Eleventh Circuit Affirms ERISA Order Relating To Plan's Subrogation Provision

In Zurich American Ins. Co. v. O'Hara (08-16875), the Eleventh Circuit released a published opinion and affirmed the trial court's order in favor of Zurich and requiring the appellant to reimburse the insurer.  The court outlined the facts as follows:

On 22 February 2005, O’Hara, a beneficiary and covered person under the Plan, sustained serious bodily injuries when the car he was driving was struck head-on by a large pick-up truck. Following the accident, the Plan paid $262,611.92 in medical expenses on O’Hara’s behalf. O’Hara later sued the other driver, and the parties to that action settled for $1,286,457.11.1

After learning of O’Hara’s third-party recovery, Zurich attempted to collect the $262,611.92 from O’Hara pursuant to the Plan’s subrogation and reimbursement provision. 

As to the law, the court stated:

ERISA § 502(a)(3) authorizes a plan fiduciary to bring a civil action “to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or . . . to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.” 29 U.S.C. § 1132(a)(3) (2009). O’Hara argues that enforcement of the reimbursement and subrogation provision is not “appropriate” because he was not made whole by his third-party recovery.

“Under the make-whole doctrine, an insured who has settled with a third-party tortfeasor is liable to the insurer-subrogee only for the excess received over the total amount of his loss.” Cagle v. Bruner, 112 F.3d 1510, 1520 (11th Cir. 1997).

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O’Hara contends that, as a matter of equity and in order to effectuate ERISA’s policy of protecting plan beneficiaries, the make-whole rule must be applied because allowing Zurich to recoup the medical expenses it paid on his behalf unduly punishes him by requiring him to forfeit a substantial portion of the compensation he received for his other losses, including future wages and bodily integrity, and unjustly enriches Zurich. We disagree.

Applying federal common law to override the Plan’s controlling language, which expressly provides for reimbursement regardless of whether O’Hara was made whole by his third-party recovery, would frustrate, rather than effectuate, ERISA’s “repeatedly emphasized purpose to protect contractually defined benefits.” Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 148, 105 S. Ct. 3085, 3093 (1985)...Applying federal common law to deny an employer its right to reimbursement pursuant to a written plan would also frustrate ERISA’s purposes by “discourag[ing] employers from offering welfare benefit plans in the first place.” Varity Corp. v. Howe, 516 U.S. 489, 497, 116 S. Ct. 1065, 1070 (1996).

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O’Hara appeals the district court’s order granting summary judgment in favor of Zurich and ordering O’Hara to reimburse Zurich for the medical expenses the Plan paid on O’Hara’s behalf. Because full reimbursement according to the terms of the Plan’s clear and unambiguous subrogation provision is necessary not only to effectuate ERISA’s policy of preserving the integrity of written plans but to protect the interests and expectations of all plan participants and beneficiaries, such relief is both “appropriate” and “equitable” under ERISA § 502(a)(3).

 The briefs can be found at the following links:

*Initial Brief;

*Answer Brief;

*Reply Brief.