:: How to Enforce Oral Contractual Arrangements For Health Care Provider Reimbursement

Defendants next argue that, even if Sigma Delta was authorized to enter into contracts with Defendants on behalf of Plaintiffs, Plaintiffs’ cause of action fails as a matter of law because Plaintiffs cannot establish the elements required to prove the existence of an oral contract of which the value exceeds $500.

Ctr. for Restorative Breast Surgery, L.L.C. v. Blue Cross Blue Shield of Louisiana, No. CV 11-806, 2016 WL 4208479, at *11 (E.D. La. Aug. 10, 2016)
In this case, the plaintiffs were out-of-network health care providers who provided services to patients covered under the defendants’ plans and policies.  The plaintiffs alleged that they received preauthorization from the defendants.   Among other things, the plaintiffs argued that these agreements constituted enforceable oral contracts.

So,are oral contracts enforceable?  Any first year law student knows the answer.  Of course they are.  But . . .

The practical problem is – how do you prove the terms?
The situation here is not unusual in the context of health care provider reimbursement.  Many times the terms and conditions of payment are reached telephonically – so this issue is important.

Let’s return to the case at bar before discussing the issue further.
The defendants raised a defense based on statute but that goes back to the English common law.

 It is undisputed that the value of the alleged oral contracts exceed $500. Louisiana Civil Code article 1846 requires that, when the plaintiff alleges the existence of an oral contract of which “the price or value is in excess of five hundred dollars, the contract must be proved by at least one witness and other corroborating circumstances.”

For those interested in history, the law dates back to the 1600’s.  The law is generally known as the the “Statute of Frauds” and is based on a 1677 act passed by the English Parliament, originally known as “An Act for the Prevention of Frauds and Perjuries.”

And in this case, this defense was fatal to the plaintiffs’ claims:

Plaintiffs do not offer any evidence from another source to establish corroborating circumstances of the alleged contract. “[W]ithout the necessary corroborating evidence, a claimant’s testimony, standing alone, is insufficient to prove the existence or amendment of an oral contract.” Defendants’ motion for summary judgment on Plaintiffs’ state-law cause of action for breach of contract in Count VI is granted.

So are oral contracts of any value at all?  It would seem not.  But that would be a premature judgment.

In fact many exceptions can be found to the statute of frauds.  Given the frequency of this issue in provider reimbursement cases, these are exceptions worth exploring.
Exceptions include contracts that can be performed within one year, contracts which are partially performed, and equitable estoppel.   (e.g., see, http://www.vsb.org/docs/conferences/young-lawyers/dc_spr2013.pdf).  And see, 2 Wm. & Mary Bus. L. Rev. 73 (2011).

Note – An example of a successful pleading and proof of an oral contract may be found in Queen’s Med. Ctr. v. Kaiser Found. Health Plan, Inc., 948 F. Supp. 2d 1131, 1144 (D. Haw. 2013):

Plaintiff sufficiently pleads an oral contract based on the following allegations: (1) the offer – Plaintiff offered to continue to provide healthcare services in exchange for Kaiser’s agreement to reimburse Plaintiff for 100% of the billed charges (Compl. at 18 ¶ 58), (2) acceptance – Kaiser acknowledged that it would need to pay 100% of the billed charges for services provided by Plaintiff (Compl. at 7, ¶¶ 15, 18, 19), and (3) consideration – Plaintiff would provide services in exchange for Kaiser’s payment (Compl. at 7, ¶ 15).

:: Fiduciary Liable Under ERISA For Denied Life Insurance Coverage

In short, the Court finds that Plaintiffs have met their summary-judgment burden by presenting evidence that Church’s made representations to Van Loo implying that she had completed her enrollment for a level of coverage that never actually became effective. Church’s attempts to isolate and neutralize individual statements do not change this result.

Loo v. Cajun Operating Co. d/b/a Church’s Chicken, No. 14-CV-10604, 2016 WL 3137822, at *7 (E.D. Mich. June 6, 2016)

This case illustrates how an employer can end up paying a high price for assuming that an insurance company will take responsibility for providing necessary information to its employees.  In this instance, the group life carrier denied coverage for additional benefits due to failure to supply an “evidence of insurability” form for the increased coverage.

The Court was not impressed with the employer’s attempt to shift blame:

And while Church’s points the finger at Reliance, stating that Reliance’s Plan Administrator Guides did not offer Church’s any guidance on the EIF requirement, it is undisputed that Church’s had access to the Policy. And the Policy articulated the EIF requirement.

The Plaintiff made out a successful claim for breach of fiduciary duty by negligent misrepresentation in the following manner: Continue reading

:: ERISA Claims For Alleged Overpayments To Hospital Fail To Qualify As “Equitable Relief”

Based on the analysis and reasoning set forth herein, the Court determines that Cigna’s claim(s) for reimbursement of overpayments made pursuant to ERISA and/or common law fail, as a matter of law; therefore, Humble’s Rule 52 motion for judgment should be GRANTED. The Court further concludes that Cigna’s defenses to Humble’s ERISA claims fail and Humble is entitled to recover damages under § 502(a)(1)(B)1 and penalties under § 502(c)(1)(B).

CONNECTICUT GENERAL LIFE INSURANCE COMPANY, et al., Plaintiffs, v. HUMBLE SURGICAL HOSPITAL, LLC, Defendant., No. 4:13-CV-3291, 2016 WL 3077405, at *2 (S.D. Tex. June 1, 2016)

Though the seminal cases defining the scope of equitable relief under ERISA (via Section 502(a)(3)) occur in the health plan subrogation and reimbursement context, the consequences of those decisions reach beyond to include reimbursement claims for plan overpayments.

In the cited case, CIGNA asserted claims under the plan’s “Overpayment” clause based on its position that it had overpaid a health care provider.

As a threshold matter, Cigna asserts a claim for equitable reimbursement of overpayments pursuant to ERISA § 502(a)(3). Specifically, Cigna seeks equitable restitution in the amount of $5,121,137.

That sort of overpayment claim would not be expected to have occurred on just a few claims and in fact, it did not.

The evidence shows that this sum represents the difference between the benefits that Cigna paid and the benefits that the members/patients were contractually entitled to receive under the plans.

So, after CIGNA “discovered” the billing pattern that caused this situation, it sued the provider basing its case in part upon ERISA.
Be careful what you ask for . . . 
In this context, the plan fiduciary has to be very careful about what relief is requested.   Continue reading

:: Equitable Surcharge and Reformation – New Remedies Add Bite to Bungled Insurance Benefits Administration

Plaintiff claims that Defendants’ alleged mishandling of Guy Barnette’s request to port his life insurance and failure to inform him of his other options under the Policy constitute breaches of fiduciary duty.  She has alleged a claim solely pursuant to § 502(a)(3), 29 U.S.C. § 1132(a)(3), of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. Barnette v. Sun Life Assurance Co. of Canada, No. CV 4:15-3720, 2016 WL 1384688, at *2 (S.D. Tex. Apr. 7, 2016)

This case illustrates the possible use of surcharge and reformation as a solution for fiduciary malfeasance in the communication and handling of a life insurance benefits.

