A Practical Response to the McCutchen Case

It's not often that an ERISA-founded lawsuit makes its way to the US Supreme Court. So, when it does, it's often big news. ERISA attorneys and litigators scramble to read the opinion and seemingly just as quickly work to analyze it and write on what the Justices said. Some do a very good job, others less so. I've read a lot of the legal analyses on US Airways, Inc. v. McCutchen and perhaps my favorite is this one from Morgan Lewis. If you are another attorney friend of mine who wrote on this case, your analysis was excellent as well.

All of my readers know, or at least I hope they know, that I am not an attorney. In fact, as of today, I've never even played one on TV. But, as a consulting actuary and sometimes expert witness, I deal with a lot of legal issues. I like to think though that my approach to them is practical and business-focused. In other words, I try to advise my clients to take actions that their attorneys would tell them are not in conflict with the law, but that are practical and facilitate them running their businesses rather than getting in the way. After all, administrivia is not our friend.

Before I get to the practical side, however, I find it incumbent upon me to tell you a little bit about the case. There may be some legal-sounding mumbo-jumbo (that's a term of art, by the way) in here, so be forewarned that stimulants could be called for.

James McCutchen was the unfortunate driver of a car whose vehicle was struck by what one might term an errant driver. As a participant in the US Airways health plan, a self-insured plan, Mr. McCutchen was reimbursed for $66,866 in medical expenses resulting from the crash. McCutchen also sued the driver of the other car for damages resulting from the crash. While McCutchen estimated said damages to exceed $1 million, he settled for $110,000. Of this amount, he paid his attorneys 40% or $44,000 leaving him with $66,000.

The terms of the health plan required McCutchen to reimburse US Airways for any amounts recovered from third parties. So, US Airways requested repayment of the entire $66,866. McCutchen argued that he had 1) recovered only a small portion of his actual damages and 2) that US Airways' share should be reduced proportionately to cover attorney's fees. After all, had he not engaged counsel, US Airways would not be entitled to any reimbursement.

The keys from a practical standpoint to the Supreme Court ruling were these:

• The plan document is the governing document.
• Where terms in the plan document are unambiguous, they absolutely control.

While not written, what may have been at least as important from where I sit were these less conclusive elements:

• Where plan documents are not unambiguous (I know, you don't like double negatives, but I have used this one to make a point), the plan document may or may not be able to control.
• In Firestone, Glenn, and Frommert, deference was given to the plan administrator's interpretation of the plan document, but what happens when the plan administrator either has not interpreted the provisions of the document or has not consistently interpreted them?

What should plan sponsors do? 

1. Make sure that your plan document is well written. The mere fact that a plan has a favorable determination letter in the case of a qualified plan, for example, does not mean that the document is clear.
2. Where the plan may not be crystal clear, the administrator should develop a set of administrative processes, procedures, and interpretations that are not inconsistent with the plan provisions and that are documented.
3. Follow the processes, procedures, and interpretations that have been documented 100% of the time. 
4. And, consider the advice that I am setting out below ...

For my final piece of advice on this case (for now), think about any plans that you sponsor that have any mathematical component to them. While I know many attorneys who are quite gifted mathematically, many others will admit that they are arithmetically challenged. Therefore, when they write the terms of a plan that have a computational element to them, those terms, to paraphrase Spock, may not compute. 

I offer you this. Do you have a plan with computational elements to it? [It can be a qualified retirement plan, a nonqualified plan, a welfare benefit plan, a compensation plan, or virtually any other type of plan related to your employees.] Are you not certain that the computational terms are unambiguous? Would you like another set of eyes -- a set of eyes that has experience with plan administration, plan document interpretation and that are not computationally challenged. Then go to my profile that you can find on this blog and contact me. I'll let you know if I can find ambiguity and if I do, I'll help you to fix it.