ERISA Liens v. Accident Victim Rights in Personal Injury Settlements

NOTE: Recent rulings have rendered this article obsolete. Please click here for the latest on ERISA and personal injury.


As I was looking through my mail the other day on one of my personal injury cases, I saw a letter that caught my attention. It was from my client’s health plan provider. The letter said something to the effect of: the health plan provider was an ERISA provider, that it was not subject to state law, that it is entitled to complete recovery and subrogation regardless of the amount my client actually recovered in settlement or judgment, and that its subrogation rights trumped the attorney’s right to get paid for the work he has done.

If you know anything about personal injury cases and settlements and the way they work, then you will instantly recognize that what this letter was alleging was patently unfair. It is unfair for a health insurance provider, even the self-funded one under ERISA, to be reimbursed before the victim is made whole. It is likewise unfair for an insurance company to enjoy the labors of the victim’s attorney and then rob the attorney of getting paid.

Luckily, the Ninth Circuit Court of Appeals issued a ruling in July 2012 that, not only addressed these issues, but ultimately landed on the side of fairness and justice. That case is called CGI Technologies and Solutions Inc. v. Rose.

To understand the interplay between ERISA and CGI Technologies, it is important to understand three basic concepts: the equitable Make Whole Doctrine, the equitable Common Fund Doctrine, and equitable relief under ERISA.

The Make Whole Doctrine.

The Make Whole Doctrine is an equitable doctrine that provides that insurance company cannot enforce its subrogation rights before the insured has been fully reimbursed for its losses. Confora v Coast Hotels and Casinos, Inc., 121 Nev. 771, 777, 121 P.3d 559, 604 (Nev. 2005). For those laypeople who are reading this article, subrogation means the right that an insurance company has to be reimbursed through the payment of another insurance company. For example, often your health insurance company will ask to be reimbursed for paying the medical bills related to your car accident if the person who hits you also pays you for your medical bills.

The Make Whole Doctrine makes sense. Your health insurance company only pays you for medical bills, and not for your lost wages, and not for your pain and suffering. Your personal injury settlement, on the other hand, compensates you for all three. If you have $50,000 in medical bills, $50,000 in pain and suffering, and $50,000 in lost wages, and you only recover $100,000, why should your health insurance company, to whom you pay premiums to cover your medical expenses, get made whole until you are made whole in all three categories?

The Common Fund Doctrine.

Like the Make Whole Doctrine, the Common Fund Doctrine is an equitable principle that exists to prevent unjust enrichment. Under the Common Fund Doctrine, when an attorney recovers assets for a group of people, the attorney is entitled to collect a reasonable fee from the entire group, regardless of whether they are all his client. This makes sense. Let’s imagine that an attorney files lawsuit and recovers $300,000 in common funds and that his client is only entitled $100,000 thousand dollars of those funds. Should the attorney get paid less because his client is only entitled part of the common funds? Should his clients pay more than their fair share because they happened to be responsible enough to hire an attorney? The only equitiable result is that everyone who benefits from the recovery of the common fund contributes to the expenses of the common fund.

Both the Common Fund Doctrine and the Make Whole Doctrine have been adopted by virtually every jurisdiction, and possibly every jurisdiction. That is because they are fair and just and effectively prevent any one party from being unjustly enriched at the expense of another party.


ERISA is the Employee Retirement Income Security Act of 1974, under 29 USC 1001. Under 29 USC 502(a)(3)(B), a plan provider, participant or beneficiary may bring a civil action to enforce “appropriate equitable relief”.

A Self-Funded ERISA Plan v. A Third-Party Insured ERISA Plan.

Self-funded ERISA plans are treated differently than third-party insured plans. Under 29 USC 1144(b)(2)(A), called the saving clause, that the federal law does not preempt state insurance laws.

But, subsection B, also called the “Deemer” clause, states that employee benefit plans that are self-funded are not considered insurance. The courts have interpreted this to mean that self-funded ERISA plans are completely federally preempted. FMC v. Holliday, 498 U.S. 52 (1990). Under FMC .v Holliday, the United States Supreme Court held that states cannot regulate self-funded ERISA plans because of the Deemer clause.

Under Orissa, the plan providers rights to reimbursement are found under section 502(a)(3)(B). Under that section, a plan provider, or participant or beneficiary, is able to seek “appropriate equitable relief.” In Sereboff v. Mid Atlantic Medical Services, Inc., 547 US 356 (2006), the Supreme Court held that an ERISA a plan provider’s attempt to subrogate against settlement funds was equitable, and thus enforceable under Section 502(a)(3)(B).

Because an ERISA plan providers subrogation rights are equitable in nature, they are subject to the equitable doctrines of the make whole doctrine and the common fund doctrine. The United States Supreme Court did not address whether express language in the ERISA plan can waive these two doctrines. Naturally, ERISA plan providers would love to destroy the Common Fund at the Make Whole doctrines. And many Circuits let them. Indeed, the majority of the Circuits in the United States hold that an ERISA plan can expressly waive the equitable defenses that most accident victims have. This includes the Make Whole Doctrine and the Common Fund Doctrine. In those jurisdictions, an accident victim and his or her attorney may have the entire settlement taken away from them because of ERISA.

The Ninths and Third Circuits, however, protect the equitable remedies of accident victims. In CGI Technologies and Solutions Inc. v. Rose, 683 F.3d 1113 (9th Cir. 2012). In CGI, the Ninth Circuit held that a district court has the power to apply equitable remedies, including the Make Whole and Common Fund doctrine, despite express language in the plan waiving such remedies. The Ninth Circuit opined:

We agree with the Third Circuit that under § 502(a)(3), the district court, in granting “appropriate equitable relief,” may consider traditional equitable defenses notwithstanding express terms disclaiming their application. Id. at 679 (stating that in equity, “contractual language was not as sacrosanct as it is normally considered to be when applying breach of contract principles at common law . . . [, and] equitable principles can apply even where no one has committed a wrong”). While a weighing of the equities, including the consideration of equitable defenses, might support that full reimbursement per the Plan’s terms is “appropriate equitable relief,” like the Third Circuit we disagree with the other circuits to the extent that they have held that § 502(a)(3) categorically excludes the application of traditional equitable defenses where the plan disclaims their application and requires reimbursement as set by the plan. Id. at 678. Congress in § 502(a)(3) empowered district courts to consider equitable principles in granting injunctive relief to a plan fiduciary against a plan beneficiary, and we will not read out of the statute the limitation that equitable relief be appropriate.

We do not see good reason in interpreting § 502(a)(3) to recede from the traditional broad powers of a court in equity. We therefore hold that the parties may not by contract deprive the district court of its power to act as a court in equity in a § 502(a)(3) action. Contract terms should be considered by the court in assessing what is the proper scope of equitable relief. But notwithstanding the express terms of the Plan disclaiming the application of the make-whole doctrine and the common fund doctrine, it is within the district court’s broad equitable powers under § 502(a)(3) not to give those provisions a controlling weight in fashioning “appropriate equitable relief.”

Id. at 1124.

Therefore, in the Ninth Circuit, the equitable protections that normally apply to accident victims against their own insurance companies continue to protect accident victims against self-funded ERISA plans.

If you have any questions about ERISA liens, please call our personal injury attorneys at 702-333-1111.
Ryan Anderson is a founding partner of the law firm Morris Anderson, one of the leading personal injury firms in Las Vegas, Nevada. He has resolved hundreds of cases and obtained millions of dollars for his clients. Circle Ryan on Google+!

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