Common Fund Doctrine: Reducing ERISA Recovery by Attorney Fee Share

James Wong — Founder & Pharmacist, LienScripts | March 26, 2026 | 7 min read

The common fund doctrine requires an ERISA plan to contribute its pro-rata share of attorney fees when the plan's SPD is silent on fee allocation. This Supreme Court-endorsed reduction can significantly shrink the plan's net subrogation recovery and increase funds available for pharmacy lien satisfaction.

The common fund doctrine is an equitable principle that requires a party who benefits from a fund created by another's efforts to contribute proportionately to the costs of creating that fund. In ERISA subrogation, this means a self-funded health plan must share in the PI attorney's contingency fee when the plan's Summary Plan Description does not expressly override this obligation — a ruling established in US Airways v. McCutchen, 569 U.S. 88 (2013).

• The common fund doctrine reduces an ERISA plan's subrogation recovery by the pro-rata share of attorney fees that produced the settlement
• McCutchen (2013) confirmed that common fund applies as a default equitable rule when the SPD is silent on attorney fees
• A typical 33-40% contingency fee reduces the plan's net recovery by the same percentage under common fund
• Pharmacy liens are not affected by common fund analysis because they are separate contractual obligations
• LienScripts generates a MERIT (Medication Evaluation & Rationale for Injury Treatment) report that documents lien-funded costs independently from plan-paid expenses subject to subrogation

How the Common Fund Doctrine Works

The common fund doctrine has deep roots in equity. The principle is that when one party (the PI attorney) creates a common fund (the tort settlement) through litigation efforts, all parties who benefit from that fund must contribute to the costs of creating it. Without this rule, the ERISA plan would receive a free ride — recovering its full subrogation claim from a settlement the attorney created, without paying any share of the attorney's fees or litigation costs.

In practical terms: if the attorney secured a $100,000 settlement on a 33% contingency, the attorney's fee is $33,000. The plan asserts a $30,000 subrogation claim. Under the common fund doctrine, the plan's recovery is reduced by 33% (its pro-rata share of the fee), lowering the plan's net recovery from $30,000 to approximately $20,000.

[!KEY] The common fund doctrine is the single most effective tool for reducing ERISA subrogation after McCutchen. Unlike the made-whole doctrine, which requires plan silence on a specific issue, common fund arguments succeed whenever the SPD lacks an express provision requiring the beneficiary to bear all attorney fees — and many plans are silent on this point.

The McCutchen Decision in Detail

US Airways, Inc. v. McCutchen, 569 U.S. 88 (2013) is the controlling Supreme Court decision. The case involved a US Airways employee whose self-funded ERISA plan sought full reimbursement of $66,866 from a $110,000 tort settlement — without any reduction for the $44,000 in attorney fees and costs.

The Supreme Court held:

Plan terms control where they exist. If the SPD expressly provides that the plan recovers its full amount without any reduction for attorney fees, that provision is enforceable under ERISA. "The plan, in short, is at the center of ERISA."

Equity fills gaps in plan terms. Where the plan is silent on attorney fees, "the default rule" from equity applies — including the common fund doctrine. The Court rejected US Airways' argument that plan silence should be interpreted as authorizing full first-dollar recovery.

The common fund doctrine applies to ERISA plans. The plan must contribute to the attorney's fee proportionately when the plan's terms do not address the issue. The plan cannot "free ride on the attorney's efforts."

According to Amar Lunagaria, PharmD, LienScripts' Chief Pharmacist, "McCutchen is one of the most practical tools in a PI attorney's toolkit when dealing with ERISA subrogation. We see its impact directly when attorneys use the common fund reduction to increase the net settlement funds available for both the client and the pharmacy lien."

Applying Common Fund in Practice

Step 1: Read the SPD carefully. Look specifically for language addressing attorney fees in the subrogation section. Key phrases to identify:

• Plan wins: "The Plan's recovery shall not be reduced by attorney fees, costs, or expenses incurred by the Covered Person"
• Attorney wins: No mention of attorney fees in the subrogation section (silence = common fund applies)
• Ambiguous: General language about "full reimbursement" without specific reference to fee allocation

Step 2: Calculate the reduction. If common fund applies, the plan's recovery is reduced by the contingency percentage. On a 33% contingency:

• Plan asserts $50,000 subrogation
• Common fund reduction: $50,000 x 33% = $16,500
• Plan's net recovery: $33,500

Step 3: Present the argument to the TPA. Cite McCutchen and include the relevant SPD sections (or their absence) in your response to the subrogation demand. Most TPAs will negotiate rather than litigate a McCutchen issue because the law is clearly established.

[!TIP] Even when the SPD includes language addressing attorney fees, examine whether that language is truly "express" enough to override common fund. Courts have rejected vague or general subrogation provisions as insufficient to overcome the default equitable rule. The plan must specifically and unambiguously negate attorney fee sharing.

Common Fund and Pharmacy Lien Interaction

The common fund doctrine reduces the ERISA plan's subrogation recovery on costs the plan paid. Pharmacy liens cover costs the plan did not pay. These are independent calculations:

ERISA subrogation (reduced by common fund):

• Plan paid $40,000 in medical expenses
• Attorney contingency: 33%
• Common fund reduction: $40,000 x 33% = $13,200
• Plan's net recovery: $26,800

Pharmacy lien (unaffected by common fund):

• Lien-funded medications: separate amount
• Satisfied from client's net recovery after attorney fees, costs, and ERISA subrogation
• No common fund reduction applies to the lien because the lien provider is not a subrogating party — it advanced costs under a direct contractual arrangement

The combined effect: common fund reduces the ERISA plan's recovery, leaving more funds in the settlement for the client. The pharmacy lien is satisfied from the client's increased net share. Both the client and the lien provider benefit from the common fund argument.

When Plans Try to Override Common Fund

Sophisticated plans have responded to McCutchen by adding express anti-common-fund language to their SPDs. Watch for provisions like:

• "The Covered Person shall bear all attorney fees and costs related to any third-party recovery, and the Plan's subrogation right shall not be reduced by such fees"
• "The Plan's right to reimbursement is a first-priority claim against any recovery, not subject to reduction for legal expenses"

When the plan has express language, common fund arguments are foreclosed. In these cases, attorneys should focus on:

1. Challenging whether the plan actually paid the claimed amounts — request itemized EOBs
2. Made-whole arguments if the SPD is silent on that separate issue
3. Montanile dissipation strategy as a negotiation tool
4. Pharmacy lien separation to ensure medication costs are not included in the plan's claim

[!KEY] The common fund doctrine under McCutchen reduces ERISA subrogation by the attorney's contingency percentage whenever the SPD is silent on fee allocation. Combined with a pharmacy lien that keeps medication costs outside the plan's reach entirely, PI attorneys can substantially reduce the total claim burden on the settlement and maximize client recovery.

Stacking Common Fund with Other Defenses

The strongest settlements combine multiple arguments:

1. Common fund reduces the plan's gross recovery by the contingency percentage
2. Made-whole (if available) can eliminate the plan's recovery entirely when the settlement is below full damages value
3. Montanile creates urgency for the TPA to negotiate before funds are disbursed
4. Pharmacy lien separation removes medication costs from the subrogation equation entirely

Each argument operates independently — losing one does not affect the others. This layered approach gives attorneys maximum negotiating flexibility.

Related Resources

• ERISA Made-Whole Doctrine and Pharmacy Liens
• ERISA Plan Language Analysis for Pharmacy Liens
• ERISA Preemption and Pharmacy Liens: Attorney Guide
• ERISA Negotiation Letter Template for Pharmacy Lien Cases