Skip to main content
A Better Partnership


Apr 2016
April 18, 2016

Move It or Lose It: Plan Sponsors May Not Have the Right to Recover Funds if They Don’t Move Fast Enough

The Supreme Court recently ruled that reimbursement language for the equitable right of recovery—in the event that a third party is found responsible for the expenses paid by the plan or the plan issued overpayment—may not be sufficient to allow the plan fiduciary to recover settlement proceeds that were used on nontraceable items (such as travel, services or consumable goods).

In the case of Montanile v. National Elevator Industry Health Benefit Plan, Mr. Montanile was badly injured by a drunk driver in a car accident. He incurred over $121,000 of medical expenses which were paid by his employer-sponsored group health plan. Mr. Montanile later received a $500,000 settlement from the drunk driver’s insurance company, of which $240,000 was left after his legal costs were paid. The health plan Summary Plan Description required Mr. Montanile to reimburse the plan for any amounts he recovered from a third party.

When the parties were unable to reach an agreement regarding the reimbursement, the plan sued.

Montanile argued that he’d already spent the money. Both the District Court and Court of Appeals ruled that the plan could go after Mr. Montanile’s personal assets.

Mr. Montanile took his case to the U.S. Supreme Court. The Supreme Court ruled that the plan could not go after Mr. Montanile’s personal assets if Mr. Montanile had spent all the insurance money on nontraceable items. The Supreme Court held that the plan could only enforce an equitable lien against “specifically identified funds that remain in the [plan participant’s] possession or against traceable items that the defendant purchased with the funds.”

The Supreme Court sent the case back to the District Court to find out if Mr. Montanile really spent the entire $240,000 on non-traceable items.

The plan argued that the Supreme Court’s ruling would encourage participants to spend the settlement money quickly and that this would undermine ERISA’s intent to protect plan assets. Only one Supreme Court Justice sided with the plan.

In this particular case, it’s quite possible that the plan could have recovered the money had it been more aggressive. Mr. Montanile’s attorney gave the plan 14 days’ advance notice that he was going to disburse the funds to Mr. Montanile.

The plan did not take action within this window, instead waiting six months before bringing the lawsuit. In the meantime, Mr. Montanile allegedly spent all of the money.  
Heads-Up For Plan Sponsors

This case has significant ramifications far beyond group health plans and can also adversely impact disability plans and retirement plans. For example, a plan sponsor who issues a pension plan overpayment may find the error unrecoverable if the participant quickly spends down the payment. In light of this decision, all ERISA plan sponsors need to carefully reevaluate their reimbursement and subrogation procedures. Plan sponsors should:
  • Consider monitoring the legal case;
  • Put the participant on notice (through his attorney) of the plan’s expectation of reimbursement and demand that the proceeds be kept segregated; and
  • As soon as the matter is settled, take quick action (through your lawyer if necessary) to make a claim against
the recovery. 

NOTICE. Although we would like to hear from you, we cannot represent you until we know that doing so will not create a conflict of interest. Also, we cannot treat unsolicited information as confidential. Accordingly, please do not send us any information about any matter that may involve you until you receive a written statement from us that we represent you.

By clicking the ‘ACCEPT’ button, you agree that we may review any information you transmit to us. You recognize that our review of your information, even if you submitted it in a good faith effort to retain us, and even if you consider it confidential, does not preclude us from representing another client directly adverse to you, even in a matter where that information could and will be used against you.

Please click the ‘ACCEPT’ button if you understand and accept the foregoing statement and wish to proceed.



+ -