U.S. Airways, Inc. v. McCutchen

Background

James McCutchen was covered by an employer health plan that paid $66,866 for his medical care after a car crash. His lawyers worked on a 40% contingency and recovered $110,000 from the other driver and his own insurer. After a $44,000 fee, McCutchen kept $66,000. U.S. Airways demanded reimbursement under the plan; $41,500 was put in escrow. A district court ordered full reimbursement, and the Third Circuit reversed, invoking equitable defenses.

Reasoning

The Court considered whether equitable rules based on unfair enrichment—specifically the double-recovery rule and the common-fund rule—can override a written plan's reimbursement term. The majority held that when an administrator enforces an agreed-upon equitable lien, the plan's written terms govern and general equitable defenses cannot displace clear contract language. The Court rejected using the double-recovery rule to limit reimbursement where the plan speaks plainly. But because the plan did not say how to allocate attorney fees, the common-fund doctrine serves as a reasonable default to allocate litigation costs.

Real world impact

The decision means clear plan reimbursement clauses will generally be enforced as written. Where a plan is silent about attorney fees, courts should apply the common-fund default, letting attorneys be paid from the recovery before the plan takes its share. The case was vacated and remanded so the lower courts can apply that default rule to the specific amounts at issue.

Dissents or concurrances

Justice Scalia, joined by three Justices, disagreed with applying the common-fund rule here, arguing the case was litigated on the assumption the plan was unambiguous and the Court should not fill any contractual gaps.