:: District Court Opinion Provides A Primer On ERISA Venue Considerations

28 U.S.C. § 1404(a) provides that, for “the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.”  The plain text of § 1404(a) requires a two-part analysis.  The Court must first determine if the action could have originally been filed in the transferee district.  Van Dusen v. Barrack, 376 U.S. 612, 616 (1964).  If so, the Court must then determine “whether, on balance, a transfer would serve ‘the convenience of the parties and witnesses’ and otherwise promote ‘the interest of justice.’”  Atl. Marine Constr. Co. v. U.S. Dist. Court for W. Dist. of Tex., 134 S. Ct. 568, 581 (2013) (quoting 28 U.S.C. § 1404(a)).

JANICE D. YOUNGBLOOD, Plaintiff v. LIFE INSURANCE COMPANY OF NORTH AMERICA (W.D. Kentucky April 14, 2016) Slip Copy 2016 WL 1466559

In this claim for long term disability benefits case, the plaintiff filed suit in the Western District of Kentucky though she lived in the Northern District of Alabama for a company that was headquartered in Wisconsin. Which district is proper for venue?

The district court reviewed the various factors and provides a useful overview of considerations involved in on a motion to transfer venue (which the defendant LINA filed). The plaintiff clearly wanted the case in the Sixth Circuit but the court found that Alabama was the proper venue after applying the factor analysis.

Preliminary Question

As an initial matter, the court noted that venue must be proper in another district before the Court can transfer. Venue in an ERISA action is proper in any district: Continue reading

:: Regulatory Defect Renders Plan’s Contractual Limitation Period Void

Based on the plain language of the regulation, we hold that the correct interpretation of section 2560.503-1(g)(1)(iv) is that a denial of benefits letter must include notice of the plan-imposed time limit for filing a civil action. . . .

[T] the Department of Labor requires plan administrators to give notice of the limitations period in the denial of benefits letter — even when the information is also contained elsewhere in the plan documents . . . This leaves us with but one conclusion to draw, which is that the regulation itself contemplates that failure to include this information in the denial of benefits letter is per se prejudicial to the plaintiff.

Santana- Díaz v. Metropolitan Life Insurance Co., No. 15-1273, 1st Cir. (March 14, 2016)

This long term disability case illustrates the importance of including notice of contractual limitation periods on filing suit.

Contractual Limitations Periods

ERISA itself does not contain a statute of limitations for bringing a civil action, see 29 U.S.C. § 1132(a)(1)(B), so federal courts usually “borrow the most closely analogous statute of limitations in the forum state.”  On the other hand, plans may impose a contractual limitations period and in such cases, courts will enforce the provision so long as it is reasonable.

Equitable Tolling

In the case at bar, the plaintiff argued that the plan failed to advise him of the limitations period in the plan and therefore the plan should not be allowed to enforce the three year period set forth in the document.  In other words, the plaintiff asked to court to “toll” or suspend the running of the limitations period.

A limitations period may be equitably tolled where a plaintiff establishes that “extraordinary circumstances” beyond his control prevented a timely filing, such as where the plaintiff was “materially misled into missing the deadline.” BarretoBarreto v. United States, 551 F.3d 95, 101 (1st Cir. 2008) (citations omitted).  The Court chose a different solution.

Regulatory Compliance Defect

Rather than resolving the issue in terms of equitable remedies, the Court concluded MetLife’s regulatory violation rendered the contractual limitations period altogether inapplicable.

Department of Labor regulations require that a plan administrator to provide “written or electronic notification of any adverse benefit determination” that includes a “description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action.” 29 C.F.R. § 2560.503-1(g)(1)(iv).

The Court held that this language required inclusion of the time limits in the denial letter, stating:

Based on the plain language of the regulation, we hold that the correct interpretation of section 2560.503-1(g)(1)(iv) is that a denial of benefits letter must include notice of the plan-imposed time limit for filing a civil action. To repeat, the regulation states that the letter must contain a “description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action.” 29 C.F.R. § 2560.503-1(g)(1)(iv) (emphasis added).

Substantial Compliance Defense

Courts only require “substantial compliance” with the regulations such that a plaintiff must demonstrate that the violation prejudiced him by affecting review of his claim. In other words, a plaintiff must make some “showing that a precisely correct form of notice would have made a difference.” Recupero v. New England Tel. & Tel. Co., 118 F.3d 820, 840 (1st Cir. 1997).  In the case at bar, however, the violation failed to meet even this general compliance standard.

The Court stated that:

 . . . we hold that, where a plan administrator fails, as MetLife did here, to include the time limit for filing suit in its denial of benefits letter, and it has not otherwise cured the defect by, for example, informing the claimant of the limitations period in a subsequent letter that still leaves the claimant sufficient time to file suit, the plan administrator can never be in substantial compliance with the ERISA regulations, and the violation is per se prejudicial to the claimant.


By holding the contractual limitations period inapplicable, the Court placed the issue back in the realm of the most analogous state statute.  In this case, that was the 15 year contractual limitations period – which left the plaintiff’s suit well within the allowable time period to be timely.

Note:  The First Circuit noted that both the Third and Sixth Circuits have interpreted section 2560.503-1(g)(1)(iv) as it did, and have held that the regulation requires a plan administrator to provide in its final denial letter not only notice of the right to bring a civil action, but also of the time limit for filing the action.  See, Mirza v. Insurance Administrator of America, Inc., 800 F.3d 129 (3d Cir. 2015); Moyer v. Metropolitan Life Insurance Co., 762 F.3d 503 (6th Cir. 2014); but cf., Wilson v. Standard Insurance Co., 613 F. App’x 841 (11th Cir. 2015) (per curiam) (unpublished).

:: Supreme Court To Address Circuit Split On ERISA Plan Subrogation Rights

On appeal, Montanile argues that the district court erred in finding that the Board could impose an equitable lien on the settlement funds because the funds had been spent or dissipated. As both parties recognize in their supplemental briefs, Montanile’s argument is now foreclosed by our recent holding in AirTran Airways, Inc. v. Elem, 767 F.3d 1192 (11th Cir. 2014).

