One of the things that some attorneys overlook when settling a third party claim in an ERISA matter is the effect of the insurance company subrogation lien on the proceeds of the settlement. ERISA gives a plan administrator the power to have a lien on the proceeds of any such settlement. Courts have a history of zealously protecting that lien for plan administrators.
The idea is to reimburse the plan for funds already paid to or for the benefit of a claimant by the plan from funds a claimant may receive from a third party tortfeasor whose action caused the illness or injury which prevented the claimant from working in the first place. It is a basic concept of ERISA law and subrogation is authorized by insurance policies where benefits are triggered by the actions of a third party.
When the facts of a case support avoidance of a subrogation lien (a very rare event) the reasons for the avoidance claim must be carefully and completely substantiated to prevail. The issues in a lien avoidance argument usually involve highly technical and sometimes arcane legal arguments encompassing old equity jurisprudence.
A Georgia lawyer tried to skirt the subrogation lien on the proceeds of an ERISA settlement by baldly claiming the settlement was solely to compensate the client for “post-accident tortious conduct” and therefore was not covered by the subrogation lien, even though the settlement language indicated otherwise.
In Central States, et al v. Lewis, et al, 2014 WL (7th Cir.), Circuit Judge Posner takes the claimant’s lawyer to task for trying to “game” the system and do the insurance company out of $180,000 in lien benefits with a statement unsupported by the facts of the case.
There are Supreme Court cases which decree that if the claimant did not actually receive the tortfeasor settlement monies, then there is no settlement asset for the insurance subrogation lien to attach to. See Great West Life v. Knudson, 122 S. Ct. 708 (2002). In those rare cases, claimant is not required to turn over settlement funds to the insurer.
In some cases, the lien is not applied because no funds remain from the settlement when the ERISA case finally concludes.
In the Central States case, the settlement seemed clearly for the tort which the settlement funds covered. Because of the circumstances in this case, Judge Posner concluded that the refusal to pay over the $180,000 pursuant to an order of the District Court was just that – a refusal without foundation.
In sending this case back to the District Court, Judge Posner suggested strongly that the District Judge should send copies of the judge’s opinion and a transcript to the Georgia Bar Association and the U.S. Department of Justice for action by them.
He also asked the Judge to consider ordering the lawyer and the client to jail until they paid the $180,000 into a trust fund. This is something appellate judges don’t do unless you really twist their knickers.