Plan Administration Litigation

By: Sam Schwartz-Fenwick and Chris Busey

Seyfarth Synopsis: The Eighth Circuit upheld dismissal of Title VII claims challenging an employee benefit plan’s blanket transgender exclusion because the exclusion impacted the  employee’s transgender son, not the employee. The Eight Circuit overturned the dismissal of the employee’s claim against the plan’s third-party administrator under the Affordable Care Act, finding the complaint sufficiently alleged an actionable claim against the TPA.

The Eighth Circuit granted a potentially short-lived reprieve to a plaintiff challenging a blanket exclusion for transgender services contained in her employer’s health plan. The case, Tovar v. Essentia Health, et al, No. 16-3186 (8th Cir. May 24, 2017), allowed part of the plaintiff’s claim alleging a violation under Section 1557 of the ACA to proceed by remanding it to the district court.

The Section 1557 regulations at issue in Tovar are currently subject to a nationwide injunction issued in the Northern District of Texas. The Department of Health and Human Services is party in that suit, and has indicated that it may seek to repeal that regulation through the typical notice and comment rulemaking procedures. The Circuit Court did not address the precarious nature of Section 1557 in its decision.

Rather, the Eighth Circuit restricted its analysis to the decision of the district court. The District Court dismissed Tovar’s claims under Title VII, the Minnesota Human Rights Act, and Section 1557, as we covered here.

The Eighth Circuit first upheld the dismissal of Tovar’s Title VII and MHRA claims. It agreed that Tovar was not within the class of individuals protected by those statutes because she did not allege discrimination based on her own sex, but that of her transgender son.

The Court went on to overturn the dismissal of the ACA claim against the TPA. The District Court had dismissed her ACA claims for lack of Article III standing because Tovar named the wrong entity and because only the employer (not the TPA) had the ability to modify plan terms (such as the transgender exclusion). The Eighth Circuit found the plan documents did not definitively establish that the named defendant had no involvement in the administration of the plan. The Eighth Circuit further found that Plaintiff alleged sufficient facts showing that the “allegedly discriminatory terms originated” with the TPA. And thus this issue was remanded to the district court.

The Eighth Circuit specifically declined to address the argument that an administrator could not be liable for administering a plan where plan design is under the sole control of another organization. The dissent forcefully addressed this question, noting that an Office of Civil Rights interpretation of Section 1557 provides that “third party administrators are generally not responsible for the benefit design of the self-insured plans they administer and ERISA . . . requires plans to be administered consistent with their terms.”

By: Sam Schwartz-Fenwick and Jules Levenson

Seyfarth Synopsis: In a decision with wide ranging implications, the Ninth Circuit has ruled that a discretionary clause in an employer drafted plan document is subject to, and invalidated by, California’s insurance regulation banning discretionary clauses in insured plans.

In recent years a number of states have passed insurance regulations barring discretionary clauses in disability insurance policies in order to make it easier for participants to prevail on ERISA claims. A question that has dogged these regulations is the extent to which they are preempted by ERISA.  One particularly strong argument raised by employers is that even if a state insurance regulation can control an insurer-drafted plan document, basic principles of ERISA preemption preclude state law from invalidating any provision in an employer plan document.

The Ninth Circuit has now weighed in on this issue and in a victory for plaintiff, the Court of Appeals held that a state discretionary ban is not preempted by ERISA and properly extends to employer-drafted plans as long as the plan provides for insured benefits. Orzechowski v. Boeing Co. Non-Union Long Term Disab. Plan, No. 14-55919, ‑‑ F.3d –, 2017 WL 1947883 (9th Cir. May 11, 2017).

Orzechowski involved a denial of disability benefits. Defendant argued that the claim was subject to the highly deferential abuse of discretion review, as the employer drafted plan conferred discretion on the insurer (claim administrator) to decide claim.  The district court agreed. The district court further found that because the plan was in effect prior to the enactment of California’s discretionary clause ban, it was not covered by the ban.

