In US Airways, Inc. v .McCutchen, decided on April 16, 2013, the U.S. Supreme Court once again emphasized that in disputes involving employee benefits plans governed by the Employee Retirement Income Security Act, 29 U.S.C. § 1001, et seq. (“ERISA"), it is the unambiguous language of the plan in question that controls the rights of the parties and that general equitable principles cannot be used to supersede the terms of the plan. In areas where the plan is silent, however, courts may employ appropriate equitable principles to construe the plan. At issue in US Airways was the reimbursement provision of an employer’s health benefits plan that purported to give the employer the right to recoup medical benefits paid to an employee injured in an automobile accident who thereafter recovered funds from third parties as a result of the accident, although the amount the employee actually recovered after paying his attorney was less than the amount he owed his employer. The Supreme Court rejected the employee’s attempt to apply equitable principles of unjust enrichment to limit the application of the reimbursement provision. Holding, however, that the plan was silent as to the allocation of the costs, including attorneys fees, incurred by the employee in his efforts to recover from third parties, the Court further held the equitable principle known as “the common fund rule” should apply, entitling the employee to reasonable attorneys fees from the funds recovered. The decision makes clear the importance to employers of accomplishing the objectives of their benefits plans with clear-cut language.
After McCutcheon was seriously injured in an automobile accident, his medical bills, amounting to almost $67,000, were paid by the health plan of his employer, US Airways (“the Plan”). McCutchen sued the driver of the other car involved, claiming $1 million in damages. Unfortunately, the driver of the other car had insufficient insurance. Through the efforts of McCutchen’s attorney, working under a 40 percent contingency fee arrangement, McCutcheon was able to recover only a total of $10,000 from the driver of the other car and $100,000 from his own insurance company. This left him with a net recovery of $66,000 after paying his attorney, since US Airways did not contribute anything towards his attorneys fees.
US Airways, as Plan administrator, then brought suit in federal district court, seeking equitable relief under § 502(a)(3) of ERISA to recover from McCutchen the $67,000 in medical bills it had paid on his behalf, relying on the following Plan provision: