How Does an ERISA Lien Impact My Personal Injury Case?
After a court awards you compensation in a personal injury case, you may think that you have concluded your legal battle.
However, you may not actually be able to enjoy the benefit of the exact amount of damages awarded to you.
Personal injury awards are often subject to liens. Liens are claims by various third party entities stating that they should receive a portion of the total award.
Here, we discuss what is an ERISA lien and how this type of lien can affect personal injury damages awards.
What Is ERISA?
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that protects private employees who have employer-provided retirement, health insurance, disability, or other plans.
ERISA sets minimum standards for how these plans must work. ERISA sets standards governing how and when a plan must pay out benefits to a covered employee.
ERISA also governs what kind of information about the plan must be shared with employees. Employees can sue under ERISA if they are unfairly denied benefits.
Does ERISA Cover My Health Plan?
Not all employee benefits plans are ERISA covered plans. ERISA covers plans that employees opt in to when they begin working for a particular employer.
For example, an employer may offer an optional disability insurance plan that pays compensation to employees who become unable to work due to a disability. ERISA-covered plans must meet the minimum standards described in the provisions of the Act.
ERISA does not cover workers’ compensation or other mandatory state-provided plans.
Most group health plans provided by non-government employers are covered by ERISA. Group health plans are employee welfare benefit plans that your employer, or a group like a union, establishes and maintains.
These plans pay for things like employee medical expenses either directly or through an insurance company.
There are three types of group health plans that are not subject to ERISA:
- Plans maintained by a church or a group of churches;
- Plans that benefit employees of a township, city, state, or other government organization; and
- Voluntary plans that the employer does not associate with, contribute to, or endorse.
It is difficult for a plan to qualify as a voluntary plan. Unless you have a church plan or are a government employee, ERISA most likely covers your health plan.
Types of ERISA Plans
There are two types of ERISA plans: self-funded health plans and insured health plans.
In a self-funded health plan, an employer pays employee benefits out of its own funds. In an insured health plan, an insurance company provides the employer with funds for paying employee benefits.
Which type of plan you have can determine whether an ERISA lien will have an impact on your settlement.
Now that you know a bit more about ERISA, we can talk about what is an ERISA lien.
What Is an ERISA Lien?
Some ERISA plans include reimbursement clauses. A reimbursement clause allows an employer to seek reimbursement for benefits that it paid to an injured employee under the terms of a health plan.
Reimbursement clauses are also sometimes called third party recovery provisions or subrogation clauses.
The following general example helps to illustrate reimbursement clauses.
- An employee becomes injured and unable to work due to a disability resulting from the injury.
- Their employer-provided, ERISA-covered disability insurance plan pays them benefits.
- Next, the injured employee brings a successful personal injury claim against the party that is responsible for their injuries and receives damages from the defendant.
- Since the employer (or the employer’s insurance company) has already paid out benefits to the injured employee, they may be able to attach a lien to the employee’s damages award.
This is an ERISA lien, and when it “attaches,” it basically states that the employer is entitled to some of the money from the employee’s damages award because the employee has already been compensated for their injury through the personal injury damages award.
How Will an ERISA Lien Impact My Settlement?
Now that we have answered your questions about what is an ERISA lien, we turn to the impact an ERISA lien can have on your personal injury settlement.
Several factors determine whether ERISA will impact your settlement and, if so, what that impact will look like.
ERISA Plan Language
The specific language of the contract you signed to enter into your employee health plan can determine whether an insurance company or employer has a right to attach a lien to your settlement sum.
As we mentioned, many ERISA plans have a subrogation clause allowing the insurer to seek reimbursement. Some plans include limited subrogation clauses. Limited clauses prevent insurers from attaching liens to certain types of settlements.
For example, an insurer may be able to seek reimbursement if a third party's insurance funds your settlement but not if an uninsured individual pays your settlement.
An ERISA claims attorney can help you review the language in your health plan and interpret any subrogation clauses.
Even if your health plan contract has a subrogation clause, it may or may not be enforceable. Some states have statutes that protect personal injury awards from certain types of liens. However, since ERISA is a federal law, it sometimes overrides these statutes.
South Carolina has laws protecting settlement awards from certain liens. According to a South Carolina statute, an insured employee can petition the Department of Insurance to request that they deny enforcement of an insurer’s lien if enforcing the lien would be unfair to the employee. If this statute applies, an employee can protect their settlement award from insurer’s liens by filing a petition.
The same statute also places limits on the amount of an insurer’s lien. An insurer’s reimbursement is limited to the amount of benefits they paid to the employee before the employee received damages through their personal injury claim.
While ERISA preempts most state laws, it does not preempt state laws that regulate insurance companies. The South Carolina statute allowing an employee to petition the Department of Insurance is arguably a statute that regulates insurance, meaning ERISA cannot override it. If you feel that an ERISA lien would leave you with a settlement award that does not compensate you fairly for your injuries, you may be able to avoid the lien depending on what kind of ERISA plan you have.
ERISA Plan Type
Whether your plan is insured or self-funded matters because ERISA states that self-funded plans are not considered insurance companies. Therefore, state laws regulating insurance companies do not apply to self-funded plans. This means that ERISA will override the statute discussed above in the case of self-funded plans.
Indeed, in 2005, the South Carolina Department of Insurance dismissed an insured employee’s petition to avoid her employer’s reimbursement claim. They dismissed the petition because the plan under which the employer sought reimbursement was self-funded. ERISA pre-empted the statute allowing the employee’s petition.
The effect of plan type boils down to the following: South Carolina law may offer protection from ERISA liens filed under insured plans but not under self-funded plans. It can be surprisingly difficult to distinguish an insured plan from a self-funded plan. Determining ERISA liens’ personal injury effects requires the guidance of a skilled attorney.
Talk to an Experienced ERISA Lawyer
ERISA is an extremely complicated law. ERISA's interaction with state law can be even more complicated.
If your personal injury case may be affected by an ERISA lien, you should talk to a knowledgeable attorney who specializes in ERISA claims. A skilled attorney can give you more detail about what is an ERISA lien and how it can affect your settlement.
Attorney John Peace for Peace Law Firm has years of experience and specializes in group benefits and ERISA cases. John Peace will work hard to protect your settlement so you can maximize your personal injury recovery.