On April 16, 2013 the United States Supreme Court issued a very disappointing decision in a case involving US Airways’ attempt to completely deprive its employee of not only his recovery from the person who injured him, but also deprive him of the benefits paid to him by his car insurance company that he had paid cash for out of his own pocket. You can read this very sad decision here:
http://www.supremecourt.gov/opinions/12pdf/11-1285_i4dk.pdf
One of my prior blog posts described the situation and the question presented to the US Supreme Court. You can see that post, dated December 13, 2012, below.
The long and short of it is that US Airways provided its employee, McCutchen, with health benefits. Most employees think of this as “health insurance,” even though these days many times it is not actually issued by an insurance company. Instead, US Airways itself shouldered the risk of Mr. McCutchen’s medical bills. They didn’t do that for free; they did it because he earned those benefits by working as their full-time employee.
US Airways, like all of these big companies, wrote out an incredibly complicated and long plan document describing the terms of its benefits. These documents are typically 400 to 500 pages long, and written in legalese. The employer typically doesn’t even give a copy of the plan document to the employee, but even if they did, most employees would never understand it anyway because it’s so dense and complicated. In fact, Congress acknowledges the complexity of these documents by allowing summaries of the plan to be given to the employees. (I’ve seen summaries that are over 100 pages long, which gives you some idea how complicated the full document can be.)
Buried in the fine print in most of these plan documents is a provision that says something that, if it were to be translated into plain English, would look like this:
“If you get hurt in an accident caused by somebody else, and we pay your medical bills from that injury, and you go hire a lawyer and you and your lawyer spend money time and effort to make a recovery from the person at fault, we get 100% of the recovery up to the point where our medical bills are reimbursed. We don’t care how much money you or your attorneys you have to spend, or how many hours you have to work, we get paid first no matter what. We don’t even care if the money comes from your own private car insurance that you paid premiums out of your own pocket for. We get it all. If the verdict or recovery isn’t enough to pay both us 100% of our recovery and you 100% of the value of your claim, you lose. We get it all. Too bad for you.”
The law that creates these types of plans is called ERISA. It has a provision saying that these plans are only entitled to “appropriate equitable relief.” Now in both plain English and in legalese, the term “equitable” means “fair.” The law seems pretty clearly to mean that benefits plans like this can only get their money back if it’s fair for them to do so.
So here’s what happened in Mr. McCutchen’s case. He got very seriously injured in a car accident caused by another driver. The US Supreme Court said that the parties agreed that the full value Mr. McCutchen’s injuries was about $1 million. In addition to McCutchen’s being hurt, three other people were also either killed or seriously injured in that crash. US Airways’ health plan paid about $67,000 of his medical bills.
McCutchen hired a lawyer to sue the person who caused the crash. Because the outfall driver had very low insurance policy limits and because there were other people who had to share and those limits, McCutchen’s portion of the policy limits settlement was $10,000.
Before the crash, Mr. McCutchen had chosen to pay higher car insurance premiums to buy extra “underinsured motorist coverage”on his policy to protect him in case he got hurt by someone who didn’t carry enough insurance. McCutchen’s lawyer got his own insurance company to pay out the full amount of the $100,000 in additional underinsured motorist coverage that Mr. McCutchen had bought and paid for out of his own pocket.
So the total settlement amount that Mr. McCutchen and his lawyer received was $110,000. For his work, the attorney received a 40% contingent fee, which came to $44,000. That means that after paying the attorney, Mr. McCutchen was left with the net amount of $66,000.
US Airways told Mr. McCutchen and his attorney that they not only wanted to take the entire $66,000 from Mr. McCutchen, but they also wanted the extra $1,000, since they’d spent about $67,000. They wanted to not only deprive Mr. McCutchen of every penny that he gotten, but they also wanted to deprive the attorney of a portion of his attorneys fee so that they could get 100% of their recovery.
To most people, there’s nothing fair or equitable about what US Airways was trying to do. They didn’t hire the attorney; they didn’t share the cost of the litigation; they didn’t share in the risk of the litigation. They sat back and did absolutely nothing. They decided to let Mr. McCutchen and his attorney do the work and they would simply sit back and reap the benefits.
Amazingly, the United States Supreme Court’s decision rules that as long as the plan specifically says in advance that this type of unfair deprivation of rights is going to occur, it okay with them. With the particular facts of this case they sent it back to the lower courts to issue a decision after looking into it a little more, but the decision written by Justice Kagan very clearly tells employers how to write these plans in order to completely deprive their employees of the benefits of their hard work.
What about the fact that Mr. McCutchen had reached into his own pocket and paid increased insurance premiums to his own auto insurance company to create this $100,000 pool of underinsured motorist benefits? US Airways didn’t care. And neither did the US Supreme Court. They weren’t troubled by this fact.
What about the fact that Mr. McCutchen and worked 40 hours a week to obtain the health benefits that US Airways and promised him, and that they were now trying to deprive him of by taking away his entire settlement? US Airways didn’t care. And neither did the US Supreme Court. They didn’t have a problem with that, either.
This aspect of the ERISA laws is designed to line big employers’ pockets by letting them completely back out of their promises to their employees. This whole notion that “Well, the employee knew or should have known the terms of the plan from the beginning, because it’s written right there in the plan document” is a complete fiction. Employees are almost never given the plans, and even if they had been given it and had actually spent the time to read it, 99% of these plans are incomprehensible to non-lawyers, anyway.
This whole process is unconscionable and should be stopped immediately. Congress should immediately take action to amend the ERISA law to prevent this type of unjust enrichment. If the employer wants to hire its own attorney and pay its own costs and expenses to pursue a lawsuit to get back its money, that should be permitted. But they should not be able to take the employee’s own insurance benefits from him or her under any circumstances. Nor should they be permitted to sit back and passively wait for somebody else to do their work and then swoop in and take all the benefits of that hard work without bearing any of the risks, responsibilities or costs.