Sereboff v. Mid Atlantic Medical Services, Inc.

Background

A married couple covered by a health plan administered by Mid Atlantic were injured in a car crash. The plan paid their medical bills and the couple later settled a tort suit for $750,000. The plan’s “Acts of Third Parties” provision required beneficiaries to reimburse the plan if they recovered from a third party. After the couple set aside the claimed amount in an investment account, Mid Atlantic sued under ERISA §502(a)(3) to collect the medical payments. The District Court ruled for the plan and the Fourth Circuit affirmed in relevant part; courts of appeals were divided on the issue.

Reasoning

The Court addressed whether the relief Mid Atlantic sought was “equitable” under ERISA. Relying on earlier decisions, the Court explained that equitable relief historically included imposing an equitable lien or constructive trust on a particular fund in the defendant’s possession. Unlike a prior case where the funds were in a special trust and not obtainable, here the recovery was specifically identifiable and within the couple’s control. The Court relied on older equity rules (for example, Barnes) holding that an agreement can create an equitable lien on a future or identified fund, rejected strict tracing rules for liens created by agreement, and explained this claim is distinguishable from a mere legal money judgment or a freestanding subrogation action.

Real world impact

The decision allows plan fiduciaries to enforce repayment clauses by seeking equitable liens on identified settlement proceeds. That affects health plans, injured beneficiaries, and how settlements are handled when the plan has paid medical costs; the ruling resolves a circuit split on this question.