Great-West Life Ins., et al. v. Knudson, Janette, et vir. (01/08/2002)

Question presented: Did the 9th Circuit err in holding that an employee benefit plan regulated by the Employee Retirement Income Security Act (ERISA) cannot sue in federal court to recoup reimbursement for the medical benefits paid to a beneficiary from the winnings of that beneficiarys personal injury settlement?

BY EMILY HISER, MEDILL NEWS SERVICE

In June of 1992, Janette Knudson was driving her 1991 Hyundai about 70 miles per hour when her car went off Interstate 5 in California, toppling the vehicle and leaving Knudson a quadriplegic.

At the time of the accident, Knudson was covered by the Health and Welfare Plan for Employees and Dependents of Earth Systems, Inc. The Earth Systems plan paid Knudson benefits of $411,157.11.

Knudson's insurance plan included a reimbursement provision that permits the plan to recover any third party payments made to Knudson up to the amount of benefits provided by the plan. The plan also included a "Stop-Loss" agreement with Great-West Life Insurance that gives Great-West Life the right to recover first any amounts reimbursed to the plan when it is determined that a third party is completely liable for a beneficiary's accident or illness.

After the accident, Knudsons husband signed a "Right of Recovery" agreement, consenting to the conditions of the plan.

In June of 1993, Knudson sued Hyundai Motors and other parties allegedly responsible for the accident in California Superior Court. The parties settled for $650,000, and the court approved the settlement, resolving how much competing lienholders should each be reimbursed.

Knudson's attorney sent a check for $13,828.70 to Great-West Life, which represented the court-determined share of Knudson's medical costs resulting from the accident.

"The liability was highly contested in Knudsons case," said her attorney, Jeffrey S. Pop. "If we had gone to trial [against Hyundai], you can infer from it, it might have been a defense verdict and she would not have recovered anything." Pop said the California Superior Court did not think Knudson was required under the "Right of Recovery" agreement to reimburse the full $411,157.11 to Great-West Life because total liability was not assigned to Hyundai and the other third parties.

Great-West Life did not accept Knudson's check and filed suit against her in December 1997 in the U.S. District Court for the Central District of California, seeking total reimbursement of the benefits paid to Knudson under the Employee Retirement Income Security Act (ERISA).

ERISA is a law enacted by Congress in 1974 that states a company may only present monetary relief claims in a federal court if it also seeks equitable relief. Equitable relief encompasses non-monetary compensation like restitution and injunctions.

The federal judge granted Knudson's cross-motion for summary judgment and denied Great-West Lifes summary judgment motion on May 20, 1998, concluding that the fiduciary of the plan may only be reimbursed for a pro-rata share of Knudson's medical expenses. The district court also granted Knudson $80,497.50 for attorney fees.

Great-West Life appealed to the 9th Circuit Court of Appeals. On Feb. 7, 2000, the 9th Circuit affirmed, concluding that issues of ERISA enforcement were not matters of federal jurisdiction. The court also affirmed the district court's award of attorney fees.

In its petition to the U.S. Supreme Court, Great-West Life argued that the 9th Circuit's decision conflicts with cases from other federal courts of appeals, as well as with the U.S. Supreme Court's decision in Mertens v. Hewitt Associates (508 U.S. 248).

Great-West Life presented two questions in the petition: 1) Did the 9th Circuit err in holding that an employee benefit plan regulated by the Employee Retirement Income Security Act (ERISA) cannot sue in federal court to recoup reimbursement for the medical benefits paid to a beneficiary from the winnings of that beneficiary's personal injury settlement? 2) Did the 9th Circuit err in awarding attorney's fees when the court held that subject matter jurisdiction for ERISA did not exist in federal court?

The Court granted certiorari on Jan. 22, 2001 and allowed Central States, Southeast and Southwest Areas Health and Welfare Fund and the Self-Insurance Institute of America to file amicus briefs in the case. The Court agreed to hear only the first of the two questions.

The Central States, SE and SW Areas Health and Welfare Fund had also filed an amicus brief in the Reynolds Metals Co. v. Ellis, Robert case, which was on the Supreme Courts docket in 2000 until the Court dismissed the case upon the request of both parties. The issue in the Reynolds Metals case was the same issue presented by the Great-West Life v. Knudson case.

John Kukankos, attorney for Central States, SE and SW Areas Health and Welfare Fund, said he thinks the Supreme Court may have accepted the Great-West Life case to resolve the ERISA issue, because it did not have the opportunity to do so in the Reynolds case.

Pop said he does not think the Great-West Life case represents the exact same issues as the Reynolds case. "Reynolds was a clean case arguing what [the Supreme Court] really wanted," he said. "When they really get into [the Great-West Life case], they may dismiss it. There are a lot of other things going on in [that case]."

Kukankos said the question presented by Great-West Life is an important one. "It's a big issue for health care plans," he said. "What is equitable relief under [ERISA]? The 9th Circuit basically said, 'you have nowhere to go [to resolve the issue].'"

On Jan. 8, 2002, the Court, divided along ideological lines, held 5-4 that an employee benefit plan regulated by the ERISA can't sue in federal court to recoup reimbursement for the medical benefits paid from the winnings of a beneficiary's personal injury settlement.

Justice Antonin Scalia wrote the majority opinion. Justice John Paul Stevens wrote a dissent, and Justice Ruth Bade Ginsburg wrote a separate dissent, which was joined in by Stevens and Justices David Souter and Stephen Breyer.