4th Cir. Upholds ERISA Plan's Requirement of Attorney Signed Subrogation Agreement

Posted 10:05 PM by Michael Fox

Employee benefit plans often have subrogation provisions which require an employee injured by a third party who sues and recovers to reimburse the plan for the benefits it has paid. The plan in question, took that one step further and required a signed subrogration agreement from the employee and his attorney that the plan would be paid "before all others." The attorney took the position that his fees should not be placed behind ERISA plan and refused to sign. The net result was severe in this case, since the employee not only did not get advances for the injuries caused by the third party, but since it was his only connection to the plan, he and his dependents were ultimately severed from the plan and lost all benefits.

Although the plan was challenged on numerous grounds, they all failed. Simply put, was nothing wrong with the requirement of the Plan that it be repaid -- first. Kress v. Food Employers Labor Relations (4th Cir. 12/10/04) [pdf].

And just in case, anyone should misunderstand the Court's position, "Throughout this litigation, Kress’s arguments have proceeded on the premise that the Fund’s provisions are somehow inimical to participants’ interests. But that is hardly the only interpretation that one could give them." Instead the Court noted the Fund provided advances when injuries were caused by third parties, even though it had no obligation to do so. Kress could have not accepted the advances and sued in tort with no obligation to the Fund. However, he could not accept the benefits, but choose not to accept the terms under which they were offered. (The legal equivalent of - you can't have your cake and eat it too.) Finally, the Court noted while he referred to the loss of all his benefits as "retaliatory," the Plan language clearly spelled out what would happen, and it was his attorney who refused to sign the agreement. Pretty clear where the Court thought the problem was in this case. Wonder if there might soon be a claim against the attorney who refused to sign?

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