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Court Holds That a Health Insurance Plan Can Require Injured Employees to Repay More Than They Recovered

The Court held that where an employer sponsored health insurance plan’s reimbursement provision was clear and unambiguous the participant must reimburse the plan.  If the plan is silent on the payment of attorneys’ fees, then legal principles could require the plan to pay its fair share of attorneys’ fees.


Mr. McCutchen has a health insurance plan administered and self-insured by his employer, U.S. Airways. McCutchen was in a car accident that he survived only as a result of emergency surgery; after months of physical therapy and a hip replacement, he was left functionally disabled. The Plan paid $66,866 in medical expenses on his behalf.

McCutchen sued the driver of the car who had caused the action, and recovered the maximum of $110,000 from two policy amounts, including under-insured motorist coverage. After paying 40 percent in attorney’s fees, his net recovery came out to less than $66,000.

The Plan included a broad recoupment provision granting the Plan reimbursement rights in the event it paid benefits on behalf of a plan participant and the participant obtained a third-party recovery, and specifically stated that it had no obligation to pay any attorneys’ fee or expenses incurred in the recovery. The Plan demanded full reimbursement of $66,866 from McCutchen’s $110,000 tort/insurance settlement. McCutchen and his attorneys refused to reimburse the Plan, asserting that it would not be equitable for the Plan to recoup the full amount of its lien without paying its fair share of attorney’s fees and costs, particularly when the settlement amount did not make McCutchen whole for all of his damages suffered in the collision. McCutchen relied on the federal Employee Retirement Income Security Act (or ERISA, the main federal law governing employee benefits), as well as various longstanding legal principles,  which he argued rendered the Plan’s position inequitable.

AARP Foundation Litigation attorneys filed AARPs friend-of-the-court brief, joined by the National Employment Lawyers Association, pointing out that common law principles prohibit health care plans from requiring participants to reach into their own pockets to reimburse health costs.

The Supreme Court held that where a plan’s reimbursement provision was clear and unambiguous the participant must reimburse the plan, regardless of equitable principles.  However, if a plan is silent on the allocation of attorneys’ fees, then the equitable “common fund doctrine” can fill in this gap which would require US Airways to pay its fair share of McCutchen’s attorneys’ fees.

What’s at Stake

The Supreme Court decision permits plans to state that they will not pay any attorneys’ fees and costs if a plan participant recovers money from the party that caused the injury.  After reimbursing the health plan and paying attorneys’ fees and costs, it may cost the plan participant money to sue.  Any decision to sue a party causing an injury must include a review of the health plan and the impact of reimbursement provisions on recovery.

Case Status

U.S. Airways v. McCutchen was decided by the U.S. Supreme Court.