The Court of Appeals reversed. The Court found the plan subject to the ban, because although the plan was in effect prior to the ban’s enactment, Plaintiff claimed benefits under an insurance policy that renewed (as defined by the statute) after the statute’s effective date.  Examining whether the plan was preempted by ERISA, the Court found that even though Boeing is not an insurance company, the law was directed to the insurance industry and, because the benefit at issuewas an insured benefit, all plan documents covering this benefit were subject to California state insurance regulations (including the discretionary ban).  Accordingly, the Court found the law valid as a regulation of insurance.  It thus remanded the claim for consideration under the de novo standard.

This case will likely have significant repercussions for plans in the context of benefits decisions, both in California and nationally. Absent reversal by an en banc panel of the Supreme Court, Not only will a significant number of decisions now be subject to de novo review in states in the Ninth Circuit, states considering banning discretionary clauses may be emboldened or spurred to action by this decision.  With fewer decisions afforded deference, a concomitant rise in litigation challenging benefits decisions is likely to follow.  Only time will reveal the exact extent of the impact.  Stay tuned.

 

By, Sam Schwartz-Fenwick and Jim Goodfellow

Seyfarth Synopsis: In an opinion that may result in increasingly complex ERISA benefits litigation, the Eighth Circuit has allowed a breach of fiduciary duty claim premised on alleged faulty claims handling practices to proceed in conjunction with a claim for benefits.

In a case that should catch the attention of ERISA plan administrators, the Eighth Circuit in Jones v. Aetna Life Insurance Company, et al held that a breach of fiduciary duty claim premised on improper claims handling could survive a motion to dismiss, even where the plaintiff also brought a claim for benefits seeking the same unpaid benefits.

In Jones, Plaintiff brought two claims against insurer Aetna: 1) a claim for benefits premised on Aetna’s termination of Plaintiff’s disability benefit; and 2) a breach of fiduciary duty claim premised on Aetna’s claims handling practices. The district court dismissed the breach of fiduciary duty claim as duplicative of the claim for benefits, citing the Supreme Court’s decision in Varity Corp. v Howe, 516 U.S. 489 (1996), which instructed that section 502(a)(3) breach of fiduciary duty claims function as a “safety net, offering appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere adequately remedy.”  On summary judgment, the court held that Aetna did not abuse its discretion in denying the claim for benefits.

On appeal, the Eighth Circuit affirmed the denial of benefits. But, the Eighth Circuit reversed the dismissal of the breach of fiduciary duty claim. The court found it was consistent with Varity Corp to allow a fiduciary breach claim to proceed in tandem with a claim for benefits so long as both claims set forth a different theory of relief. The court found that Plaintiff had made this showing, as “[e]ven if an administrator made a decision with procedural irregularities that seriously breach its duties to its beneficiary, it is not necessarily liable under (a)(1)(B); instead, the serious breach prompts a more searching review of the denial of benefits claim.” The Eighth Circuit remanded the breach of fiduciary duty claim for further proceedings.

This decision stands in sharp contrast to the Sixth Circuit’s en banc decision in Rochow v. Life Insurance Company of North America, 780 F.3d 364 (6th Cir. 2015), and with Varity Corp. and its progeny. In Rochow, the Sixth Circuit held that because the plaintiff could be made whole by the remedies available under section 502(a)(1)(B) and section 502(g) through payment of benefits, interest, and attorney’s fees, the plaintiff could not recover under section 502(a)(3). Given how out of step Jones is with longstanding practice, it is likely that Aetna will seek en banc review, or even file a petition of certiorari with the Supreme Court. Nevertheless, while this case continues to work its way through the courts, it is likely that plaintiffs will rely on Jones in justifying pairing routine claims for benefits with claims for equitable relief.

An upsurge in such litigation, while in the short-run potentially advantageous to participants who will be able to obtain extra-contractual equitable remedies (such as sur-charge and disgorgement), risks in the long run causing insurers to greatly raise premiums to address high litigation costs. This in turn risks chilling the willingness of employers to offer ERISA disability benefits to their employees. Stay tuned for how this case plays out, either on further appeal or in future cases.

By: Jim Goodfellow and Ian Morrison

Seyfarth Synopsis: The Fifth Circuit has concluded that Texas’ ban on discretionary language in insurance policies does not alter the standard of review related factual determinations made by ERISA administrators. In so holding, the Court has suggested that Texas’ ban on discretionary language does not apply to non-insurance policy plan documents, which could create a circuit split on this issue.

