The US Supreme Court [official website] ruled [opinion text] Tuesday in a 5-4 decision in US Airways, Inc v. McCutchen [SCOTUSblog backgrounder] that the terms of a contract in a health benefit plan should not be overturned through the application of equitable principles. The decision vacated and remanded the decision of the US Court of Appeals for the Third Circuit [official website], which held [opinion text] that Section 502(a)(3) of the Employee Retirement Income Security Act (ERISA) [Department of Labor backgrounder] authorizes courts to use equitable principles to rewrite contractual language, even where the plan's terms give the employer an absolute right to reimbursement. The ruling today came nearly five months after oral arguments [JURIST report] were heard in November.
The case centered around a US Airways employee whose medical expenses were paid by the airline after he was injured in a car accident. The terms of his health plan required that he reimburse US Airways for what it had paid if he recovered from a third-party. He did recover from the driver of the other car involved in his accident, but after paying attorneys fees, his net gain was less than US Airways had paid for his medical expenses. Section 502(a)(3) of ERISA allows the court to grant "appropriate equitable relief." The decision of the lower court granted equitable relief by refusing to require the employee to reimburse US Airways, but the Supreme Court held that the terms of the plan should govern. This ruling is predicted to have the impact [Cornell LII backgrounder] of reinforcing the viability of employee health plans, and thwarting a landslide of ERISA legislation that may have arisen if the court had upheld the lower court decision.