Plan administrators for health and disability insurance governed by the Employee Retirement Income Security Act (ERISA) often seek reimbursement when a beneficiary receives a third-party settlement or is otherwise overpaid. But the ability to recover those overpaid long-term disability (LTD) or health insurance benefits isn’t absolute. The U.S. Supreme Court has clarified — and restricted — what type of recovery is permissible under ERISA § 502(a)(3). If you’re a plan participant or beneficiary facing a demand to repay benefits, understanding your rights is critical.
The Basics: ERISA and “Appropriate Equitable Relief”
ERISA allows fiduciaries (like plan administrators) to sue for “appropriate equitable relief.” But what qualifies as “equitable” depends on the nature of the claim and the remedy sought — a distinction that has shaped case law over the past two decades.
1. Great-West Life v. Knudson (2002): Limits on Legal Claims
In Great-West, the Supreme Court held that a plan fiduciary could not enforce a reimbursement clause if it sought to impose personal liability rather than recover specific funds in the beneficiary’s possession. Because the funds had already been disbursed into a special needs trust, the Court said the fiduciary was seeking a legal remedy — which is not allowed under ERISA § 502(a)(3).
2. Sereboff v. Mid Atlantic (2006): Equitable Recovery Allowed from Identifiable Funds
The Court changed course in Sereboff, allowing a health insurer to recover from settlement funds that had been set aside in a specific investment account. Because the fiduciary was enforcing a plan provision and seeking a lien on identifiable funds in the beneficiary’s possession, the Court found it to be a valid equitable claim.
3. Montanile v. Board of Trustees (2016): No Recovery from Dissipated Funds
In Montanile, the Court again limited fiduciary rights, holding that if a beneficiary spends the settlement money on nontraceable items like travel or rent, the plan cannot then go after their general assets. The Court emphasized that ERISA does not authorize a legal remedy of money damages from a participant’s personal funds.
What This Means for LTD and Health Insurance Plan Participants
If you’re receiving LTD or health insurance benefits under an ERISA policy and your insurer claims you owe reimbursement:
- They must trace the funds. If the money they want is no longer specifically identifiable (e.g., it has been spent), they may have no right to recovery.
- They cannot seek personal liability. ERISA prohibits plan administrators from treating the reimbursement like a general debt obligation and have no right to a beneficiaries general assets.
- They need an enforceable plan provision. Subrogation or reimbursement clauses must be clearly spelled out in the plan.
These nuances matter, especially for anyone managing settlement proceeds or navigating complex LTD overpayments.
Consult a Lawyer If You’ve Been Asked to Repay Benefits
ERISA law is dense, technical, and unforgiving — and plan administrators know it. If you’ve received a demand for repayment of health insurance or LTD benefits, you need an advocate who understands the latest legal standards and how to protect your rights.
At Davis Olszeski, Law, we help individuals challenge overpayment claims and navigate complex ERISA disputes with clarity and confidence.
Have questions about LTD benefits or ERISA overpayment demands?
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