Business workshop: Reimbursement from a settlement

Share with others:

Print Email Read Later

Is a self-insured medical plan entitled to full reimbursement from plan participants who recover only a portion of their damages in a legal settlement? This issue was recently decided by the U.S. Supreme Court in US Airways, Inc. v. McCutchen.

The case started when James McCutchen, an employee covered by the U.S. Airways self-insured health plan, was injured in an automobile accident. The plan paid $66,866 to cover Mr. McCutchen's medical bills.

Mr. McCutchen also sued the negligent driver, but had to settle for $110,000 despite having incurred much greater damages. After the attorneys deducted 40 percent for the contingency fee and legal expenses, Mr. McCutchen came away with $66,000.

The US Airways plan -- as with many health plans -- requires employees to reimburse the plan for claims it had paid on their behalf from funds recovered from third parties. In other words, you aren't allowed to double-dip and have your medical bills paid by both a third party settlement and your health insurance company.

After learning of Mr. McCutchen's settlement, US Airways demanded he reimburse the plan $66,866. When Mr. McCutchen refused to pay the full amount, the airline sued.

After conflicting decisions in trial and appellate courts, the Supreme Court accepted the case.

The question before the Supreme Court was whether the plan's claim for reimbursement should be reduced because Mr. McCutchen had only recovered a portion of his total damages, or because US Airways had not contributed towards Mr. McCutchen's legal costs in obtaining the settlement recovery.

The Supreme Court held that because US Airways' summary plan description did not address attorney's fees, the reimbursement provision should be construed in accordance with the "common fund" doctrine, which requires all parties benefitting from a common fund to share recovery expenses.

The Supreme Court directed that US Airways' claim of $66,866 be reduced to account for Mr. McCutchen's attorney's fees.

Sponsors of self-insured benefit plans should review and clarify the reimbursement provisions of plan documents. Sponsors might consider counting attorneys fees in reimbursement calculations to give participants an incentive to pursue lawsuits when injured, as these recoveries ultimately lead to plan reimbursements.

-- Jason Mettley
Meyer, Unkovic & Scott


Business workshop is a weekly feature from local experts offering tidbits on matters affecting business. To contribute, contact Business Editor Brian Hyslop at


Create a free PG account.
Already have an account?