This Court held in AirTran that, pursuant to § 1132(a)(3)(B), an equitable lien immediately attached to settlement funds where a plan provision’s unambiguous terms gave the plan a first-priority claim to all payments made by a third party. Id. at 1198. The AirTran court held that the settlement funds were “specifically identifiable,” and a plan participant’s dissipation of the funds thus “could not destroy the lien that attached before” the dissipation. Id. (emphasis in original). This holding binds our decision here. Accordingly, the Board can impose an equitable lien on Montanile’s settlement, even if dissipated, if his health benefit Plan gave the Plan a first-priority claim to the settlement payments Montanile received.

Bd. of Trs. of the Nat’l Elevator Indus. Health Benefit Plan v. Montanile, 2014 U.S. App. LEXIS 22438 (11th Cir. Fla. Nov. 25, 2014)

The U.S. Supreme Court granted certiorari granted in Montanile v. Bd. of Trs. Neihbp, 2015 U.S. LEXIS 2305 (U.S., Mar. 30, 2015) to settle a relatively simple question.  To put the question in context, the controversy can be summed up in a nutshell this way:

  1. ERISA permits suits by fiduciaries for equitable relief.
  2. The Supreme Court has been coy in telling us what equitable relief means, referring back to the days of the “divided bench” when equity and law claims were heard by separate courts.
  3. In 2002, the Court added some detail to the contours of permissible equitable relief – it said that a plan fiduciary’s claim for equitable relief would fail if the defendant was not in possession of the disputed funds. (Knudson)
  4. In 2006, the Court elaborated further by saying that a plan fiduciary’s claim for equitable relief would not fail just because it could not trace a money trail to the disputed funds. (Sereboff)
  5. The point in #4 did not alter or reverse the point in #3.  In other words, that the plan fiduciary did not have to trace its claims to funds in the defendant’s possession does not mean that the defendant does not have to have the disputed funds in possession.  (The majority of circuits, including the 11th in the Montanile case, do not accept this proposition.)

So, now the Court will apparently return to address once again the scope of equitable relief under ERISA Section 502(a)(3).

Possession of Funds Unnecessary 

The First, Third, Sixth, and Seventh Circuits deny my point #5 and do not require the defendant to have possession of the disputed funds.

Gutta v. Standard Select Trust Ins. Plans, 530 F.3d 614 (7th Cir. 2008)

Longaberger Co. v. Kolt, 586 F.3d 459 (6th Cir. 2009),

Cusson v. Liberty Life Assurance Co., 592 F.3d 215 (1st Cir. 2010)

Funk v. CIGNA Grp. Ins., 648 F.3d 182 (3d Cir. 2011).

Possession of Funds Necessary 

The Eight and Ninth Circuits held to the contrary.

Treasurer, Trustees of Drury Industries, Inc. Health Care Plan & Trust v. Goding, 692 F.3d 888 (2012), cert. denied, 133 S. Ct. 1644 (2013).

 Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083 (9th Cir. 2012), cert. denied, 133 S.Ct. 1242 (2013)

 Note:  The petitioner and respondent briefs can be read here:  http://www.scotusblog.com/case-files/cases/montanile-v-board-of-trustees-of-the-national-elevator-industry-health-benefit-plan/

:: Court Highlights Distinction Between Wrongful Death Claims And Claims By Estate In Subrogation Context

Where medical malpractice results in the death of a patient, the cause of action for medical malpractice survives, and may be asserted by the personal representative of the deceased. Id.; A.R.S. § 14-3110.

A survival claim compensates the decedent’s estate; a wrongful death claim compensates statutory beneficiaries for their losses. Gandy v. United States, 437 F. Supp. 2d 1085, 1087 (D. Ariz. 2006). A survival claim and a wrongful death claim are separate and distinct even when they originate from the same wrongful act . . .

MedCath Inc. Emple. Health Care Plan v. Stratton, 2015 U.S. Dist. LEXIS 5514 (D. Ariz. Jan. 16, 2015)

The federal courts distinguish between actions by an injured party or his estate and actions by his statutory beneficiaries under wrongful death statutes.  Two recent cases illustrate that distinction.

Stratton, cited above, is a wrongful death case.  The plan’s subrogation claims failed.

From the opinion:

ERISA “is built around reliance on the face of written plan documents.” U.S. Airways, 133 S. Ct. at 1548. ERISA permits Plaintiff to seek equitable relief to enforce the terms of the Plan, but the written plan documents authorize Plaintiff to recover payments for health care expenses incurred by Ms. Stratton only from proceeds paid in compensation for Ms. Stratton’s injuries. They do not entitle Plaintiff to recover from proceeds received in the wrongful death action for the losses suffered by Ms. Stratton’s children. Plaintiff’s subrogation and reimbursement rights do not apply in the circumstances of this action.

The Estate of Tracie Stratton was not a party to the wrongful death action and did not continue Ms. Stratton’s professional negligence action after her death. Plaintiff does not allege that the Estate has received any proceeds that would be subject to Plaintiff’s subrogation and reimbursement rights, i.e., compensation for Ms. Stratton’s injuries.

By contrast, in Norstan Inc. v. Lancaster, 58 Employee Benefits Cas. (BNA) 2451 (D. Ariz. June 25, 2014) (distinguished by the Stratton court), the ERISA plan’s right of subrogation and reimbursement applied to proceeds the estate recovered in a malpractice action for the same condition or injury for which the plan had paid medical expenses.  Thus, the plan’s subrogation claims succeeded in that case.

Note:  Though not cited in by the Stratton court, the seminal decisions on this issue are two Fourth Circuit cases: Liberty Corp. v. NCNB National Bank of South Carolina, 984 F.2d 1383 (4th Cir. 1993) and McInnis v. Provident Life & Accident Ins. Co., 21 F.3d 586 (4th Cir. 1994).  See discussion of these cases in Caterpillar, Inc. v. Wilhelm, 824 F. Supp. 2d 828 (C.D. Ill. 2009).


:: Pre-Litigation Document Exchange Does Not Trigger Federal Claim Removal Deadline

[T]he Eleventh Circuit has not appeared to have addressed the issue of whether “other papers” under 28 U.S.C. § 1446(b)(2) can include documents provided prior to the commencement of litigation, and indeed, a number of Circuit Courts of Appeal have provided that the answer to this question is “no.”  . . . “As other courts have recognized, if pre-suit documents were allowed to trigger the thirty-day limitation in 28 U.S.C. § 1446(b), defendants would be forced to ‘guess’ [*9]  as to an action’s removability, thus encouraging premature, and often unwarranted, removal requests.”

S. Broward Hosp. Dist. v. Coventry Health & Life Ins. Co., 2014 U.S. Dist. LEXIS 160463 (S.D. Fla. Nov. 13, 2014)

In this provider reimbursement case, an interesting procedural issue overlays the application of the two factor ERISA removal test set forth in Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004).

