ERISA Liens and New York Personal Injury Settlements
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for the individuals participating in these plans.
If a valid lien is not honored by the personal injury claimant and attorney, they may be sued to collect the amount due.When you receive health insurance benefits under an ERISA plan that arose due to an accident and personal injury claim, the plan’s administrator will assert an ERISA lien against the proceeds of any settlement or judgment you might obtain against the wrongdoer or tortfeasor in order to recover the medical payments it made in relation to the accident.
New York General Obligations Law 5-335, however, prohibits health insurers and other benefit providers from seeking reimbursement from the proceeds of any settlement of personal injury, medical malpractice or wrongful death actions for medical expenses they rendered to a claimant.
There are two basic types of ERISA health plans: insured and self-funded. The courts have interpreted the laws to mean that self-funded plans are entitled to the federal protection and thus asserting a valid lien.Not all ERISA liens, however, may be valid. If a valid lien is not honored by the personal injury claimant and attorney, they may be sued to collect the amount due. On the other hand, there is an issue of legal malpractice should an invalid lien be paid.
While this area of the law is still unsettled, there appears to be a growing consensus in the courts and authorities as to how best to resolve these liens.
In this light, it is important to first determine what type of ERISA plan is involved. There are two basic types of ERISA health plans: insured and self-funded. The courts have interpreted the laws to mean that self-funded plans are entitled to the federal protection and thus asserting a valid lien.
To be excluded as an ERISA plan or “employee welfare benefit plan” certain elements must be shown. An employee welfare benefit plan shall not include a group-type insurance, under which (1) no contributions are made by an employer or employee organization; (2) participation in the program is completely voluntary for employees or members; (3) the sole functions of the employer or employee organization with respect to the program, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues check-offs and to remit them to the insurer; and (4) the employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues check-offs.
If there is any doubt whether a plan is a true ERISA plan, court intervention may be needed to make a determination.Where all four elements are satisfied, the plan is not considered an ERISA plan. In such a case, state law governs that plan, which means that the lien is not valid under New York law and need not be honored.
The challenge for the claimant and the plaintiff’s attorney is to properly determine what type of plan is involved. A good place to start is to obtain the Summary Plan Description (SPD) from the administrator. “The summary plan description is an important document that tells participants what the plan provides and how it operates. It provides information on when an employee can begin to participate in the plan, how service and benefits are calculated, when benefits become vested, when and in what form benefits are paid, and how to file a claim for benefits.”
In addition, a copy of the plan’s summary annual report (Form 5500) should also be obtained from the administrator under 29 U.S.C. § 1024(b)(4). This report contains a summary of the annual financial report that plans file with the Department of Labor. You may also be able to obtain a copy of the annual report by writing to the U.S. Department of Labor, EBSA, Public Disclosure Room, Room N-1513, 200 Constitution Avenue, N.W., Washington, D.C. 20210. You may also search for these documents on sites such as https://www.freeerisa.com/.
If the plan administrator acknowledges that an insurance company is connected to the plan but only plays an administrative role, you should also request a copy of the administrative services contract between the employer and the insurer.
If there is any doubt whether a plan is a true ERISA plan, court intervention may be needed to make a determination.