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Supreme Court: ERISA plan trumps equitable principles

A federal court should not have applied equitable principles to rewrite contractual language in an ERISA plan it deemed unfair, the Supreme Court has ruled.

The decision reversed a ruling that found the equitable principle of unjust enrichment trumped a plan’s contractual entitlement to reimbursement.

James McCutchen, a US Airways employee, suffered injuries in an automobile accident. A benefit plan administered by US Airways paid $66,900 for his medical expenses.

McCutchen subsequently recovered a judgment of $110,000 in a personal injury action against third parties, which, after his attorney’s contingency fee, resulted in a payment of $66,000 to him.

However, pursuant to the terms of the plan, US Airways demanded reimbursement of the entire $66,900 it had paid. It sued McCutchen for “appropriate equitable relief” pursuant to ERISA §502(a)(3).

McCutchen argued that the principle of unjust enrichment could be applied to override US Airways’ contractual right of reimbursement. The 3d U.S. Circuit Court of Appeals agreed.

The Supreme Court vacated that decision, finding that “[n]either general principles of unjust enrichment nor specific doctrines reflecting those principles — such as the double-recovery or common-fund rules — can override the applicable contract.”

However, the court explained that the common-fund doctrine did play a role in interpreting US Airways’ plan because the plan was silent about allocating the costs of recovery.

“Without the rule, the insurer can free ride on the beneficiary’s efforts, and the beneficiary, as in this case, may be made worse off for having pursued a third party,” Justice Elena Kagan wrote for the majority.

It remanded the case “for further proceedings consistent with this opinion.”

Justice Antonin G. Scalia wrote a partial dissent taking issue with the majority’s common-fund analysis. Chief Justice John G. Roberts Jr., and Justices Clarence Thomas and Samuel A. Alito Jr., joined the partial dissent.

The case is US Airways v. McCutchen, No. 11-1285.

Lawyers USA is a sister publication of The Daily Record.