General Rule For Removal

The removal statute, 28 U.S.C. § 1146,  states that a notice of removal shall be filed within thirty days after the receipt by the defendant of a copy of the initial pleading.  But what if the initial state court pleading does not indicate a basis for removal?

“Other Paper” Hints

The statute contains a solution to that situation in subpart (2) which states that “a notice of removal may be filed within 30 days after receipt by the defendant, through service of otherwise, of a copy of an amended pleading, motion, order or other paper from which it may be first ascertained that the case is one which is or has become removable.”  (emphasis added)

The emphasized language brings a  factual component to the removal question.

Provider Reimbursement Overlay

Provider reimbursement cases can be particularly troublesome because not all such cases permit removal.

For example, in provider reimbursement cases, right of payment cases are removable but rate of payment cases are not under the two prong Davila test.   The Court in the case at bar stated the problem this way:

To address whether the claim falls within the scope of ERISA, the Eleventh Circuit has adopted a distinction between two types of claims: “those challenging the ‘rate of payment’ pursuant to the provider-insurer agreement, and those challenging the ‘right to payment’ under the terms of an ERISA beneficiary’s plan.”  “[A] ‘rate of payment’ challenge does not necessarily implicate an ERISA plan, but a challenge to the ‘right of payment’ under an ERISA plan does.”

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:: Bad Faith And Punitive Damages Claims Against Health Plan’s Stop Loss Carrier Are Questions For Jury

This case involves interpretation of provisions of a stop-loss insurance policy issued by Defendant Sun Life Assurance Company of Canada  (“Sun Life”) regarding the scope of its contractual obligation to reimburse Plaintiff Bay Area Roofers Health and Welfare Trust (“the Trust”) for claims paid on behalf of a worker’s minor children for medical care.

Sun Life asserts that coverage is precluded because the worker obtained his employment by fraud through submission of a false Social Security Number  (“SSN”). The Trust asserts that it determined that the worker was an eligible employee under the Health and Welfare Plan and thus, as required by the Policy, Sun Life is contractually obligated to reimburse it for its claims. Cross-motions for summary judgment are presently before the Court.

Bay Area Roofers Health & v. Sun Life Assur. Co., 2014 U.S. Dist. LEXIS 158048 (N.D. Cal. Nov. 6, 2014)

What effect should an employee’s use of an invalid social security number have on an employer’s claim for stop loss reimbursement? In this case, the carrier thought this should invalidate coverage.   The court disagreed.

If the carrier’s defense held, it could have had important and far-reaching consequences for employers.

Nevertheless, despite several complicated claims and defenses raised by the parties, the case essentially presents s state law contract question.   The case remained in federal court and, despite the  obfuscating arguments , ended up decided based upon state law.

The implications of the defense, however, remain an interesting topic and suggest several points that should be included in a due diligence review of stop loss contractual compliance.  Those points will be noted after a brief synopsis of the case as it was presented to the district court.

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:: Pleading a Successful Surcharge Claim under ERISA – District Court Decision Outlines Essential Elements

The Supreme Court in Amara endorsed the surcharge remedy as one available under section 1132(a)(3) on the principle that equity courts traditionally ordered that the “trust or beneficiary [be] made whole following a trustee’s breach of trust.” Amara, 131 S. Ct. at 1881 (emphasis added). “In such instances equity courts would ‘mold the relief to protect the rights of the beneficiary according to the situation involved.'” Id. (quoting George Gleason Bogert, et. al., The Law Of Trusts And Trustees § 861 at 4, emphasis added).

Four other circuits have held that Amara opens the door to monetary relief under a surcharge theory that will make a beneficiary whole for losses caused by a breach of fiduciary duty.

Zisk v. Gannett Co. Income Prot. Plan, 2014 U.S. Dist. LEXIS 157323 (N.D. Cal. Nov. 6, 2014)

The Zisk decision leaves open the door for surcharge claims as an equitable remedy under ERISA’s cramped list of available relief for plaintiffs.    The defendant hoped to close that door by reliance on a Ninth Circuit opinion touching on the issue, Gabriel v. Alaska Electrical Pension Fund, 755 F.3d 647 (9th Cir. 2014).  The district court rejected that claim, ruling instead that “the state of the law in this area is unsettled as to the proper contours of an equitable surcharge remedy.”

The interest in surcharge as a remedy stems from the important aspect of permitting monetary relief while still under the rubric of an equitable remedy.   So availability of the surcharge remedy looms large in the debate over appropriate equitable remedies. Continue reading

:: Tutorial: Unit 2 – Subrogation & Reimbursement – Collection of ERISA Disability Plan Cases

As noted in Unit 1, many courts have migrated away from the apparent teaching of Knudson that the defendant must be in possession of specifically identifiable funds (a “res”).   The first leaning away from the requirement occurred in some influential cases involving counterclaims by disability carriers against claimants that received SSD payments after having received LTD benefits.

The following is a collection of cases from the various circuits on this issue.  (N.B –  some of these cases are district court opinions).

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:: Fiduciary Exception To Attorney Client Privilege Explained

Krase has moved to compel LINA to produce four documents that LINA has withheld on grounds of attorney-client privilege, arguing that the documents fall within the “fiduciary exception” to the privilege.

“Under that exception, a fiduciary of an ERISA plan ‘must make available to the beneficiary, upon request, any communications with an attorney that are intended to assist in the administration of  the plan.'” Bland v. Fiatallis N. Amer. Inc., 401 F.3d 779, 787 (7th Cir. 2005). The exception does not apply to “[d]ecisions relating to the plan’s amendment or termination,” which are “not fiduciary decisions.” Id. at 788.

Krase v. Life Ins. Co. of N. Am., 2013 U.S. Dist. LEXIS 100302 (N.D. Ill. July 18, 2013)

The attorney-client privilege does not apply without limitation in ERISA cases.   As a general rule, the attorney-client privilege does not apply when an attorney advises a plan fiduciary about the administration of an employee benefit plan.  On the other hand, the attorney-client privilege does apply when an attorney advises a plan fiduciary regarding issues that do not involve actual administration of the plan.

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:: Concurrent Jurisdiction Applies In ERISA Dispute

 The threshold issue is whether state courts have jurisdiction to determine the  ERISA status of a plan. The Eighth Circuit directly considered this  question and determined that both state and federal courts have the power to  determine ERISA status. Int’l  Ass’n of Entrepreneurs of Am. v. Angoff, 58 F.3d 1266, 1269 (8th Cir.  1995).  The court  reasoned that because the law was silent on whether states have the power to  decide ERISA status the default rule should apply: “[u]nless instructed  otherwise by Congress, state and federal courts have equal power to decide  federal questions.” Id.

