Mirick O'Connell Header
Life, Health & Disability e-News

February 16, 2016

Life, Health, Disability and ERISA Litigation Group:

 Life, Health, Disability and ERISA Litigation Group

Join Our Mailing List
On January 20, 2016, the Supreme Court issued its decision in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 136 S.Ct. 651 (2016).  The decision, while settling a conflict between the federal Courts of Appeals, makes the recovery of an overpayment of disability benefits, or the recovery of medical benefits reimbursable under a health plan, more challenging. 
Montanile was seriously injured by a drunk driver.  The ERISA plan paid more than $120,000 for his medical expenses.  Montanile later sued the drunk driver, obtaining a $500,000 settlement.  The plan, pursuant to a subrogation clause, sought reimbursement of the medical expenses from the settlement. Montanile's attorney refused the request and after a failed negotiation between the plan and Montanile, the funds were distributed by the attorney to Montanile. 
The question before the court was whether, pursuant to 29 U.S.C. 1132(a)(3), the plan could obtain appropriate equitable relief by recovering the medical expenses from Montanile's general assets.  The court held that the plan fiduciary cannot bring suit under 1132(a)(3) to attach or otherwise recover the benefit through Montanile's general assets. 
Going forward, administrators of ERISA plans providing either medical or disability benefits must now look at what can and cannot be done in order to recover such benefits from the claim participant.
What Montanile firmly establishes is that a plan can no longer recover the overpaid disability benefit or a reimbursement of medical expenses through a recovery against the claimant's general assets.  Montanile provides the plan can pursue only the "specifically identified fund" which the claimant recovered to satisfy the plan's right to recovery. 
The plan can recover "specifically identifiable funds" remaining in the claimant's possession or recover against "traceable" items that the claimant purchased with the funds. 
What is a traceable item?  In Montanile, the Supreme Court referred to traceable items as "identifiable property" such as a car.  Clearly, the court views tangible assets as traceable items.  Query whether this would include real property if, for instance, the claimant used the funds to make a mortgage payment, or, whether items purchased through a credit card, and the credit card bill is paid by the fund, makes the purchased item "traceable." 
What are non-traceable items?  These include services and "consumable" items such as food or a vacation.  The plan has no right to recovery against such items. 
For long-term disability plans, if the plan is continuing to pay benefits to the claimant, it appears that an offset against future benefits for the amount owed may still be appropriate.  This raises a question as to whether health plans could offset the payment of future medical expenses against amounts owed. 
Montanile does not address the recovery of LTD benefits as a result of the claimant's receipt of Social Security Disability Income ("SSDI").  However, Montanile raises significant issues as to the ability of ERISA benefit plans providing LTD benefits to recover the overpayment of LTD benefits as a result of the claimant's receipt of SSDI benefits.
There is a split among courts on this issue.  Claimants typically raise the defense of 42 U.S.C. 407, the anti-alienability provision of the Social Security Act.  That provision states that "none of the monies paid or payable for rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, ..."  Courts that have allowed the plan to recover the overpayment have held that 407 is not applicable because the "specifically identifiable fund" the plan was seeking to recover was the overpaid LTD benefits, not the SSDI benefit.  See Weitzenkamp v. Unum Life Insurance Company of America, 661 F.3d 323 (7th Cir. 2011); Cusson v. Liberty Life Assur. Co. of Boston, 592 F.3d 215 (1st Cir. 2010).  Montanile potentially upends this argument.  Claimants will argue the "specifically identifiable funds" that the plan can recover is not the LTD benefit, but rather the SSDI benefit.  As such, the anti-alienability clause kicks in and may prohibit recovery.  This is essentially the rationale used by the Ninth Circuit in Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083 (9th Cir. 2012) which found that 407 prohibited the plan from attaching the claimant's SSDI benefit.  We believe plans can anticipate seeing this argument more frequently going forward.

Short Term Solutions
  1. Review plan language to determine whether the plan has the option to take an estimated offset before SSA makes its decision.  If the option belongs to the plan then make a claim by claim decision on the prudence of advancing the full benefit when it is more probable than not that the claimant will be eligible for SSDI.  Some claimants may be uncooperative during the investigation of the claim and in those instances plans may want to make the hard choice of not advancing benefits if they have the option.   
  2. Review reimbursement agreements to strengthen the language and better define the object or thing that will be pursued if suit must be filed.  For example, require the claimant to identify the bank account they will use to deposit the expected SSDI award.  By carefully defining the object against which equitable relief will be sought a plan will improve its chances of explaining to a court that the claim is not one for relief against the claimant's general assets but instead a claim against a specific amount of money in a specifically designated account.  The reimbursement agreement can provide the detail of what the plan is pursuing in the litigation.
  3. Monitor the applicant's application to SSA closely.  As soon as it is learned that the SSDI award was made, contact the claimant to remind him/her that the overpayment must be reconciled.  If there is any sense that repayment is not forthcoming file suit immediately.  If it is learned that the money has been dissipated it may be necessary to conduct discovery to trace where the funds were spent.  If you can locate some tangible assets the court may grant you the right to take ownership of whatever valuable property you can find. 
Long Term Solutions
  1. Plan language should be reviewed.  Does your plan give the option to the plan or to the participant to exercise the right to receive a monthly benefit without an estimate for a potential Social Security award?  In light of Montanile the safer approach is for the plan to preserve the right to take an estimated offset prior to SSA's decision.
  2. If a plan observes that the conduct of claimants changes dramatically after Montanile, consider other plan designs that ladder monthly benefits over time and trigger increases when SSA claims are denied.   This could prevent overpayments from occurring.    
For more information on Mirick O'Connell's
Life, Health, Disability and ERISA Litigation Group, contact:

Joseph M. Hamilton

J. Christopher Collins


Did you know that Mirick O'Connell's Life, Health, Disability and ERISA Group represents clients throughout New England? With offices in Boston, Westborough and Worcester, our attorneys are within an hour of all the major courts in Massachusetts; Hartford, Connecticut; Providence, Rhode Island; and southern New Hampshire. In addition, our attorneys are admitted to practice not only in Massachusetts, but in Connecticut, New Hampshire and Rhode Island as well. We have repeatedly and successfully represented our clients in each of these jurisdictions. So remember, we are not here for you just in Massachusetts; think New England! 


This overview is intended to inform our clients of developments in the law and to provide information of general interest.  It is not intended to constitute legal advice regarding a client's specific legal issues and should not be relied upon as such.  This newsletter may be considered advertising under the rules of the Massachusetts Supreme Judicial Court.


2015 Mirick, O'Connell, DeMallie & Lougee, LLP.  All Rights Reserved.