Cognetta v. Bonavita
330 F. Supp. 3d 797
E.D.N.Y2018Background
- Trustees of a self-funded ERISA health plan (Wine, Liquor & Distillery Workers Union Local 1-D Major Medical Plan) paid about $110,000 for medical care of James Bonavita after a 2013 car accident; participant Nicole Bonavita signed a subrogation/reimbursement agreement.
- The Plan's SPD and signed Agreement grant the Plan subrogation, assignment, an equitable lien, and a constructive trust over any third‑party recovery to the extent of benefits paid.
- The Bonavitas sued third parties in New York state court and obtained summary judgment on liability; damages/settlement remain pending and no recovery has yet been paid to defendants.
- Defendants argue New York Gen. Oblig. Law § 5-335 (prohibiting insurer subrogation against personal‑injury settlements) bars the Plan and that the claim is premature because no identifiable funds exist; they also invoke the make‑whole doctrine.
- The district court treated plaintiffs’ motion as one for summary judgment and granted it, declaring the Plan has an equitable lien/constructive trust on any future recovery and ordering defendants to hold proceeds in trust for the Plan.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does NY GOL § 5-335 bar Plan reimbursement? | Plan: §5-335 is inapplicable because the Plan is self-funded and ERISA preempts state laws regulating insurance. | Defs: §5-335 bars subrogation/reimbursement; they also suggest Plan may be insured or otherwise not entitled. | Court: Plan is self-funded; ERISA preempts §5-335, so state anti‑subrogation statute does not apply. |
| Is declaratory/equitable relief under ERISA §502(a)(3) appropriate before funds exist? | Plan: seeks a declaratory judgment that it has an equitable lien on any future recovery — an equitable remedy historically available (equitable lien/constructive trust; bill for instructions/quiet title). | Defs: Suit is premature; no identifiable funds yet and relief would improperly impose liability absent possession. | Court: Declaratory judgment of an equitable lien is equitable and appropriate; absence of present funds does not defeat relief. |
| Does the make‑whole doctrine prevent Plan recovery? | Plan: Agreement and SPD expressly give Plan priority and require immediate reimbursement; contractual waiver controls. | Defs: Insureds must be made whole before insurer can recover. | Court: Make‑whole is a default equitable rule; here parties contractually waived it — Plan prevails. |
| Is the case justiciable (actual controversy) and should the court exercise discretion? | Plan: Liability finding and pending damages make recovery likely; declaratory relief will clarify rights and prevent dissipation. | Defs: Contingent future recovery makes action non-justiciable/premature. | Court: An actual controversy exists (practical likelihood of recovery); declaratory relief will clarify rights and prevent dissipation, so exercise discretion to grant relief. |
Key Cases Cited
- Aetna Health Inc. v. Davila, 542 U.S. 200 (ERISA preemption purpose and scope)
- FMC Corp. v. Holliday, 498 U.S. 52 (self-funded plans are not "insurance" for state regulation savings clause)
- Great‑West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (limits on equitable restitution when funds are not identifiable)
- Sereboff v. Mid Atl. Med. Servs., Inc., 547 U.S. 356 (equitable lien by agreement enforceable against specifically identified settlement proceeds)
- Montanile v. Bd. of Trs. of Nat'l Elevator Indus. Health Benefit Plan, 136 S. Ct. 651 (equitable lien exists but recovery unavailable if beneficiary dissipated identifiable funds)
- Wurtz v. Rawlings Co., 761 F.3d 232 (state law "regulates insurance" analysis)
- Arnone v. Aetna Life Ins. Co., 860 F.3d 97 (application of NY §5-335 and ERISA preemption analysis)