In Ariana M. v. Humana Health Plan of Texas, Inc., No. 16-20174 (5th Cir. Apr. 21, 2017), the Firth Circuit concluded that Texas’ ban on discretionary clauses in certain insurance policies did not require a de novo review of the defendant administrator’s factual determinations in an ERISA claim for benefits.

In the Fifth Circuit, an ERISA administrator’s factual conclusions are reviewed for an abuse of discretion regardless of whether the plan contains Firestone discretionary language. See, e.g., Green v. Life Ins. Co. of N. Am., 754 F.3d 324, 329 (5th Cir. 2014) (noting that the standard of review for factual determinations is abuse of discretion regardless of the presence of a discretionary clause); Dutka ex rel. Estate of T.M. v. AIG Life Ins. Co., 573 F.3d 210, 212 (5th Cir. 2009) (“with or without a discretion[ary] clause, a district court rejects an administrator’s factual determinations in the course of a benefits review only upon the showing of an abuse of discretion.”).

Texas has enacted a ban on discretionary language in insurance policies: Texas Insurance Code Section 1701.062(a). In Ariana, the plaintiff argued that this ban precludes deference to and mandates a de novo review of the administrator’s factual findings. The Fifth Circuit rejected this argument, stating that “[t]he plain text of [Section 1701.062(a)] provides only that a discretionary clause cannot be written into an insurance policy; it does not mandate a standard of review.” Thus, “[Section 1701.062(a)], by its terms, does not mandate a standard of review.” Instead, it provides only that an insurer “may not use a document if the document contains a discretionary clause.” The Fifth Circuit interpreted Section 1701.062(a) to mandates what language can and cannot be put into an insurance contract in Texas, but stated that “[i]t does not mandate a specific standard of review for insurance claims.”

This decision preserves the abuse of discretion review of factual findings, but also suggests that the Fifth Circuit would find that Texas’ discretionary ban does not apply to non-insurance policy plan documents, and does not apply to insurance policies issued in states other than Texas.

By: Michael Stevens and Ronald Kramer

Seyfarth Synopsis:  The Sixth Circuit becomes the seventh circuit court to not require administrative exhaustion for statutory ERISA claims (as opposed to denial of benefit claims), while two circuit courts still do.

In a decision earlier this month, the Sixth Circuit joined six other circuit courts in holding that ERISA claims that seek vindication of statutory ERISA rights pertaining to the legality of a plan amendment, as opposed to an interpretation of the plan, are not subject to administrative exhaustion requirements.  The Sixth Circuit joined the Third, Fourth, Fifth, Ninth, Tenth, and D.C. Circuits in so holding, while the Seventh and Eleventh Circuits require administrative exhaustion even where plaintiffs assert statutory rights.

In Hitchcock v. Cumberland University 403(b) DC Plan, No. 16-5942, — F.3d —-, 2017 WL 971790 (6th Cir. Mar. 14, 2017), Plaintiffs, participants in the Defendant University’s defined contribution pension plan, challenged a retroactive amendment pertaining to matching contributions.  In 2009, the University added a five percent matching contribution, and amended the summary plan description to define the match.  However, in October 2014, the University amended the plan to replace the five percent match with a discretionary match, and retroactively made the match for the 2013-14 year zero percent.  In May 2014, the University had announced that the match for the 2014-15 year would also be zero percent.

In November 2015, Plaintiffs filed suit on a purported class basis bringing four counts:  wrongful denial of benefits under 29 U.S.C. § 1131(a)(1)(B), an anti-cutback violation under 29 U.S.C. § 1054(g), failure to provide notice under 29 U.S.C. § 1132(a)(3), and breach of fiduciary duty under 29 U.S.C. § 1104.

Defendants ultimately filed a motion to dismiss (which was converted to a motion for judgment on the pleadings), which in relevant part asserted that Plaintiffs had failed to administratively exhaust their anti-cutback and breach of fiduciary duty claims.  The district court granted the motion, finding that Plaintiffs had failed to exhaust their administrative remedies.  Plaintiffs appealed.

