Forsling v. J.J. Keller & Associates : Court Distinguishes Knudson and Holds That Health Plan is Entitled to Restitution and Holds "Make-Whole" and "Common Fund" Exceptions Inapplicable

Thomas H. Lawrence¹

The United States District Court for the Eastern District of Wisconsin decided Forsling v. J.J. Keller & Associates, Inc. , No. 02-C-0234, 2003 U.S. Dist. LEXIS 684, on January 15, 2003.

On November 13, 2000, Kristin Forsling was hit by a car and sustained low back injuries. The Keller Plan paid $35,122.13 on behalf of Forsling because of these injuries. Forsling sought another $50,000 from the liability carrier whose insured caused her injuries. The carrier offered to pay the policy limits to Forsling. Forsling filed an action in federal court against Keller seeking a determination that she was not required to turn over any of the $50,000 to Keller.

The Plan required full reimbursement, "without regard to the sufficiency of the recovery." The Plan, however, expressly provided for payment of attorney's fees to a covered person\'s attorney in certain situations.

Forsling and Keller both moved for summary judgment. The court granted Keller's motion for summary judgment and ordered the third-party insurance carrier, Shelby Mutual, to turn over to Keller the amount of medical expenses paid by the Plan.

Relying upon IBEW v. Douthitt and Allison v. Wellmark , two recent district court decisions that have addressed the scope of Knudson , the Court distinguished Great-West Life & Annuity Ins. Co. v. Knudson , 122 S. Ct. 708 (2002). The Court held that, unlike the plan in Knudson , the plan in Forsling was entitled to equitable relief under ERISA because the funds at issue in Forsling were in the control of the insurance carrier, who was a party to the action, the funds had not been dissipated, and the plan was entitled to those funds pursuant to its terms. As such, the Court held that Keller , the plan fiduciary, was entitled to restitution with respect to the funds. The court took great care to point out that the mere fact that the plan fiduciary sought to recover "money" did not convert this type of action into a "legal" action that is not cognizable under ERISA.

Forsling also argued that he was not made whole. The Court rejected this contention, holding that the plan provision, which stated that Keller's reimbursement provision, which provided that Keller was entitled to full reimbursement "without regard to the sufficiency of the recovery," was sufficient under the Seventh Circuit's decision in Cutting v. Jerome Funds to disclaim the make-whole rule.

Finally, Forsling argued that the common fund doctrine applied. The Court, however, held that, while the Plan provision specifically allowed recovery of attorney's fees by a covered person's attorney who generates a fund for the Plan, litigation was not necessary to secure this fund and the covered person submitted no evidence that her attorneys had actually spent time in obtaining the recovery.

[1]Thomas H. Lawrence is a partner in the Memphis, Tennessee law firm of Lawrence & Russell, LLP, and represents employers, health plans, and insurers in healthcare and property and casualty subrogation and other employee benefits and employment matters and related litigation in state and federal courts throughout the United States. He was one of the attorneys who represented Great-West Life in Knudson , and has been counsel of record in many of the otherpost-Knudson decisions that have clarified the scope of relief available under ERISA. He can be reached at toml@lawrencerussell.com