERISA in the context of subrogation claims, in which a benefit plan seeks recovery of benefits it has paid from amounts the plan’s injured participant has recovered from the tortfeasor who caused the injuries. In these cases, the Supreme Court interpreted “equitable relief” narrowly, concluding that both the cause of action and the remedy sought must be equitable, as strictly determined by reference to the days of the divided bench, before the claim could proceed under ERISA §502(a)(3).
In its recent Central States case, the Seventh Circuit divided the Supreme Court’s subrogation cases into two camps. In all of the cases, the plaintiffs characterized their claims (for restitution or surcharge) as equitable. The Court of Appeals noted that the difference lay in the recovery sought. If, as in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 356 (2002) and Montanile v. Bd. of Trs. of Nat’l Elevator Indus. Health Benefit Plan, 136 S. Ct. 651 (2016), the proceeds obtained from the tortfeasor were not in the hands of the defendant, the recovery was essentially in the nature of damages, and the claims did not seek equitable relief within the meaning of ERISA §502(a)(3).
In contrast, in Sereboff v. Mid-Atlantic Med. Servs., Inc., 547 U.S. 356 (2006) and US Airways, Inc. v. McCutchen, 133 S. Ct. 1537 (2013), the disputed assets remained in the plan participant’s hands, and thus could be reached through the equitable remedy of an equitable lien (imposed, for example, through the plan’s subrogation provisions). Based on this distinction, the Seventh Circuit held that the Central States plan could not recover from the defendant insurers under ERISA §502(a)(3). The plaintiff was not seeking to enforce an equitable lien upon any specified funds: there were no specified funds in the insurers’ hands – any benefits paid by Central States were paid to the covered athletes, not the defendants. The plaintiff’s requests for declaratory relief essentially sought reimbursement of the amounts the plan had paid. Such claims seek damages, classic legal relief not available under ERISA §502(a)(3). In so holding, the Seventh Circuit Court of Appeals joined six other circuits who had rejected the same arguments from the Central States plan in substantially similar actions.
Some question had lingered whether the Supreme Court’s strict interpretation of “equitable relief” would apply beyond the subrogation context. In the Central States cases, seven circuits have now answered that question unanimously in the affirmative. A plaintiff proceeding under ERISA §502(a)(3) faces a substantial burden to recovering monetary relief.
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