Commentary: Supreme Court to Consider Whether Injury Victims Need to Reimburse Insurers

Which do the conservative justices hate more: personal injury lawyers or interpreting a law loosely to expand the power of lower courts? That question was on the table Monday at the U.S. Supreme Court. The justices heard oral argument in a potentially important case about whether you have to pay back your insurance company for medical bills after you’ve sued and recovered from the person who injured you in the first place.

Montanile v. National Elevator Industry Health Benefit Plan has all the marks of a case only lawyers could love. It involves insurance, money, a drunken driver and what may arguably be the most complicated statute in the entire U.S. Code, the Employee Retirement and Income Security Act of 1974, known as Erisa.

But the facts turn out to be surprisingly simple, and likely repeatable in such a way as to make the case an important precedent. Robert Montanile, who was injured by a drunken driver in a car crash, had his medical expenses, amounting to about $121,000, covered by the elevator industry benefit plan to which he belonged. Separately, like many people injured in accidents, he hired a personal injury lawyer to sue the driver who injured him.

The lawyer did well: He recovered a settlement of $500,000. For that the lawyer took a cool $200,000 fee; Montanile paid roughly $64,000 in expenses. That left him some $236,000. The benefit plan, unsurprisingly, asked him to reimburse the money it had paid for his medical expenses.

Here’s where things went funky. Montanile, strapped for cash and seriously injured, hired an Erisa attorney who told the elevator benefit plan that its agreement with Montanile didn’t entitle it to get back the money it had spent. In response, the benefit plan said Montanile had signed an agreement promising to pay back his medical expenses “in full … to the extent of his recovery” if he won his lawsuit against the driver.

Eventually, the benefit plan sued Montanile for the money. But in the meantime, the original lawyer disbursed it to Montanile – who spent it.

If someone owes you money based on a contract, he ordinarily can’t get out of paying it by saying he’s already spent it on something else. But Erisa is a wildly detailed statute that describes a whole range of permissible lawsuits and remedies. As it turns out, Erisa doesn’t say that a plan can get damages from a member, even if he’s signed a document promising to pay the plan back.

So what happens next? Enter an age-old legal remedy called “equitable relief.” The basic idea behind equity today goes back to the English legal system of the early modern period. The common law was exceedingly rigid, requiring exact forms of practice and pleading. Recognizing that sometimes this system fails to do substantial justice, the crown created a special court of chancery, which you could approach for help if you’d already exhausted your common law remedies. That special court could, under some circumstances, give you justice, understood as fixing or adjusting the rigorous rules of common law to produce an outcome that came to be called equity. You can see why Justice Antonin Scalia doesn’t like equity very much: It runs directly counter to his idea that the rule of law is a law of rules.

But equity is what the benefit plan needed to get its money back – because under the strict rule of law, it can’t recover damages. As it turns out, Erisa specifically says a party can seek “appropriate equitable relief.”

Case closed, right? Well, no. The trouble is that traditionally, equitable relief allows for me to demand that you restore to me a specific object or money in your possession, not general damages. This is a bit of fiction when it comes to cash, which is fungible. But it’s a fiction with deep roots in the law. And Montanile doesn’t have the money he owes the plan anymore – he’s spent it.

To decide for the plan, the justices would have to interpret the Erisa statute broadly, and expand the meaning of “appropriate equitable relief” beyond its classic scope. Montanile’s lawyers rely on a precedent from 2002 that pretty clearly restates the classic doctrine: You can’t get equitable relief if you’re after “some funds” instead of “particular funds.”

The benefit plan has an argument of its own. It uses a 2006 precedent to argue that the money was identifiable when the plan started trying to get it (it was being held in trust by the personal injury lawyer), and that should be enough. You don’t have to take my word for it that this argument is forced: The solicitor general’s office, as a friend of the court, says so.

All this leaves the justices, especially the conservative ones, in a pickle. They don’t like personal injury lawyers, and no doubt they will think Montanile’s lawyer pulled a fast one when he dispersed the funds to his client. They also tend to side with the insurance industry, which naturally would like to see the plan win.

Indeed, if the plan loses, other personal injury lawyers will get the idea, and find ways to pay off their clients before insurers seek reimbursements.

But to hold against Montanile, the justices would have to interpret “appropriate equitable relief” broadly. That would require loose statutory interpretation. And it would empower lower court judges to make up things on their own. In short, today’s conservative justices like rules, not equity. The question before them is: Will they dislike Montanile’s lawyers enough to get over their dislike for working around the rules?

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.