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  • Supreme court clarifies insurer's reimbursement rights after settlement in ERISA case

    Plaintiff, injured in a car accident, must reimburse his insurer for medical expenses under the language of his ERISA benefits plan.

    Joe Forward

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    Supreme court clarifies insurer's 
rights in 
ERISA case July 12, 2011 – Under an Employee Retirement Income Security Act (ERISA) benefits plan, an insurer was entitled to reimbursement amounts it paid to cover a beneficiary’s medical expenses, even though the beneficiary was not made whole through settlement, the Wisconsin Supreme Court recently concluded.

    BlueCross BlueShield of Illinois (BlueCross) paid nearly $68,000 in medical expenses arising from a car accident John Steffens suffered in 2005. Steffens had back surgery and other treatment, and initially acknowledged the back surgery was the result of the car accident.

    Later, he obtained a $100,000 settlement from the driver who caused the accident. As a subrogated party, BlueCross moved for a declaratory judgment to obtain the $68,000 reimbursement under the ERISA benefits plan (benefits plan).

    Steffens argued that BlueCross was not entitled to reimbursement until he was "made whole," and claimed he was entitled to medical expenses totaling $130,712. That is, forcing him to reimburse BlueCross would presumably leave a medical bill for nearly $30,000 not covered by the settlement.

    However, in Steffens v. BlueCross BlueShield of Illinois, 2011 WI 60 (July 8, 2011), the supreme court concluded that ERISA trumps the “made-whole” doctrine and the benefits plan administrator acted reasonably in interpreting the benefits plan contract in favor of reimbursement.

    The benefits plan contract

    The benefits plan contract contained a “Reimbursement, Subrogation, and/or Right of Reduction” clause, and the benefits plan administrator had sole discretion to determine when it applied.

    The clause stated that BlueCross was entitled to reimbursement for expenses arising out of an accident when a third party “may be liable” for those expenses and the beneficiary obtains a settlement.

    The benefits plan administrator determined that BlueCross was entitled to reimbursement because the injury arose out of the car accident and a settlement was obtained. This determination was the focus of the dissenting opinion, written by Chief Justice Shirley Abrahamson (joined by Justice Ann Walsh Bradley), which would have remanded to decide just how that decision was made.

    The benefits plan contract also addressed the make-whole doctrine, stating that any “so-called ‘make-whole’ or ‘full compensation’ rule or doctrine is hereby explicitly rejected and disavowed.”

    Prior to settlement, Steffen asserted repeatedly that his back surgery arose out of the auto accident. He later claimed the back surgery was necessitated by a “degenerative condition,” which was the conclusion of the expert witness physician for the at-fault driver prior to settlement.

    The supreme court’s conclusions

    The supreme court was tasked with deciding: 1) whether the benefits plan administrator’s determination that BlueCross was entitled to reimbursement was reasonable, that is, not arbitrary and capricious, and; 2) whether Steffen was judicially estopped from claiming surgery was necessitated by the degenerative condition, not the auto accident.

    Reversing an appeals court decision, the supreme court majority concluded that it was reasonable for the benefits plan administrator to make a determination in favor of reimbursement. Deciding that, the court concluded it was unnecessary to decide the judicial estoppel issue.

    The supreme court noted that benefits plan administrators have discretion to enforce subrogation terms, and review of those decisions is subject to de novo review under Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989).

    “When a plan gives the plan administrator discretion to interpret the terms of the plan, a reviewing court will not reverse the plan administrator’s interpretation unless it is not reasonable,” wrote Justice Patience Roggensack wrote for the majority, which concluded the administrator’s subrogation conclusion was reasonable.

    The majority also explained that “[s]ubrogation clauses in ERISA plans trump the Wisconsin make-whole doctrine,” which is “in line with the goal of ERISA to encourage employers to adopt benefit plans and the principle of contract law that parties are entitled to the benefits of their bargain.”


    The majority concluded that the reasonableness of the benefits plan administrator’s decision was “supported by Steffens’ own statements … and confirmed by statements and events subsequent thereto.” But the dissenting justices did not believe this was enough.

    The dissent noted the absence of a written or oral decision or interpretation offered in the record, and argued that a “court cannot evaluate an interpretation and decision of a plan administrator and determine whether that decision is arbitrary and capricious without knowing what the interpretation and decision is, and on what it is based.”


    Sheila M. Sullivan and Sarah Germonprez of Bell, Moore, and Richter S.C., Madison, represented BlueCross BlueShield of Illinois. Amy M. Risseeuw and John C. Peterson of Peterson, Berk and Cross S.C., Appleton, represented John Steffens.

    By Joe Forward, Legal Writer, State Bar of Wisconsin