The U.S. Airways v. McCutchen, decided April 16, 2013, case complicates the finality of any personal injury case where a lien is involved. McCutchen was injured in a car accident and his personal injury lawyer obtained a settlement on his behalf in the amount of $110,000. His employer, U.S. Airways, paid medical bills on his behalf in the amount of $66,800 through a health insurance plan under which McCutchen was a beneficiary. U.S. Airways sought full reimbursement of the $66,800. When McCutchen refused to pay the money back, U.S. Airways sued him. The case went all the way up to the United States Supreme Court. SCOTUS found in favor of the employer, U.S. Airways.
This is a horrible decision for plaintiffs. SCOTUS recognized how problematic its holding was.This is from page 16 of the opinion.
The rationale for the common-fund rule reinforces that conclusion. Third-party recoveries do not often come free: To get one, an insured must incur lawyer's fees and expenses. Without cost sharing, the insurer free rides on its beneficiary's efforts — taking the fruits while contributing nothing to the labor. Odder still, in some cases — indeed, in this case —the beneficiary is made worse off by pursuing a third party. Recall that McCutchen spent $44,000 (representing a 40% contingency fee) to get $110,000, leaving him with a real recovery of $66,000. But US Airways claimed $66,866 in medical expenses. That would put McCutchen $866 in the hole; in effect, he would pay for the privilege of serving as US Airways' collection agent. We think McCutchen would not have foreseen that result when he signed on to the plan. And we doubt if even US Airways should want it. When the next McCutchen comes along, he is not likely to relieve US Airways of the costs of recovery. See Blackburn v. Sundstrand Corp.,115 F. 3d 493, 496 (CA7 1997) (Easterbrook, J.) ("[I]f . . . injured persons could not charge legal costs against recoveries, people like [McCutchen] would in the future have every reason" to make different judgments about bringing suit, "throwing on plans the burden and expense of collection"). The prospect of generating those strange results again militates against reading a general reimbursement provision — like the one here — for more than it is worth. Only if US Airways' plan expressly addressed the costs of recovery would it alter the common-fund doctrine.
Before this decision, it was common for health insurance lien holders such as U.S. Airways to reduce their lien at least by the amount of the attorney fees and costs expended by the plaintiff's attorney in the underlying injury case. But no more. Going forward so long as the plan document states that the plan is entitled to 100 percent reimbursement employer health insurance plans will have no reason to reduce their liens. Of course, all plan administrators will make sure that their plans demand 100 percent reimbursement from personal injury matters.