The Sixth Circuit reversed, holding that Plaintiffs’ claim challenged the “legality of the Plan amendment . . . [not] the calculation of their benefits.”  The district court improperly construed Plaintiffs’ claims, because the “resulting benefits are not the gravamen of Plaintiffs’ challenge. . . . It is a serious mischaracterization to simply say that because the denial of benefits claim and the statutory ERISA claims result in the same monetary sum, all must constitute denial of benefits claims.  Our precedent indicates that administrative exhaustion is a futile requirement for statutory ERISA claims that challenge the legality of a plan amendment.” (Emphasis added.)

The Court cautioned that “plan-based claims ‘artfully dressed in statutory clothing,’ such as where a plaintiff seeks to avoid the exhaustion requirement by recharacterizing a claim for benefits as a claim for breach of fiduciary duty” are still subject to administrative exhaustion.  The touchstone is what forms the basis for the right to relief:  “[T]he contractual terms of the pension plan or the provisions of ERISA and its regulations. . . The rights Plaintiffs assert—the right to receive accrued benefits which have not been decreased by an illegal amendment, and the right to have a fiduciary discharge his or her duties in accordance with the statute—are granted to them by ERISA, not by the Plan’s contractual terms.  Thus, Plaintiffs assert statutory claims, which are not subject to the exhaustion requirement.”

With the majority of circuits now firmly holding that exhaustion is not required for statutory claims, it is unclear whether Hitchcock is a likely vehicle for the Supreme Court to resolve the dispute.  In the meantime, plan defendants seeking to require administrative exhaustion must make their best efforts to characterize plaintiffs’ claims as challenges to plan terms or benefits determinations, rather than seeking vindication of statutory rights under ERISA.

By: Alexius O’Malley and Sam Schwartz-Fenwick

Seyfarth Synopsis: A Court ruled that under the Affordable Care Act, an ERISA governed plan exclusion cannot unequivocally bar emergency medical care related to injuries sustained in a fireworks explosion.

Recently, a federal court in Minnesota addressed whether a participant in a self-funded ERISA-governed welfare plan, could recover $225,000 in medical care and expenses incurred for injuries participant sustained in an explosion while igniting mortar-style fireworks on Independence Day 2015.  In Henrikson v. Choice Products USA, LLC, 16-CV-1317 (MJD/LIB), 2016 WL 6143357 (D. Minn. Oct. 20, 2016), the plan had denied the benefit claim due to its illegal activities exclusion for medical care. In challenging the benefit denial, Plaintiff raised a mix of claims under ERISA, common-law and the Affordable Care Act (ACA).

The Court found that the illegal activities exclusion was unambiguous. It further found the exclusion was not void as a matter of public policy. In so finding the Court rejected Plaintiff’s novel theory that because “everyone” lights fireworks on Independence Day, applying the illegal activities exclusion would be improper

The Court found it could not determine on a motion to dismiss whether the illegal activities exclusion extended to firework use. It noted the plan was ambiguous as to which law governed the illegality of an activity. Plaintiff argued that the plan was ambiguous in that the applicable law could be Minnesota (Plaintiff’s residence, where igniting fireworks is illegal), Wisconsin (the employer’s home state, where the plan was given effect, where igniting fireworks is legal), or Federal (due to ERISA preemption, where no federal law exists that would render ignition of fireworks illegal). The appropriate governing law for criminal activity would typically be the state in which the act occurred, nonetheless, the Court declined to rule on that issue at the motion to dismiss stage and found Plaintiff’s ambiguity argument plausible.

The Court further found that because the plan at issue was a “group health plan” under the ACA and that Plaintiff sufficiently pled that the plan covers some services in an emergency department of the hospital, it was “facially plausible” that the ACA would require the plan to provide “emergency services” and could not deny such coverage. The ACA does not mandate that a “group health plan” cover emergency services, but it does mandate that if a plan does cover “emergency services” those services must be reimbursed at the same level in-network and out-of-network. A ruling that the ACA requires coverage for emergency services would be a very broad expansion of the law.

This decision highlights the importance of ensuring that plan language is clearly drafted so as to avoid preventable ambiguity. The decision further underscores plaintiffs’ utilization of the ACA to increase the theories and remedies available in ERISA benefits cases.

