A federal appeals court finds that a health insurer that made payments to an insured under ERISA is entitled to repayment from litigation proceeds that had been placed in a special needs trust. Moore v. CapitalCare, Inc. (D.C. Cir., No. 04-7122, Aug. 29, 2006)

In 1992, Alistaire Moore was seriously injured in an automobile accident, and required extensive medical care. The Moores initiated a lawsuit against Blue Cross/Blue Shield (BCBS) and its subsidiary Capital Care (CC) for unpaid ERISA benefits in 1994. During discovery, CC/BCBS found that the Moores had received a $1.3 million lawsuit settlement, which had been placed in a special needs trust for Ms. Moore's benefit. CC/BCBS filed a counterclaim against the Moores for reimbursement of ERISA payments under the subrogation clause of the ERISA plan.

The district court found that CC/BCBS had not paid the Moores the benefits due to them, but it also found that that CC/BCBS had a subrogation right to the settlement proceeds to the extent of the payments it had made to the Moores. The court denied parties’ petitions for prejudgment interest in unpaid ERISA benefits.

The U.S. Court of Appeals for the District of Columbia finds that CC/BCBS has a right to reimbursement from payments made to the Moores from the settlement, based on ERISA and existing case law. The court also finds the common law "make whole" rule, which would have prohibited any reimbursement until Ms. Moore was made whole by her recovery from payments from other parties, is inappropriate. Here, the subrogation clause was clear: the insurer is entitled to reimbursement even if the insured has not been made whole by the recovery. The appeals court also finds that the Moores have a pre-judgment interest in unpaid ERISA benefits, which could only be denied if the Moores acted in bad faith.