Guest Article

Attorney Who Helped Hide Part of Plan's Recovery Must Reimburse Plan

Summary: An attorney who lied to a group health plan about his client's recovery from a third party was found liable to the plan under ERISA by a federal district court and was ordered to reimburse the plan.

When a plan participant's attorney actively participated in hiding part of a tort recovery from a group health plan to avoid reimbursing it, the attorney's firm must reimburse the plan a portion of the fee it received from the participant's recovery, a federal district court ruled. The case is Greenwood Mills, Inc. v. Burris, 2001 WL 92117 (M.D. Tenn., Jan. 10, 2001).

Hayden Burris was injured in an automobile accident. His group health plan provided by his employer, Greenwood Mills, paid approximately $33,300 toward his medical expenses. The plan's subrogation provision stated that the plan would bear its own "fees and costs associated with such recovery." Burris retained a law firm to represent him in an action against the driver of the other car. Burris settled his claim for $50,000, approximately one-third of which (about $16,700) went to his attorneys.

When the plan's subrogation representative later contacted Burris, he lied, saying that he had not retained an attorney and did not think he would. The representative contacted Burris' attorney, who gave him clearly false information that Burris had settled for $25,000, the maximum coverage of the other driver, and thus was not made whole because his medical expenses exceeded that amount. The lawyer also advised Burris that under Tennessee law, subrogation was not allowed, so he owed nothing to the plan.

Greenwood sued Burris for "equitable relief under ERISA" and enforcement of the plan terms. After Burris answered, Greenwood amended its complaint to include the law firm and the lawyer who handled the claim. Greenwood moved for a ruling against Burris, who defaulted. The court ruled in Greenwood's favor for the full amount paid by the plan (approximately $33,300).

The court noted that under applicable law, the make-whole rule would apply in the absence of clear and specific plan language rejecting the rule. Greenwood's provision did not contain such language. However, the court found that the make-whole rule is based on general equitable principles, and that it would not be fair to apply that rule in light of the recovery's concealment, which amounted to fraud. The court also noted that Burris was no longer financially able to remit all he received in the settlement to the plan.

Turning its attention to the lawyers, the court rejected Greenwood's argument that they were ERISA fiduciaries. However, it found that under Tennessee law, a lawyer can be held civilly liable to a non-client when he or she knowingly participates in extinguishing a non-client's subrogation interest and delivers funds to the client knowing that they belong to the third party. It adopted the Tennessee rule as the federal rule for this case, and found the lawyers liable to the plan under ERISA section 502(a)(3). The court granted "appropriate equitable relief" by requiring the lawyers to disgorge "any amount in excess of a reasonable fee for [their] services to Burris." They were instructed to reconstruct their time records, retain only a reasonable hourly fee for their actual services and pay the balance of their $16,700 fee to Greenwood.

Excerpted from the April 2001 supplement to Coordination of Benefits Handbook, ©Thompson Publishing Group, Inc., 2001. All rights reserved.

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