By: Amanda Sonneborn and Thomas Horan

Be careful what you ask for. The Plaintiff in a recent case from the Central District of California learned that lesson when the Plan’s re-evaluation of her claim for benefits revealed that she was apparently working as a stunt coordinator and stunt actress, despite having received disability pension payments for nearly ten years. In Hoffman v. Screen Actors Guild-Producers Pension Plan, the Plaintiff sought to convert her disability pension to an “occupational disability pension” to receive the additional benefit of health coverage. The Plan denied her request, finding a lack of evidence that her disability (severe depression) had resulted from her employment as a stunt actress. The Benefits Committee denied her appeal of that decision, and Plaintiff brought suit to challenge that determination. No. 2:16-cv-01530, 2016 WL 6537531 (C.D. Cal. Nov. 2, 2016).

The district court granted the Plan’s original motion for summary judgment on May 3, 2012. The Ninth Circuit reversed that decision, finding that the Plan had failed to provide Plaintiff a full and fair review, and directed that the case be remanded to the Plan to obtain a second medical opinion. The Plan submitted Plaintiff’s file for consideration by two panels, including six different specialists. Five specialists reached the conclusion that Plaintiff had never been “totally disabled” under the Plan. The sixth found that she could work in jobs that met certain criteria.

The review also revealed that Plaintiff had continued working as a stunt coordinator since 2004, despite receiving disability pension benefits because she was “unable to work.” Plaintiff’s personal website, LinkedIn profile, and IMDb page listed stunt and acting credits from 2004 through 2010. Plaintiff removed these posts after Defendants brought them to the court’s attention in supplemental pleading.

In March 2016, the Benefits Committee both denied Plaintiff’s appeal as to her “occupational disability pension” and terminated her disability pension. Plaintiff again sued to challenge that determination. The parties agreed that the Plan gave discretion to the administrator, and the court applied an abuse of discretion standard. The court found that the decision to deny Plaintiff benefits was neither arbitrary nor capricious.

The court found that the Benefits Committee had given Plaintiff a clear, reasoned explanation of its decision, and that it was rationally based on two reports, from six different medical specialists, as well as on Plaintiff’s various internet profiles. As the Committee did not abuse its discretion, the court found that Plaintiff lacked standing to challenge the Plan’s failure to comply with disclosure requirements, as she lacked a colorable claim on her suit for benefits.

This case demonstrates the value of thoroughly investigating a claim for benefits, and documenting the investigation. What plaintiffs say in court filings or claims for benefits is not always consistent with what they say in other arenas. This decision shows that courts are willing to consider evidence that plaintiffs’ social media or internet presence can disprove their claims to be totally disabled or otherwise unable to work.

By: Amanda Sonneborn and Jules Levenson

Seyfarth Synopsis: Court excludes evidence of Social Security disability award issued after the final decision issued on plaintiff’s claim for plan disability benefits.  The decision accentuates the importance of fighting to limit the evidence before a Court on review of a plan administrator’s decision.

Just like football is a game of inches, a recent case from the Northern District of Ohio reminds us that the outcome of a denial-of-benefits appeal can sometimes turn on quirks of timing.  In Folds v. Liberty Life Assurance Co., the Plaintiff had successfully sought benefits for his Crohn’s disease under his own-occupation disability plan and had been receiving benefits for 10 months when Defendant questioned his continuing eligibility and ultimately determined that he was no longer eligible for benefits. No. 15-CV-00354, 2016 WL 5661615 (N.D. Ohio September 30, 2016).

Plaintiff unsuccessfully then appealed twice, with his second appeal being decided only four days before the Social Security Administration awarded him benefits. Id. at *6.  He then sued claiming that the denial of benefits was arbitrary and capricious, based in part on the failure to consider the SSA decision, as well as a host of other reasons, including failure to conduct an independent medical exam, reliance on Defendant’s own physicians’ file review, failure to consider a letter from Plaintiff’s primary care physician and failure to consider a vocational report.

In a significant victory for Defendant, the Court struck the SSA decision because it had been issued after the conclusion of the appeal process and was therefore not part of the administrative record. In light of this ruling, the Court refused to consider the SSA decision, which had been submitted by Plaintiff to “show how a neutral body would analyze the very same set of facts,” holding that that the decision was not properly before the Court. Id. 

