Strict Tracing’ Rule Applies, So No Summary Judgment For Insurer On ERISA Overpayment Claim
How strict are tracing requirements when an insurer seeks to recover funds under ERISA?
Very strict, according to the federal district court for the Eastern District of Pennsylvania, in an opinion released last week.
In Sivalingam v. Unum Life Ins. Co. of America, Civil Action No. 98-4702 (E.D. Pa. Apr. 26, 2011), plaintiff sued Unum Life Insurance Company of America under the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1132(a)(1)(B), and contended that Unum improperly terminated payment of long term disability benefits under an insurance policy issued to Sivalingam’s employer. Unum counterclaimed against Sivalingam to recover alleged overpayments of benefits it paid him under the policy. The parties moved for summary judgment, and the court granted the plaintiff’s motion in part, denied it in part, and denied Unum’s motion.
Unum’s motion went to its claims to recover the alleged overpayment. The court said that on the record, it had before it, Unum had not shown that it met the standard for tracing funds that is necessary to obtain equitable relief under ERISA:
The Supreme Court has limited the types of relief available under § 1132(a)(3). In actions brought under that provision, a plan fiduciary may obtain only those forms of restitution traditionally available in equity. Great–West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210–14, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002). The traditional restitution mechanisms, such as equitable liens and constructive trusts, “restore to the plaintiff particular funds or property in the defendant’s possession.” Id. at 214. The Supreme Court has found that these remedies are available only “where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant’s possession.” Id. at 213 (internal citations omitted). If property “or its proceeds have [sic] been dissipated so that no product remains,” however, the plaintiff cannot obtain relief under § 1132(a)(3). Id. at 213–14 (internal citations omitted).
Unum propounded interrogatories to Sivalingam asking him to identify each account into which deposits of disability benefits were made and to identify all property or goods that he purchased after February 1998 using those benefits. Sivalingam responded to these requests by identifying the two bank accounts into which benefits were deposited, listing some of his monthly and annual expenses, and describing certain real property he purchased . . . .
These interrogatory responses do not establish that the money in t
According, the court, at the summary judgment stage of the proceedings,
he identified bank accounts came exclusively from Unum. The interrogatory responses also do not suggest that Sivalingam’s real estate purchases were financed using only disability benefit payments. Unum’s administrative record conclusively establishes that between 1998 and 2008 Sivalingam received income from sources other than Unum. Moreover, Unum’s own calculations demonstrate that between 1999 and 2004 Sivalingam received some disability benefits to which he was legitimately entitled. In sum, Unum has not identified any funds or property that can “clearly be traced” to the overpaid benefits. Id. at 213 . . . .
At oral argument, Unum suggested that strict tracing rules are not appropriate here because its claim against Sivalingam is within the compass of the Supreme Court’s opinion in Sereboff v. Mid–Atl. Med. Servs. Inc., 547 U.S. 356, 364–65, 126 S.Ct. 1869, 164 L.Ed.2d 612 (2006). In Sereboff,the policy at issue included an “Acts of Third Parties” provision. Id. at 359. If the plan fiduciary was required to pay a beneficiary’s medical expenses due to injuries caused by a third party, this provision compelled the beneficiary to reimburse the fiduciary the amount of those expenses from any recovery obtained from the third party. Id.at 359–60. . . . The Court held that in traditional equity practice strict tracing was not required when an equitable lien arose on property by agreement such as in the Acts of Third Parties provision. Unum has not identified any similar policy provision affording it a right to recover overpayments of plan benefits. Thus, Sereboff does not justify relaxing the tracing rules otherwise required under the Supreme Court’s opinion in Knudson. See Knudson, 534 U.S. at 213–14.
According, the court, at the summary judgment stage of the proceedings, denied Unum’s request to impose an equitable lien or a constructive trust on the plaintiff’s bank accounts or real property.