Understanding ERISA Liens in Personal Injury Cases

Related Attorney: Timothy E. Dinan

June 21, 2024Understanding ERISA Liens in Personal Injury Cases

In personal injury law, an ERISA lien can significantly affect the settlement amount a plaintiff ultimately receives. To understand these liens, it's essential to start with the basics of what ERISA is and how it relates to health care plans asserting rights to part of a personal injury settlement.

ERISA stands for the Employee Retirement Income Security Act of 1974. It is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. While ERISA's primary goal was to protect employees' rights to their pension and benefits, its implications extend into various other areas, including personal injury cases.

One of the significant aspects of ERISA is how it handles health care plans funded under its standards. When a person covered under an ERISA-funded health plan gets injured and later receives a settlement or judgment in a personal injury case, the health plan may have the right to reclaim some of those funds. This right is what's known as an "ERISA lien." The lien exists because many ERISA plans include provisions that allow the plan to be reimbursed for medical expenses it paid on behalf of the plan member who was injured, from any personal injury recovery that member obtains.

The legislative background of ERISA provides insight into why these liens are permitted. When ERISA was enacted, one of its aims was to ensure the financial stability of health plans. Allowing these plans to recover funds spent on medical care from personal injury settlements helps maintain this stability. This ability is rooted in the principle that the injured party should not receive double recovery—once from the health plan and again from the party at fault in the injury.

The lobbying efforts by insurance companies and large employers played a substantial role in shaping this aspect of ERISA. These groups argued that without the ability to assert liens, the costs of providing health coverage would skyrocket, leading to higher premiums for all plan members. By securing their ability to seek reimbursement through liens, ERISA-funded plans can potentially lower the costs of providing benefits.

However, the application of ERISA liens in personal injury cases can be complex. The U.S. Supreme Court has ruled on several occasions regarding the rights of ERISA plans to enforce these liens, with significant decisions emphasizing the supremacy of federal law over state laws that might otherwise limit such recoveries. As a result, plaintiffs and their attorneys must navigate not only the personal injury laws of their states but also the federal provisions of ERISA when dealing with health care liens.

For plaintiffs involved in a personal injury lawsuit, it's crucial to understand the impact an ERISA lien might have on their case. Since these liens can reduce the net amount received from a settlement, working with knowledgeable legal counsel who can negotiate or challenge these claims is essential. As ERISA and its interpretations continue to evolve, staying informed and prepared is key for anyone dealing with its implications in a personal injury context.

Questions? Contact Tim Dinan at tdinan@lcrlaw.com, or (973) 729-1880.

See our previous blog post here.