Although the Ninth  Circuit has not addressed this specific issue, it has held that “state courts  amply are able to determine whether a state statute or order is preempted by  ERISA.” Delta  Dental Plan of California, Inc. v. Mendoza, 139 F.3d 1289, 1296-97 (9th Cir.  1998) disapproved of on other grounds by Green  v. City of Tucson, 255 F.3d 1086 (9th Cir. 2001). Other courts that have  addressed this issue have found that both federal and state courts have  jurisdiction to decide the status of an ERISA plan. See Weiner  v. Blue Cross & Blue Shield of Maryland, Inc., 925 F.2d 81, 83 (4th Cir.  1991); Browning  Corp. Int’l v. Lee, 624 F. Supp. 555, 557 (N.D. Tex. 1986). Many courts  have also assumed concurrent jurisdiction to decide ERISA plan status  without specifically addressing the issue. See, e.g., Marshall  v. Bankers Life & Cas. Co., 2 Cal. 4th 1045, 1052-54, 10 Cal. Rptr. 2d  72, 832 P.2d 573 (1992).

Knapp v. Cardinale, 2013 U.S. Dist. LEXIS 98644 (N.D. Cal. July 15, 2013)

Although ERISA issues are typically resolved in federal court, this is not always the case.  Aside from occasional benefit claims disputes (where there is concurrent jurisdiction by statute), questions of preemption frequently arise in state courts as well.

In a recent district court case, the court explored questions of concurrent jurisdiction.  The underlying facts are somewhat curious.

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:: Plaintiffs’ Claims Under ERISA Section 510 and 502(a)(1)(B) Survive Motion To Dismiss

This case is before the court pursuant to defendant’s motion to dismiss for failure to state a claim upon which relief can be granted filed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. When a Rule 12(b)(6) motion is filed, the court tests the sufficiency of the allegations in the complaint. The “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)).

Put another way, granting the motion to dismiss is appropriate if plaintiff has not “nudged [her] claims across the line from conceivable to plausible.” Twombly, 550 U.S. at 570. The Third Circuit interprets Twombly to require the plaintiff to describe “enough facts to raise a reasonable expectation that discovery will reveal evidence of” each necessary element of the claims alleged in the complaint. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556). Moreover, the plaintiff must allege facts that “justify moving the case beyond the pleadings to the next stage of litigation.” Id. at 234-35.

Manning v. Sanofi-Aventis, U.S. Inc., 2012 U.S. Dist. LEXIS 114129 (M.D. Pa. Aug. 14, 2012)

The important semantics of stating a “plausible” claim with sufficient particularity came before the district court in this case. The requirements of ERISA Section 510 and 502(a)(1)(B) set the bar for the ERISA claimant.

The Plaintiff claimed benefits under the Defendant’s Employee Retirement Income Security Act (“ERISA”) Separation Plan. The Plaintiff had been terminated for disputed reasons and her position filled by an employee with less experience and at a lower salary.  (The Court’s ample citations to authority are omitted but are indicated by quotations below.)

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:: Choice of Law In ERISA Disputes – How State Law May Affect Outcomes On Judicial Review

Here, the Policy contained a valid choice of law provision, which indicates that the parties intended for the Policy to be governed by Texas law to the extent that it is not preempted by ERISA. Thus, in order to decide this issue, we must ascertain how to determine whether or not to enforce an ERISA plan’s choice of law clause in accordance with federal common law. Although we have not previously addressed this issue, a review of our caselaw in other federal question cases and of caselaw from our sister circuits in ERISA cases reveals three possible approaches to resolving this choice of law issue.

First, our sister circuits have applied two different tests when deciding whether to enforce an ERISA plan’s residual choice of law clause. Two of our sister circuits have held that “[w]here a choice of law is made by an ERISA contract, it should be followed, if not unreasonable or fundamentally unfair.” Wang Labs., Inc. v. Kagan, 990 F.2d 1126, 1128-29 (9th Cir. 1993); Buce v. Allianz Life Ins. Co., 247 F.3d 1133, 1149 (11th Cir. 2001). By contrast, the Sixth Circuit has applied the Restatement (Second) of Conflict of Laws to decide whether to give effect to a choice of law provision in an ERISA plan; it applied the Restatement because it found an “absence of any established body of federal choice of law rules.” Durden, 448 F.3d at 922 (citation omitted). Specifically, the court applied § 187 of the Restatement, which addresses when to apply the law of the state chosen by the parties. Id. at 922-23.

We have likewise generally referred to the Restatement when deciding choice of law issues in some admiralty cases, see Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882, 891 (5th Cir. 1991), and in a recent admiralty case we noted that § 187 supported our decision to enforce an insurance policy’s choice of law clause.

Jimenez v. Sun Life Assur. Co., 2012 U.S. App. LEXIS 17108 (5th Cir. La. Aug. 15, 2012)

This unpublished Fifth Circuit opinion addresses several sets of opposing principles in choice of law as applied in the ERISA context. While the court’s analysis is unremarkable, the issues raised by the parties suggest an interesting perspective on a familiar ERISA claims scenario.

The Plaintiff in the case at bar suffered serious injury while driving his automobile. The plan defended a claim under provisions that excluded coverage for injuries which were described as an “illegal acts” exception. The plan contended Plaintiff was injured while driving under the influence of alcohol which constituted an illegal act Continue reading

:: Health Care Provider “Balance Billing” Of The Personal Injury Plaintiff

Marcus Aurelius is a plan member of the Imperial group health plan. Imperial has contracted with Augustan, a preferred provider network or “PPO”.

Augustan has in place a managed care contract with a wide variety of physicians and hospitals. Under the contact, the providers agree to accept a discounted rate in exchange for steerage of patients by inclusion of the providers in the Augustan network that will be promoted to group health plans and claims administrators.

Imperial is impressed with the array of providers included in the Augustan network. The charge for participation in the network is a part of the base cost of Imperial’s group health plan, but the cost seems well worth it in view of the savings to Imperial and its group health plan members.

Marcus is involved in a personal injury accident in which he is not at fault. The at fault driver has a minimum limits liability policy in place with Chariot Insurance of Rome, Georgia.

(Stay with me here – this is the important part.) The Rome General Hospital submits a bill to Marcus. Rome General is a member of the Augustan network. Under the network contract, Rome General only gets 50 cents on the dollar.

Rome General refuses to bill the Imperial plan and insists that its bill be paid in its full amount from the personal injury settlement from Chariot Insurance. Since Rome General is billing the liability carrier, it contends that it is not subject to the network discount.

Marcus’ personal injury attorney argues that Rome General cannot opportunistically set aside its network contractual obligations.

Who is legally correct?

