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An April 16 decision by the U.S. Supreme Court regarding the federal Employee Retirement Income Security Act (ERISA) makes a perplexing provision even a little more confusing for employers.

The Supreme Court’s decision in McCutchen v. U.S. Airways reaffirmed that employers that have self-funded benefit plans can continue to expect reimbursements from employees who are injured by a third party and successfully recover compensation for their injuries. However, the court’s ruling also means that employers should make sure their plans specifically address whether they are responsible for contributing to an employee’s legal fees, according to a trio of Portland attorneys.

The case involves James McCutchen, a U.S. Airways employee who participated in a self-funded benefits plan governed by ERISA. The plan covered McCutchen’s medical expenses if he was ever injured by a third party and, in return, McCutchen agreed to reimburse U.S. Airways if he successfully sued that third party and recovered any money, according to a summary prepared by the Fisher & Phillips law firm.

McCutchen suffered severe injuries in a 2007 accident involving a negligent driver, and racked up more than $66,000 in medical bills. U.S. Airways covered the cost under the benefits plan and, when McCutchen received a $110,000 settlement from the other driver, U.S. Airways expected to be reimbursed $66,866.

However, after paying his attorneys 40 percent of the $110,000, McCutchen refused to reimburse U.S. Airways. A district court held in favor of U.S. Airways, but the U.S. Court of Appeals for the Third Circuit ruled in favor of McCutchen by deciding that the ERISA provision in question allowed courts to consider whether the agreement was equitable or fair.

A vastly streamlined explanation of arguments presented by both sides before the U.S. Supreme Court boils down to this: U.S. Airways held that McCutchen signed an agreement regarding reimbursement and should stick to it. On the flip side, McCutchen believed that the settlement he received after his accident was not nearly enough to compensate for the severe injuries he had suffered, especially after deducting attorneys’ fees for a lawsuit U.S. Airways required as part of the agreement.

The Supreme Court’s ruling, as interpreted by Fisher & Phillips: “The supremacy of a written ERISA-governed plan still reigns as the U.S. Supreme Court reversed the ruling of an appellate court which had held that a court in equity can ignore unambiguous subrogation reimbursement language, and simply rewrite the terms of an ERISA-governed plan in line with its own ideas of what was ‘fair and equitable.’ ”

Bill Patton, a shareholder at Lane Powell’s Portland office who specializes in employee benefits, said the issue came down to that particular ERISA provision regarding equitable relief and the Common Fund Doctrine. The doctrine gave McCutchen and his legal team the basis to argue that U.S. Airways should pay for a portion of the attorneys’ fees. Ultimately, it was an argument that Supreme Court Justice Elena Kagan agreed with and one that led the court to overturn the appeals court decision.

“Mr. McCutchen will now be able to go back to the district court and argue that under the Common Fund Doctrine, he should be able to make U.S. Airways pay a portion of the attorneys’ fees,” Patton said. “In that sense, he is not completely out of luck in this particular case, but the lesson for us is that plan administrators should draft their reimbursement provisions to clearly address the Common Fund Doctrine.”

Tamsen Leachman, a partner in Fisher & Phillips’ Portland office, said via email that the impact is positive for employers with a well-drafted benefits plan.

“However, plan administrators and fiduciaries should consult with their legal counsel to ensure the terms of their plan are clearly written, particularly with regard to reimbursement, subrogation, and attorney fee and cost provisions. Employers need to understand that when a plan does not speak to a particular issue, a court can arrive at what it deems an ‘equitable’ resolution.

“What is equitable to one court in one state might not be equitable in another,” she continued. “For example, if McCutchen had prevailed on his theory that the court should have rewritten the ERISA plan to make him whole before the plan was repaid, U.S. Airways’ plan would likely have received nothing toward the $66,000 it paid to cover his medical expenses. Gaps in an employer’s benefits plan can be very costly. At the end of the day, the risk of inconsistent plan interpretation across state lines makes it even more important that national companies carefully review their plan document with an eye to eliminating any meaningful gaps in the plan’s provisions. Obviously, this latter point rings true for local and statewide companies as well.”

Bob Thomson, of counsel in Stoel Rives’ Portland office, said he finds the Supreme Court’s ruling to be extremely perplexing and he will use caution in drawing conclusions from it.

“They handled it in a procedural way, which was kind of aggravating because it really kind of begs the question,” he said. “As I see the case, it’s about plain language. It doesn’t change what I advise my clients, but it may change the way I draft language for similar plans in the future.”

Thomson said the ERISA provision has long seemed like a poor incentive on several levels. Employees are required to sue third parties for large amounts of money to pay for reimbursement under the benefits plan and pay their attorneys’ fees, yet few employees recover large settlements. The employer faces uncertainty about recouping their reimbursement, and few attorneys want to take cases for which they might not be paid. In reality, most of these types of cases come to a settlement agreement, he noted, adding that the McCutchen decision doesn’t do a lot to sort that out.

“This (decision) just contributes to the sleep I lose when I wonder if I’ve filled in all the cracks,” he said. “It’s this kind of case that makes lawyers write the language that makes everybody angry at them.”