In the matter Thurber v. Aetna, Aetna brought a counterclaim against Thurber for the return of overpaid short-term disability benefits pursuant to ERISA 29 USC §1132 (a)(3), which authorizes civil actions brought to obtain appropriate equitable relief to enforce any provisions of this subchapter or the terms of the plan. Thurber had an auto accident and was receiving no fault insurance benefits and STD payment. Thurber’s STD policy stated that benefit paid by a n-fault auto insurance company would offset the STD benefit. Aetna paid the STD benefits and sought an overpayment for any funds paid by the auto insurance carrier.
Is Aetna Entitled to Recover An Overpayment If Car Insurance Company Pays No Fault Benefits?
The questions in this matter are 1) does reimbursement of the overpaid STD benefits in this case qualify as appropriate equitable relief or legal relief, and 2) did the district court have subject matter jurisdiction over the counterclaim for equitable relief. The appellate court found that Aetna, under the terms of the disability insurance Plan, was entitled to recover the sought amount of overpaid disability benefits as the overpayment qualified as equitable relief under ERISA, and therefore, the district court did have subject matter jurisdiction and the case was remanded back for the district court to find in favor of Aetna. The court cited 2 authorities to determine whether the nature of Aetna’s claim was equitable: Great West v. Knudson and Sereboff v. Mid Atlantic.
In Great West, the insurer attempted to seek reimbursement of paid benefits from a third-party settlement, wherein the settlement funds were directed into a Special Needs Trust. ERISA provides only equitable, not legal, remedies to plan administrators to redress violations of the plan or to seek reinforcement of plan provisions. Because Great West was seeking funds which were sequestered into a trust, not distributed directly to the Knudsons, it was determined that Great West was trying to impose personal liability upon the Knudsons to seek subrogation of funds paid, which is an action of law not equity. Alternatively, in Sereboff, Mid Atlantic sought reimbursement of amounts paid to cover medical expenses under their ERISA plan from the Sereboffs third party settlement. The third party settlement funds were distributed directly to the Sereboffs and the Sereboffs set aside the sought amount until the Mid Atlantic lawsuit was decided. The court found the nature of relief sought by Mid Atlantic was equitable because the ERISA plan specifically identified a particular share of particular funds that were subject to return, and therefore there existed an equitable lien on those settlement funds. The Sereboffs tried to argue that Mid Atlantic needed to satisfy tracing rules, but the Court confirmed that tracing rules did not apply where there was an equitable lien by agreement.
Aetna’s claim was found to be equitable because the funds being sought were overpayments resulting from Thurber’s receipt of no-fault insurance benefits, while she was receiving short-term disability benefits. A specific overpayment amount was identified and it was established that those funds were entrusted to Thurber. Aetna’s Summary Plan Description contained language which provided that Aetna "may" reduce benefits if the beneficiary receives other income, and "may" require the beneficiary to reimburse any benefits that were overpaid. The district court determined that the use of the word "may" implied that Aetna reserved discretion to decide whether or not they would seek reimbursement, and therefore converted the right to subrogation into a legal act, rather than an equitable act.
Aetna Was Not Aware That Claimant Was Being Paid No-Fault Benefits and STD Benefits At the Same Time
The appellate court found that, had Aetna been aware that Thurber was receiving the no-fault benefits while they were paying the short-term disability benefits, they would have had the right under the terms of the plan to reduce the amount of the disability benefits paid to Thurber. Because Aetna had the right to reduce the benefit amount at the time she was receiving the benefits, they now retained the right under the subrogation provision of the plan to seek return of the overpayment amount. This specific provision in Aetna’s plan created an equitable lien by agreement over this particular, identifiable sum (the amount overpaid). Thurber also argued that the funds overpaid by Aetna had already been spent. The Court in this case positioned with the Third Circuit whereby, if “there was an equitable lien by agreement that attached to the [third-party benefits] as soon as [the beneficiary] received it, dissipation of the funds [is] immaterial.” Funk, 648 F.3d at 194. Where an ERISA plan created an equitable lien by agreement, as opposed to an equitable lien sought as a matter of restitution, it only matters that the beneficiary did at some point have possession and control of the specific portion of the particular fund being sought by the insurer.
It was found that Aetna did present an appropriate claim for equitable relief under the terms of the ERISA plan, and accordingly, the district court did, in fact, have subject matter jurisdiction over Aetna’s claim. The claimant will be required to repay Aetna for any overpayment.
Attorneys Dell & Schaefer represent disability claimants at all stages of a claim for disability benefits and we always offer a free consultation. This claim was not handled by our law firm.