US Supreme Court upholds health insurer's right to demand entire injury payment received by victim
James McCutchen worked for US Airways when he was severely injured in a car accident. US Airways has a self-funded health insurance plan. It paid approximately $67,000.00 in medical expenses for McCutchen. The at-fault in the car accident had limited insurance coverage and the collision had killed or badly injured three other victims, so McCutchen received only $10,000.00 in liability insurance coverage; this was supplemented by $100,000.00 in Underinsured Motorist Coverage that he had purchased. Pennsylvania allows 40% contingent fees, so McCutchen's net recovery was approximately $66,000.00, and US Airways demanded all of it--plus the balance.
McCutcheon argued that he shouldn't have to pay his entire recovery to US Airways for two reasons: he pointed out that since he didn't receive a full recovery, US Airways should not be paid in full; he also argued that in any event, US Airways should be obligated to shoulder its share of legal costs and fees incurred to secure the recovery. The trial judge disagreed and granted US Airways summary disposition.
McCutchen appealed and the Third Circuit Federal Court of Appeals overturned the lower court. US Airways then appealed to the Supreme Court. The arguments remained the same. The health insurer claimed an "equitable" right to the entire recovery under the basic contract documents establishing the health insurance program. McCutcheon pointed out the injustice that resulted.
The Supreme Court ultimately ruled in US Airways favor almost entirely, by a 5-4 decision. The Court's most conservative, insurance-oriented justices more recently appointed by Republican presidents, that is, Scalia, Roberts, Alito and Thomas, would have ruled in US Airways' favor entirely.
The majority, including Republican-appointee Kennedy, held that the health insurance contract with an ERISA employer may grant the health plan an "equitable" lien that trumped all other considerations, even the "common fund doctrine." The latter doctrine is a fundamental doctrine long recognized by our courts: it requires all persons who benefit from a legal action to share in the related legal expense.
Where the nine Justices disagreed was in the majority's holding that under the precise language of the US Airways' plan, the health insurer had not expressly subjugated the common fund doctrine to its lien. The Court pointed out that where health plans and insurers do write in this lien language, it will be enforced by federal courts, despite the obvious problem that it removes a victim's incentive to act to recover from a wrongdoer at all.