A recent Seventh Circuit decision leaves ERISA plans paying claims without a remedy to enforce coordination of benefits clauses against other payers. In doing so, the court noted that its ruling could potentially lead to denial of otherwise covered claims, leaving plan participants “considerably worse off.”

In Cent. States, Se. & Sw. Areas Health & Welfare Fund v. American Int’l Group, et al., a self-funded health care plan paid medical claims submitted by plan participants who were injured in school-related youth sports programs. These participants were also insured under health insurance policies issued to the sponsors of the youth programs. Citing its coordination of benefits provisions, the plan maintained that the insurance companies, not the plan, should have paid the claims in full.

Accordingly, the plan (acting through its fiduciary trustee) filed suit in federal court under ERISA § 502(a)(3), which authorizes suits for “appropriate equitable relief … to enforce … the terms of the plan.” Because this section only authorizes equitable relief, the plan plead claims for declaratory relief, the imposition of an equitable lien, and for an order for reimbursement under theories of restitution, unjust enrichment and subrogation. The basis of each theory was that the plan had improperly paid the claims and that the court should require the insurers to reimburse it.

After determining that the dispute was ripe, the court rejected the plan’s claims, affirming the district court. In doing so, the court noted that ERISA only permits equitable relief, and that in claims seeking recovery of funds, a remedy is equitable only if the plaintiff seeks return of specifically identifiable funds in the defendant’s possession or traceable items that the defendant purchased with the funds (such as a car). Since the insurers in this case never received any funds at all, the relief sought was legal. The court stated:

But no matter what the trustee calls his claim, he is seeking a recovery from the insurers’ general assets. His request for declaratory relief seeks an order requiring the insurers to reimburse the plan – in other words, he asks for money damages, the epitome of legal relief.

The court thus held that “the relief sought is legal, not equitable, so the trustee’s suit is not authorized under ERISA section 502(a)(3).” The court noted that its decision is in accord with the other circuit courts that have examined this issue.

In affirming the dismissal of the suit, the court noted that its decision created a dilemma for the plan. ERISA plans cannot ordinarily pursue reimbursement or contribution under state law theories, as such claims are typically pre-empted by ERISA. After this decision, they also cannot pursue reimbursement under ERISA. While the court seemed unhappy with the incentive created for ERISA plans to deny coverage for claims where another insurer also provided coverage, the court nonetheless felt it that binding precedent required dismissal.