U.S. Supreme Court Upholds Medical Plan's Right to Reimbursement

In a very favorable decision for ERISA-covered employee benefit welfare plans, the U.S. Supreme Court has unanimously ruled that a fiduciary may properly seek reimbursement from a participant or beneficiary under a plan’s appropriately worded third-party reimbursement provision. Sereboff v. Mid Atlantic Med. Servs., Inc., No. 05-260 (U.S. May 15, 2006). This decision resolves a split among the federal courts of appeal regarding the nature of the remedy such reimbursement claims seek. The distinction between a remedy as “equitable” (and thus recoverable under Section 502(a)(3) of ERISA) or as “compensatory” (and thus not recoverable under that section) remains complex, and the Supreme Court’s earlier decision in a similar third-party reimbursement case, Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002) left that issue open. The Sereboff decision clarifies the plan language and the circumstances under which a benefit plan can recover third-party payments made to participants or beneficiaries; therefore, it should prompt employers to review plan language carefully to ensure that the terms meet the “identifiable fund” standard.