This is a common scenario. Yet, there are few reported cases addressing this issue. Continue reading

:: Health Care Provider’s Negligent Misrepresentation Claim Advances

I conclude that Rule 9(b) does not apply to the negligent misrepresentation claim before me. The crux of the claim is that Beverage failed to use reasonable care or competence in obtaining and communicating information concerning Hood’s eligibility. This rings not of fraud but negligence. See, e.g., Bloskas v. Murray, 646 P.2d 907, 914 (Colo. 1982). The claim should thus be governed by Rule 8(a).

Finding [cited cases] applicable and persuasive, and for the reasons they discussed, I conclude that ERISA would not preempt DHHA’s negligent misrepresentation claim.

Denver Health & Hosp. Auth. v. Beverage Distribs. Co., LLC, 2012 U.S. Dist. LEXIS 15901 (D. Colo. Feb. 8, 2012)

This case involves the rather familiar fact pattern wherein a health care provider disputes denial of its bill after having previously obtained preadmission authorization.

Continue reading

:: Five Year Limitations Period For COBRA Notification Lapse

. . . the magistrate judge followed the lead of the Fifth Circuit in Lopez ex rel. Gutierrez v. Premium Auto Acceptance, 389 F.3d 504, 507-510 (5th Cir. 2004) and cases cited therein which analogized such COBRA notice claims to unfair settlement practices claims. Such analogy is necessary, as the COBRA provision does not contain its own statute of limitations provision. DelCostello v. Int’l Brotherhood of Teamsters, 462 U.S. 151, 158, 103 S. Ct. 2281, 76 L. Ed. 2d 476 (1983)(where no express statute of limitations, borrow most closely analogous statute of limitations from state law).

Gilbert v. Norton Healthcare, Inc., 2012 U.S. Dist. LEXIS 17553 (W.D. Ky. Feb. 10, 2012)

The ERISA statutory scheme is many things, but one thing it is not.  It is most definitely not the “‘comprehensive and reticulated statute'” (Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985)) that the federal judiciary has proclaimed.

For example,  nothing is more basic to a remedial statute than the limitations period that defines its reach.   As with other federal statutes, so with ERISA:

As is often the case in federal civil law, there is no federal statute of limitations expressly applicable to this suit.   In such situations we do not ordinarily assume that Congress intended that there be no time limit on actions at all; rather, our task is to “borrow” the most suitable statute or other rule of timeliness from some other source. We have generally concluded that Congress intended that the courts apply the most closely analogous statute of limitations under state law.

Del Costello v. Int’l Bhd. of Teamsters, 462 U.S. 151 (U.S. 1983)

In Gilbert v. Norton Healthcare, Inc., the district court considered the question of the limitations period for a claim against a plan administrator for failure to comply with the notification provisions of the Consolidated Omnibus Recovery Act (“COBRA”), 29 U.S.C. § 1166.   The magistrate judge, in an opinion approved by the district court, first turned to the  Kentucky Unfair Claims Settlement Practices Act.  That statute did not have a limitations period either.

The statutory default provision provided a 5-year limitations period for any “action upon a liability created by statute, when no other time is fixed by the statute creating liability.”   The Court approved the use of that limitations period.

Note: The period for advancing COBRA notice violations ranges from a parsimonious one year period and up depending on the federal circuit.

:: ERISA Section 502(a)(3) Claims Remanded For Reconsideration After Amara Opinion

For the reasons discussed below, we affirm the district court’s decision rejecting Plaintiffs’ claims under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), and the district court’s dismissal of the claims of the Plaintiffs who received their distributions in the 2002-2003 Plan Years. However, we remand in part to the district court for reconsideration of the issue of whether a remedy exists under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), in light of the Supreme Court’s decision in CIGNA Corp. v. Amara, U.S. , 131 S. Ct. 1866 (May 16, 2011). Because we remand in part, we do not address the Defendants’ cross-appeal.

Rosario v. King & Prince Seafood Corp., 2011 U.S. App. LEXIS 13204 (11th Cir. Ga. June 28, 2011)

This ESOP litigation case has a long back story that I will omit. The part of the 11th Circuit opinion that I find interesting is that the Court felt a reconsideration of the district court’s denial of 29 U.S.C. § 1132(a)(3) claims should be undertaken in view of the Supreme Court decision in CIGNA Corp. v. Amara, U.S. , 131 S. Ct. 1866 (2011).

The lower court had held that the trustees violated the consent rule that requires ERISA plans to provide participants with sufficient information to make informed decisions. (See Morgan, Lewis summary here)

The 11th Circuit ruled that the recent Supreme Court view on 29 U.S.C. § 1132(a)(3) remedies might require a different result on remand, stating:

Having affirmed the district court’s rejection of the Plaintiffs’ § 502(a)(1)(B) claim, and the district court’s holding that there were no violations with respect to the 2002-2003 Plan Years, Plaintiffs’ only remaining claim involves the violations of the Consent Rule in the earlier years — i.e. the 1998-2001 Plan Years. Because the law of this case is that these violations are not actionable under § 502(a)(1)(B), the only issue remaining is whether these violations are actionable under § 502(a)(3). Because the intervening Supreme Court decision in Amara has provided more guidance with respect to the interpretation of § 502(a)(3), we vacate the district court’s judgment with respect to the § 502(a)(3) issue and remand this issue to the district court for reconsideration in light of Amara, and for further proceedings not inconsistent with this opinion.

For additional comment on the Rosario litigation, see the discussion here. For additional discussion of Amara, see previous post here.

:: Employee Benefit Plans: Reported Criminal Enforcement Actions Year To Date

:: Supreme Court Signals Broader View of Equitable Relief Under ERISA

Why the Court embarks on this peculiar path is beyond me. It cannot even be explained by an eagerness to demonstrate — by blatant dictum, if necessary — that, by George, plan members misled by an SPD will be compensated.

CIGNA Corp. v. Amara, 2011 U.S. LEXIS 3540 (U.S. May 16, 2011), SCALIA , J. (concurring in judgment)

It was not long ago that the Supreme Court observed that “[p]eople make mistakes. Even administrators of ERISA plans”, in a sort of benevolent prodding to the plan administrator to try to get it right next time. See, Conkright v. Frommert, 130 S. Ct. 1640 (U.S. 2010). The Court was in a different state of temperament in CIGNA Corp. v. Amara.

Although Justice Scalia correctly observes that the commentary on equitable remedies likely exceeds what was required, the important point here is that Justice Breyer, dissenting in Great West, now pens the majority opinion on the scope of equitable remedies.  So, as interesting as the opinion is in the present case, I believe a careful re-reading of the Great West dissent is also instructive.

The facts of the case, in an opinion authored by Justice Breyer, were carefully related in an exposition complete with examples. I am not really sure why the Court felt obliged to explain the workings of defined benefit plans and the cash balance plans that have frequently replaced them.