This case serves as a victory for plan administrators who often engage in heated battles with plaintiffs who seek to ever expand the scope of administrative records.  The decision here can be used by administrators as strong support for the proposition that courts should only consider the evidence before the administrators at the time of decision when reviewing those administrator’s decisions.

By: Jules Levenson, Meg Troy and Ian H. Morrison

            Knowingly spending money that isn’t yours sounds like a no-no, but depending on how the Supreme Court rules in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan (No. 14-723), certain ERISA plan participants may well have that perverse incentive, owing to obscure and arcane distinctions between legal and equitable relief.

On November 9, the Supreme Court held oral argument in Montanile, a case positioned to shake up accepted ERISA plan practices related to collection of third-party recoveries. The petitioner, (Robert Montanile) was injured in a car accident caused by a drunk driver and the respondent Plan (a multi-employer health and welfare plan) paid substantial amounts to cover related medical expenses. Montanile then sued the other driver involved in the accident and settled the case for $500,000.

Following the settlement (and a $200,000 payment to Montanile’s lawyer), the plan entered into negotiations to recover the $121,000 it had paid for Montanile’s medical expenses, based on its subrogation rights under the plan documents. In the ensuing ERISA action, filed after negotiations broke down, the district court found the settlement proceeds to be an identifiable fund and upon which it could impose an equitable lien in favor of the Plan Trustees. Bd. of Trustees of Nat. Elevator Indus. Health Ben. Plan v. Montanile, 593 F. App’x 903 (11th Cir. 2014)

But there was a catch. It turned out that Montanile had already deposited the money into his general bank accounts and spent it, so any recovery would have been out of his assets, not from the monies specifically obtained in the settlement. So what? Well, ERISA allows only equitable remedies in a case like this, and if the money was not an identifiable fund, there might not be an equitable way to get it.

This nicety of equity jurisprudence set the stage for an oral argument that traveled back in time to the days of the divided courts and the treatises of Justice Story. The key question confounding the Court was what relief was equitable – and when, in the development of equity, did that relief have to originate?

Montanile’s attorney, raising the specter of funds clawed back from innocent beneficiaries, argued for a strict tracing rule, under which the plan could only recover if it could trace settlement money to specific monies, using equity presumptions as to which funds were from the settlement and which were just general assets. This position would permit participants like Montanile to have a windfall from getting their benefits and keeping third-party recoveries for the underlying injuries. That position, also supported by the Solicitor General, seems an about-face from the (losing) position taken by the Solicitor General in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), where the government argued for a broad construction of what relief was equitable. Conversely, the plan’s attorney argued for a broad theory of recovery, but was repeatedly pressed on his apparent insistence that the plan could recover the funds under equitable remedies that may have developed too late to be among the remedies “traditionally available in equity” that are available under ERISA.

Administrators and fiduciaries of ERISA health and welfare plans are waiting with baited breath for the decision, which could take several months. In the interim, ERISA plans should keep a close eye on payouts made to beneficiaries who might recover in a subsequent tort suit – and particularly to any settlements received. It may be possible to recover payments even under Petitioner’s tracing theory, but it will require vigilance and quick action. And so we wait to see: what gems are buried in the history of equity?

 

By Ward Kallstrom and Andrew Scroggins

Claims by providers seeking to assert the rights of ERISA plan participants have been percolating in courts throughout the country.[1] The Seventh Circuit has now weighed in, rejecting the notion that providers who have payment disputes with ERISA plans are entitled to utilize a plan’s ERISA-mandated claims appeal procedures simply by virtue of being part of the plan’s network.[2]

The litigation began in 2009, when the Pennsylvania Chiropractic Association and several chiropractors filed suit against Blue Cross and Blue Shield Association and a number of Blue Cross and Blue Shield entities to challenge the insurers’ recoupment policies. The insurers had paid for health care services the providers had provided to patients, but subsequently unilaterally determined those payments were calculated on the wrong basis (e.g., fee for service rather than a capitated fee). The Insurers demanded repayment or withheld future payments in order to recoup the overpayments.

