ERISA Plan Fiduciaries Must Aggressively Pursue Subrogation Rights or Potentially Lose Them

January 2016

The Supreme Court recently issued an opinion that reinforces the importance of acting quickly to enforce subrogation rights under an ERISA plan. In Montanile v. Board of Trustees of National Elevator Industry Health Benefit Plan, the Supreme Court held that a plan fiduciary cannot sue under ERISA § 503(a)(3) when a participant of a plan with a subrogation provision obtains a settlement from a third party but spends the entire settlement on non-traceable items (such as services or consumable items). According to the Court, it does not matter whether the participant was aware that the plan had asserted a subrogation right prior to spending the funds. This holding makes clear that plan fiduciaries must closely monitor potential subrogation sources and quickly move to enforce their rights should a source become definite through settlement or judgment of an underlying claim.

The Supreme Court's Opinion

Robert Montanile was a participant in an ERISA-governed health benefit plan administered by the Board of Trustees of the National Elevator Industry Health Benefit Plan ("NEI Plan"). Like many ERISA plans, the NEI Plan included a subrogation provision requiring all "amounts" that a participant "recover[s] from another party . . . [to] promptly be applied first to reimburse the Plan in full for benefits advanced by the Plan."

In December 2008, Montanile was severely injured in a car accident caused by a drunk driver. The NEI Plan paid over $121,000 for Montanile's health care. After he recovered from his injuries, Montanile filed a negligence claim against the drunk driver and a claim for uninsured motorist benefits under his car insurance policy. He ultimately obtained a $500,000 settlement, resulting in about $240,000 after attorneys' fees and costs.

The Board of Trustees of the NEI Plan contacted Montanile's attorney, who had possession of the settlement funds, to seek reimbursement under the Plan's broad subrogation provision. The attorney asserted that the Plan was not entitled to subrogation. When negotiations over the reimbursement broke down, the attorney notified the Board that he was going to distribute the settlement funds to his client unless the Board objected within 14 days. The Board did not object within that period. Six months later, the Board filed a lawsuit under ERISA § 502(a)(3)—which permits suits for "appropriate equitable relief" to enforce plan terms—seeking repayment of the $121,000 it had paid for Montanile's medical care. By that time, however, Montanile had spent most, if not all, of the $121,000 on non-traceable items.

The U.S. Supreme Court held that the Board of Trustees could not use § 502(a)(3)—generally the only subsection of ERISA that plan fiduciaries may use to bring suit—to obtain monetary recovery from Montanile's general assets. Relying on a long line of cases interpreting § 502(a)(3)'s "appropriate equitable relief" language, the Court stated that only relief that was traditionally available at equity was permissible. And although the Board had an equitable lien on the settlement funds that attached when Montanile obtained title to the funds, Montanile's expenditure of the funds on non-traceable items extinguished the lien. The Court rejected the Plan's arguments that equitable liens created by agreement should be treated differently and that Montanile's misconduct in spending the funds should permit recovery from his general assets. Instead, the Court took the Board to task for waiting six months to file suit to enforce its subrogation rights.


The U.S. Supreme Court has been clear that ERISA § 503(a)(2) permits plan fiduciaries to seek reimbursement only of specifically identifiable funds over which an equitable lien can be claimed. Indeed, the Court will not permit deviation from this principle even when the participant spends settlement funds after having learned that they may be subject to a subrogation obligation. Therefore, ERISA fiduciaries who wish to enforce their subrogation rights should act as quickly as possible upon learning of a settlement or judgment from which subrogation may be sought to obtain an injunction prohibiting a participant from dissipating the funds. And fiduciaries who outsource subrogation enforcement should monitor contractors to ensure that they are not failing to enforce subrogation rights.