By Brian Wolfman
I'm writing about U.S. Airways v. McCutchen, an ERISA case set for argument in the U.S. Supreme Court on November 27. The case's outcome may affect the viability of some personal-injury suits.
When people are harmed by consumer products, doctors' negligence, or in car crashes, for instance, they often incur medical expenses. Sometimes those medical expenses are paid by the injured person's medical insurer. Injured people often make claims in court or otherwise to recover their losses. Medical insurance contracts usually provide that when an insured person settles or wins a judgment involving medical expenses, the insurer is entitled off the top to full reimbursement of what it paid in medical expenses.
So, let's say that Midge runs me over in her car. I incur $200,000 in medical expenses, which my medical insurer pays. I also suffer $300,000 in lost wages. So, I sue for $500,000. The suit was filed by a lawyer whom I hired on a 30% contingency. I settle for $250,000, which is the limit of Midge's car insurance policy. My medical insurer wants $200,000 off the top under the terms of its contract. So, if the medical insurer gets its way, my settlement is now worth only $50,000 to me. But wait! Remember, the lawyer gets 30%, and 30% of $250,000 is $75,000. And $75,000 (the lawyer's fee), plus $200,000 (what the medical insurer says it is entitled to), is $275,000. That's more than the settlement with Midge. So, as a reward for bringing a successful personal-injury suit, I've lost money!
In McCutchen, the result described above is the position advanced by U.S. Airways' health benefit plan. U.S. Airways says that its contract controls. Period. McCutchen -- who was seriously injured in a car crash -- disagrees. He says that the contract doesn't always control. Rather, because the case arises under ERISA section 502(a)(3), equitable principles control, and equity requires that U.S. Airways recover only a proportionate share of McCutchen's recovery. So, in the example above, because I suffered $500,000 in injuries, but recovered only half of the total ($250,000), my medical insurer should recover only half of what it paid out: $100,000. Put another way, because the medical expenses account for only 40% of my total damages, the plan may recover only 40% of my total recovery (again, that's $100,000).
McCutchen has a back-up argument as well. He argues that U.S. Airways should, under a rule of equity known as the common fund doctrine, at least have to share proportionately in the legal fees. Otherwise, U.S. Airways would "free ride" on McCutchen's lawyer's work, and, if not for that work, U.S. Airways would have recovered nothing at all. So, in my example, my lawyer created the fund. If my medical insurer gets 80% of the settlement ($200,000 of the $250,000 settlement), it should have to pay 80% of the $75,000 attorney's fee ($60,000). That would mean I would owe only $15,000 of the fee, at least leaving me something: $35,000 ($50,000 less $15,000). That's not great, but it's better than being in the hole.
I submitted an amicus brief on the common fund doctrine on behalf of Consumer Watchdog. Two students in my Georgetown Law clinic -- Karin Herzfeld and Kirk Goza -- played majors roles in researching and writing the brief.