Although they had provider contracts with the insurers that specified the basis for calculation of their fees, the plaintiffs characterized the recoupments as retroactive denials of benefits due under the underlying ERISA plans of the insurers’ customers and argued that they were entitled to the same protections afforded to plan participants under ERISA Section 503’s claims procedure, 29 U.S.C. 1133, which requires that every employee benefit plan:

  1. provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and
  2. afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.

Following a trial in December 2013, Judge Kennelly of the Northern District of Illinois accepted the plaintiffs’ theory. The judge entered a permanent injunction against one of the insurers, Independence Blue Cross (“IBC”) requiring that its claims notices and appeal procedures meet the ERISA procedural requirements. This injunction would have required recoupment notices to include an explanation of IBC’s reasoning; identify plan provisions to support IBC’s position; describe information the provider could submit to avoid repayment; and provide notice of appeal rights. In the event of an appeal, the injunction would have required IBC to accept any comments or documents submitted by the provider and to disclose any records relevant to its final decision.

IBC appealed the decision to the Seventh Circuit, where a skeptical Judge Easterbrook dispatched the plaintiffs’ claims as exceeding ERISA’s requirements, reversing the district court decision.

First, the court observed that ERISA’s claims procedures are available only to “participants” and “beneficiaries.” The plaintiffs conceded they are not participants, and the court rejected plaintiffs’ arguments that they are beneficiaries. ERISA defines a “beneficiary” as a person designated “by a participant” or “by the terms of an employee benefit plan.” The providers did not have assignments of claims from their patients and could not point to any plan term that would make them beneficiaries. The court rejected the providers’ argument that they became beneficiaries simply by virtue of their contracts with IBC.

Second, the court rejected the providers’ strange argument that “every insurer (perhaps every policy)” should ipso facto be deemed to be a “plan,” thus making every provider-insurer agreement subject to ERISA rules. Here again, the court relied mainly on ERISA’s definitions. A “plan” is “any plan, fund, or program. . . established or maintained by an employer or by an employee organization, or by both, to the extent such plan, fund or program was established or is maintained for the purpose of” providing medical or other employee benefits. Independence, which was created decades before ERISA, is not established or maintained by an employer, and serves millions of people (more, the court noted, than any ERISA plan), does not fit the bill. The court pointed out that the providers had contracted with the insurers as insurers (the court characterized these as “wholesale-level” contracts), not with employers or plan sponsors (which the court described as “retail-level” contracts). Not “any document related to a plan is itself a plan” (court’s emphasis).

Finally, the court was unmoved by the providers’ concern that ERISA’s preemption clause might prevent them from bringing state law claims to enforce their contract claims. In the court’s view, “[w]e need not distort the word ‘beneficiary’ in order to enable medical providers to contract for and enforce procedural rules about how insurers pay for medical care.”

In reaching this result, the Seventh Circuit joined the Second Circuit[3] in holding that in-network status is not enough to entitle a provider to the ERISA rights afforded to participants. The dismissive tone of the Seventh Circuit’s decision, which relied on little more than the text of the statute, also suggests that the court did not view the decision as a close one. Perhaps the decisions by these two influential courts will begin to stem the tide of ERISA claims brought by providers.

[1] See links to prior blog posts on this topic:

http://www.erisa-employeebenefitslitigationblog.com/2015/07/01/chasing-payments-district-court-holds-that-providers-lack-standing-to-sue-erisa-plans-for-benefits-if-the-patients-remain-liable-to-the-provider-in-the-event-of-non-payment/

http://www.erisa-employeebenefitslitigationblog.com/2015/04/24/fifth-circuit-finds-out-of-network-medical-provider-has-standing-to-sue-health-plan/

http://www.erisa-employeebenefitslitigationblog.com/2013/11/12/out-of-network-provider-may-get-in-network-erisa-plan-reimbursement/

http://www.erisa-employeebenefitslitigationblog.com/2011/10/25/northern-district-of-california-ruling-of-first-impression-on-right-of-medical-plan-trustees-to-claw-back-overpayments-from-health-care-providers/

 

[2] Pennsylvania Chiropractic Ass’n v. Independence Hosp. Indem. Plan, Inc., No. 14-2322, — F.3d –, 2015 WL 5853690 (7th Cir. Oct. 1, 2015)

[3] Rojas v. CIGNA Health & Life Insurance Co., 793 F.3d 253 (2d Cir. 2015).