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ERISA Liens and Personal Injury Settlements
When someone is injured in a New York accident, there are many factors to consider when attempting to settle or resolve the claim. One of them is whether there is an ERISA lien attached where the injured party must thereby reimburse certain of the medical payments made in relation to the injury.
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.
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 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.
Given this obvious conflict between federal law and state law, the ERISA plan administrator will claim that ERISA Section 514 preempts the New York state law.
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 is a growing consensus in the courts and authorities as to how best to resolve these liens.
Type of ERISA Plan Involved
In this light, it is important to 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 federal protection and are thereby 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 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 concerning 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 rendered in connection with payroll deductions or dues check-offs.
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.
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 for a determination of the issue.
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