In a nutshell, the underlying facts are these:

The CIGNA pension plan defined a benefit payable at normal retirement age (65), with an option for early retirement at age 55. Without tedium of numerical examples predicated upon hypotheticals,  it is easy to see that CIGNA changed the retirement picture for its employees when it replaced the pension plan with a cash balance plan.  The cash balance plan transfered  future investment risks to the participant, eliminated the early retirement option and featured a joint and survivor annuity over a single life annuity.

The district court found that CIGNA had not provided the required notice of the changes, and worse, had puffed up the supposed benefits of the new arrangement to the point of misleading the employees. While struggling with the proper remedy, the district court seemed to find the correct remedy under ERISA but found it in the wrong statutory provision.

District Court Error

Here’s what the district court did:

The District Court ordered relief in two steps.

Step 1: It ordered the terms of the plan reformed (so that they provided an “A plus B,” rather than a “greater of A or B” guarantee).

Step 2: It ordered the plan administrator (which it found to be CIGNA) to enforce the plan as reformed. One can fairly describe step 2 as consistent with § 502(a)(1)(B), for that provision grants a participant the right to bring a civil action to “recover benefits due . . . under the terms of his plan.” 29 U.S.C. § 1132(a)(1)(B). And step 2 orders recovery of the benefits provided by the “terms of [the] plan” as reformed.

Here’s where it erred:

But what about step 1?

Where does § 502(a)(1)(B) grant a court the power to change the terms of the plan as they previously existed? The statutory language speaks of “enforc[ing]” the “terms of the plan,” not of changing them. 29 U.S.C. § 1132(a)(1)(B) (emphasis added). The provision allows a court to look outside the plan’s written language in deciding what those terms are, i.e., what the language means. See UNUM Life Ins. Co. of America v. Ward, 526 U.S. 358, 377-379, 119 S. Ct. 1380, 143 L. Ed. 2d 462 (1999) (permitting the insurance terms of an ERISA-governed plan to be interpreted in light of state insurance rules). But we have found nothing suggesting that the provision authorizes a court to alter those terms, at least not in present circumstances, where that change, akin to the reform of a contract, seems less like the simple enforcement of a contract as written and more like an equitable remedy.

A Simple Solution

The Court found the solution in § 502(a)(3) –

If § 502(a)(1)(B) does not authorize entry of the relief here at issue, what about nearby § 502(a)(3)? That provision allows a participant, beneficiary, or fiduciary “to obtain other appropriate equitable relief ” to redress violations of (here relevant) parts of ERISA “or the terms of the plan.” 29 U.S.C. § 1132(a)(3).

– and, to the chagrin of Justices Scalia and Thomas, took this as an occasion to elaborate on what appropriate equitable relief might be. In an observation very important to appreciating the Court’s commentary, the opinion notes that:

The case before us concerns a suit by a beneficiary against a plan fiduciary (whom ERISA typically treats as a trustee) about the terms of a plan (which ERISA typically treats as a trust).

The Court distinguished Mertens, as follows:

Thus, insofar as an award of make-whole relief is concerned, the fact that the defendant in this case, unlike the defendant in Mertens, is analogous to a trustee makes a critical difference. See 508 U.S., at 262-263, 113 S. Ct. 2063, 124 L. Ed. 2d 161. In sum, contrary to the District Court’s fears, the types of remedies the court entered here fall within the scope of the term “appropriate equitable relief ” in § 502(a)(3).

Types of Equitable Relief

So what remedies might qualify as equitable against a plan fiduciary?

The Court specifically identifies, over the course of several paragraphs, injunctions, equitable estoppel, reformation and surcharge. Surcharge?

In an excerpt soon to be much-quoted in ERISA litigation, the Court discussed how this remedy may result in a requirement to pay money:

[T]he District Court injunctions require the plan administrator to pay to already retired beneficiaries money owed them under the plan as reformed. But the fact that this relief takes the form of a money payment does not remove it from the category of traditionally equitable relief. . . .

The surcharge remedy extended to a breach of trust committed by a fiduciary encompassing any violation of a duty imposed upon that fiduciary. See Second Restatement § 201; Adams 59; 4 Pomeroy § 1079; 2 Story §§ 1261, 1268.


CIGNA wanted the Court to review whether the district court’s orders were available under (a)(1)(B). The Court said no, but pointed to (a)(3) as an alternative. CIGNA also wanted the Court to examine the standard of harm. On this point, the Court took the view that the proper standard depended on the type of equitable relief sought. All in all, a mixed bag for CIGNA, but for the plan participants as well.

The upshot is that we can agree with CIGNA only to a limited extent. We believe that, to obtain relief by surcharge for violations of §§ 102(a) and 104(b), a plan participant or beneficiary must show that the violation injured him or her. But to do so, he or she need only show harm and causation. Although it is not always necessary to meet the more rigorous standard implicit in the words “detrimental reliance,” actual harm must be shown.

We are not asked to reassess the evidence. And we are not asked about the other prerequisites for relief. We are asked about the standard of prejudice. And we conclude that the standard of prejudice must be borrowed from equitable principles, as modified by the obligations and injuries identified by ERISA itself. Information-related circumstances, violations, and injuries are potentially too various in nature to insist that harm must always meet that more vigorous “detrimental harm” standard when equity imposed no such strict requirement.

Note: The Second Circuit’s batting average is not too spiffy these days.  The Second Circuit’s assessment of the district court’s opinion, noted by the Court, is somewhat amusing:

The parties cross-appealed the District Court’s judgment. The Court of Appeals for the Second Circuit issued a brief summary order, rejecting all their claims, and affirming “the judgment of the district court for substantially the reasons stated” in the District Court’s “well-reasoned and scholarly opinions.” 348 Fed. Appx. 627 (2009). The parties filed cross-petitions for writs of certiorari in this Court. We granted the request in CIGNA’s petition to consider whether a showing of  “likely harm” is sufficient to entitle plan participants to recover benefits based on faulty disclosures.

