In a recent Supreme Court Case, Montanile v. Board of Trustees of the Nat. Elevator Industry, the Supreme Court held that “Other Income” benefits (Social Security disability benefits, workers compensation awards, personal injury settlements) paid to a claimant by a third party for a related claim may not be recoverable by an insurance company or plan administrator in certain circumstances. This is interesting as it may impact a disability insurance company or plan administrator’s right to seek reimbursement for third party benefits paid to a claimant in the past. More specifically, many disability plans appear to give the claim administrator the unrestricted right to seek repayment for third party benefits, i.e. “Other Income benefits,” obtained by the claimant while on claim or eligible for disability benefits. In Montanile, the Supreme Court found that there are instances in which the claim administrator can no longer unequivocally demand repayment of such benefits.
To summarize, in December 2008, Robert Montanile, a participant in the Elevator Industry Health Benefit Plan (“the Plan”), was involved in a car accident and severely injured by a drunk driver. The Plan paid $121,044.02 for his medical care. According to the Plan, Mr. Montanile was obligated to reimburse the Plan for any medical expenses recovered from a third party. Mr. Montanile filed a personal injury claim against the driver which eventually settled for $500,000.00. After payment of attorneys’ fees and costs, $240,000 was to be distributed to Mr. Montanile.
Shortly thereafter, the Plan sought recovery from Mr. Montanile for the $121,044.02 it paid for his medical care, citing its right to reimbursement of Other Income benefits under the Plan. Mr. Montanile’s attorney took the position that the Plan was not entitled to recover any portion of the personal injury settlement. After much discussion, it became clear that Mr. Montanile and the Plan were not going to agree about the Plan’s right to reimbursement and Mr. Montanile’s attorney notified the Plan of his intent to release the funds to Mr. Montanile. He further advised that if the Plan objected to the disbursement they must do so within 15 days. The Plan failed to object to the distribution of the funds and instead brought a lawsuit against Mr. Montanile in federal court 6 months after Mr. Montanile received the settlement money. The Plan sought full reimbursement and further requested that Mr. Montanile be immediately stopped from spending any settlement funds. However, by that time only a fraction of the funds remained in Mr. Montanile’s possession and these funds were commingled with other funds and thus part of Mr. Montanile’s general assets.
The Plan asserted it was entitled to reimbursement from Mr. Montanile’s general assets and the District Court agreed. A judgment in favor of the Plan was issued awarding it the full $121,044.02. Mr. Montanile filed an appeal with the Court of Appeals for the Eleventh Circuit which upheld the prior court’s decision that the Plan could recover settlement proceeds from a claimant’s general assets even where the claimant had dissipated the specifically identified funds.
Mr. Montanile appealed to the Supreme Court of the United States which agreed to hear his case. In a nutshell, the Supreme Court found that, in certain circumstances, where a participant dissipates settlement proceeds on non-traceable items, the fiduciary cannot automatically bring a suit to attach the participant’s general assets because the suit is not one for “appropriate equitable relief.” Relief based on equity must be directed towards a particular item or thing, not the right to recover money from general assets. Factors considered by the court included (1) whether the participant of the plan possessed the funds; (2) whether the funds were specifically identifiable, and (3) whether the funds were within the possession and control of the beneficiaries. The Plan must set out an agreement regarding third-party settlements which create an equitable lien in those funds or traceable items purchased with the funds. The Supreme Court did not implement a judgment in favor of the insurance company; but instead it remanded the case back to the District Court to determine whether Mr. Montanile kept the settlement funds separate from his general assets or commingled them.
The Supreme Court’s decision in Montanile v. Board of Trustees of the Nat. Elevator Industry makes it tougher for insurers or plan administrators to arbitrarily demand reimbursement of moneys paid to the claimant by a third party. It may also serve to deter Plan administrators from delaying the claim process because drawn out claim reviews often force beneficiaries to spend whatever money they have on basic necessities.
If you have questions about a an insurance company or plan administrator’s right to the repayment of third party benefits paid to you or wish to discuss your disability claim with one of our attorneys, please do not hesitate to contact us at (866) 363-3628. At Disability Insurance Law Group we represent insureds during the application process, appeals process, and aggressively pursue and litigate claims to hold insurance companies accountable for the promises they made and the benefits our clients deserve.