An ERISA-governed health plan's subrogation lien is one of the most aggressive recovery tools in personal injury practice. Unlike Medicaid liens, which are subject to the make-whole rule and proportionate share reduction in most states, and unlike Medicare's secondary payer lien, which has an established agency compromise process, ERISA plan liens are governed by the plan document itself and by federal common law. State anti-subrogation statutes cannot apply. State made-whole doctrines cannot apply. State common-fund rules requiring the plan to contribute to attorney's fees may not apply. The plan's terms define the lien, and the plan is entitled to enforce it fully unless the plaintiff's attorney can find a federal law basis for reduction or negotiate a voluntary concession from the plan administrator.
Identifying the Lien Early
The starting point is determining whether the plaintiff's health plan is ERISA-governed. Most employer-sponsored group health plans, other than governmental employer plans and church plans, are subject to ERISA. Ask your client at intake: is the health coverage through a current or former employer? If so, request the Summary Plan Description (SPD) and the full Plan Document. The SPD will identify whether the plan is self-funded or fully insured through a commercial carrier.
This distinction matters. A self-funded ERISA plan (where the employer bears the claim risk and the insurance company serves only as a third-party administrator) is fully preempted from state law and can enforce its subrogation clause without limitation. A fully insured plan (where the employer purchases a group policy from an insurer) may be subject to state insurance law that limits subrogation rights, depending on the circuit and the specific state regulation at issue. The Supreme Court addressed this distinction in Kentucky Association of Health Plans, Inc. v. Miller, 538 U.S. 329 (2003), and the circuit courts have applied it inconsistently. Confirm which circuit governs and how it treats fully insured plans before assuming full preemption applies.
The Montanile Defense: Dissipated Funds
In Montanile v. Board of Trustees of National Elevator Industry Health Benefit Plan, 577 U.S. 136 (2016), the Supreme Court held that an ERISA plan can enforce its subrogation lien only against specifically identifiable funds: the portion of the settlement that represents the plan's covered medical expenses, and not against the plaintiff's general assets once the settlement proceeds have been dissipated. If the settlement proceeds have been spent by the plaintiff before the plan moves for equitable relief, the plan's lien is extinguished against those dissipated funds.
The practical lesson from Montanile is timing. A plan that delays enforcing its lien while the plaintiff spends the settlement proceeds loses its ERISA equitable lien claim. For the plaintiff's attorney, this does not mean encouraging the client to spend the money to defeat the lien; that approach creates ethical issues. It does mean understanding that the plan's equitable remedy is limited to traceable funds, and that the plan's negotiating position weakens as the settlement proceeds are applied to other purposes. Document how settlement proceeds are allocated promptly and in writing, especially any portion applied to non-medical purposes like lost wages, property damage, or pain and suffering.
The Common Fund Doctrine Under ERISA
The common fund doctrine, which requires a party whose lien is satisfied out of a fund created by another party's litigation to contribute proportionately to the cost of creating that fund, is a matter of state law in most personal injury contexts. Under ERISA, the Supreme Court held in US Airways, Inc. v. McCutchen, 569 U.S. 88 (2013), that equitable principles, including the common fund doctrine, can override an ERISA plan's express subrogation terms only when the plan document is silent on the issue. When the plan document addresses attorney's fees and provides that the plan owes no contribution, the plan's express terms control over equitable doctrines.
Review the plan document carefully. Plans that expressly provide that the plan's right to reimbursement is not subject to reduction for attorney's fees or costs are enforced as written after McCutchen. Plans that are silent on the attorney's fee contribution question are subject to the equitable common fund argument, and courts have applied proportionate reduction in those cases. Identify the specific plan language before deciding how to frame the fee contribution demand to the plan administrator.
Negotiating the Reduction
Even when the plan document forecloses common fund arguments and the plan is self-funded, negotiated reductions are available in many cases. Plan administrators exercise settlement authority and will often accept a reduced reimbursement rather than litigate the lien amount when the total recovery is insufficient to make the plaintiff whole and pay the full lien. The make-whole doctrine is not available as a matter of right under ERISA in most circuits, but it remains a persuasive negotiating position when the settlement is clearly inadequate relative to the plaintiff's total economic loss.
Frame the negotiation around the following:
- The total settlement relative to the plaintiff's full economic and non-economic damages: a plaintiff who settled for policy limits of $100,000 on a case with $500,000 in documented damages has not been made whole, and the plan's insistence on full reimbursement of $40,000 in covered medical expenses would leave the plaintiff with $60,000 net on a $500,000 claim.
- The comparative fault allocation: if the plaintiff bears comparative fault, the plan's medical expense reimbursement can reasonably be reduced by the plaintiff's fault percentage, following the proportionate-share logic that Medicare applies to its conditional payment demands.
- The attorney's fee proportionate share: even in plans where the express terms foreclose the common fund argument as a matter of law, present it as a fairness argument in the negotiation. Most plan administrators will accept some fee contribution as a practical matter of avoiding lien enforcement litigation.
Send the lien negotiation demand in writing with a complete damages summary, the policy limits confirmation, and a calculation showing what the plaintiff will net after paying the full lien versus the proposed reduced amount. Concrete arithmetic is more persuasive than abstract arguments.
For additional lien and reimbursement frameworks in PI settlement administration, including Medicare conditional payment resolution and Medicaid estate recovery, see the liens and settlement section. For how ERISA preemption questions have been resolved at the circuit level in recent decisions affecting the reimbursement rights of self-funded plans, the case law and settlements archive covers the current state of the doctrine.