Equitable Remedies – The entire excerpt discussing equitable remedies reads as follows:

First, what the District Court did here may be regarded as the reformation of the terms of the plan, in order to remedy the false or misleading information CIGNA provided. The power to reform contracts (as contrasted with the power to enforce contracts as written) is a traditional power of an equity court, not a court of law, and was used to prevent fraud. See Baltzer v. Raleigh & Augusta R. Co., 115 U.S. 634, 645, 6 S. Ct. 216, 29 L. Ed. 505 (1885) (“[I]t is well settled that equity would reform the contract, and enforce it, as reformed, if the mistake or fraud were shown”); Hearne v. Marine Ins. Co., 87 U.S. 488, 20 Wall. 488, 490, 22 L. Ed. 395 (1874) (“The reformation of written contracts for fraud or mistake is an ordinary head of equity jurisdiction”); Bradford v. Union Bank of Tenn., 54 U.S. 57, 13 How. 57, 66, 14 L. Ed. 49 (1852); J. Eaton, Handbook of Equity Jurisprudence § 306, p. 618 (1901) (hereinafter Eaton) (courts of common law could only void or enforce, but not reform, a contract); 4 Pomeroy § 1375, at 1000 (reformation “chiefly occasioned by fraud or mistake,” which were themselves [*35] concerns of equity courts); 1 Story §§ 152-154; see also 4 Pomeroy § 1375, at 999 (equity often considered reformation a “preparatory step” that “establishes the real contract”).

Second, the District Court’s remedy essentially held CIGNA to what it had promised, namely, that the new plan would not take from its employees benefits they had already accrued. This aspect of the remedy resembles estoppel, a traditional equitable remedy. See, e.g., E. Merwin, Principles of Equity and Equity Pleading § 910 (H. Merwin ed. 1895); 3 Pomeroy § 804. Equitable estoppel “operates to place the person entitled to its benefit in the same position he would have been in had the representations been true.” Eaton § 62, at 176. And, as Justice Story long ago pointed out, equitable estoppel “forms a very essential element in . . . fair dealing, and rebuke of all fraudulent misrepresentation, which it is the boast of courts of equity constantly to promote.” 2 Story § 1533, at 776.

Third, the District Court injunctions require the plan administrator to pay to already retired beneficiaries money owed them under the plan as reformed. But the fact that this relief takes the form of a money payment does not remove it from the category of traditionally equitable relief. Equity courts possessed the power to provide relief in the form of monetary “compensation” for a loss resulting from a trustee’s breach of duty, or to prevent the trustee’s unjust enrichment. Restatement (Third) of Trusts § 95, and Comment a (Tent. Draft No. 5, Mar. 2, 2009) (hereinafter Third Restatement); Eaton §§ 211-212, at 440. Indeed, prior to the merger of law and equity this kind of monetary remedy against a trustee, sometimes called a “surcharge,” was “exclusively equitable.” Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 464, 59 S. Ct. 275, 83 L. Ed. 285 (1939); Third Restatement § 95, and Comment a; G. Bogert & G. Bogert, Trusts and Trustees § 862 (rev. 2d ed. 1995) (hereinafter Bogert); 4 Scott & Ascher §§ 24.2, 24.9, at 1659-1660, 1686; Second Restatement § 197; see also Manhattan Bank of Memphis v. Walker, 130 U.S. 267, 271, 9 S. Ct. 519, 32 L. Ed. 959 (1889) (“The suit is plainly one of equitable cognizance, the bill being filed to charge the defendant, as a trustee, for a breach of trust”); 1 J. Perry, A Treatise on the Law of Trusts and Trustees § 17, p. 13 (2d ed. 1874) (common-law attempts “to punish trustees for a breach of trust in damages, . . . w[ere] [*37] soon abandoned”).

The surcharge remedy extended to a breach of trust committed by a fiduciary encompassing any violation of a duty imposed upon that fiduciary. See Second Restatement § 201; Adams 59; 4 Pomeroy § 1079; 2 Story §§ 1261, 1268. Thus, insofar as an award of make-whole relief is concerned, the fact that the defendant in this case, unlike the defendant in Mertens, is analogous to a trustee makes a critical difference. See 508 U.S., at 262-263, 113 S. Ct. 2063, 124 L. Ed. 2d 161. In sum, contrary to the District Court’s fears, the types of remedies the court entered here fall within the scope of the term “appropriate equitable relief ” in § 502(a)(3).

:: Is The DOL Abusing the “FAQ” Format?

Set out below are additional Frequently Asked Questions (FAQs) regarding implementation of the market reform provisions of the Affordable Care Act. These FAQs have been prepared jointly by the Departments of Health and Human Services (HHS), Labor and the Treasury (the Departments). Like previously issued FAQs (available at http://www.dol.gov/ebsa/healthreform/), these FAQs answer questions from stakeholders to help people understand the new law and benefit from it, as intended.

FAQs About Affordable Care Act Implementation Part VI

More “frequently asked questions” about the PPACA are now on tap.  Here is the sextology of FAQ’s:

ACA Implementation FAQs: Part I • Part II • Part III • Part IV • Part V • Part VI

I suppose I am an inveterate cynic, but I doubt these questions are “frequently asked.”  For example, consider this one from FAQ #6:

Q3: A previous FAQ addressed the interaction of value-based insurance design (VBID) and the no cost-sharing preventive care services requirements. See http://www.dol.gov/ebsa/faqs/faq-aca5.html . In that example, a group health plan did not impose a copayment for colorectal cancer preventive services when performed in an in-network ambulatory surgery center. In contrast, the same preventive service provided at an in-network outpatient hospital setting generally required a $250 copayment, although the copayment was waived for individuals for whom it would be medically inappropriate to have the preventive service provided in the ambulatory setting. The FAQ indicated that this VBID did not cause the plan to fail to comply with the no cost-sharing preventive care requirements.

A question about a different situation has been raised. Under a group health plan, similar preventive services are available both at an in-network ambulatory surgery center and at an in-network outpatient hospital setting, but currently no copayment is imposed for these services in either setting. This has been the case since March 23, 2010. If this plan wished to adopt the VBID approach described in the example above by imposing a $250 copayment for these preventive services only when performed in the in-network outpatient hospital setting (i.e., not when performed in an in-network ambulatory surgery center), and with the same waiver of the copayment for any individuals for whom it would be medically inappropriate to have these preventive services provided in the ambulatory setting, would implementation of that new design now cause the plan to relinquish grandfather status?

Now do you really think such questions are “frequently asked’?  Not likely.

So why do federal agencies use FAQ’s?  Because they can use the FAQ format to circumvent the rules applicable to regulatory projects.  The goal is to get the regulatory take on issues in the public domain without bothering with those pesky notice and comment requirements, the possibility of judicial review, etc.  The triumvirate of IRS, DOL and HHS has been strategic in their choice of media for getting their points across.  (“Interim final regulations” are another example.)

FAQ’s are not final agency action, or at least not typically thought of as such.  See, Golden & Zimmerman, LLC v. Domenech, 599 F.3d 426 (4th Cir. Va. 2010).  An agency may signal a position in a FAQ, and evade notice, comment and judicial review, while retaining the option of enforcement action of that position based on interpretations of statutory provisions and prior regulations — i.e., by arguing that was “always” the law.   That should be a cause for concern — particularly given the volume of this administration’s “FAQ’s”.

Note: For those folks out there asking this question, the answer to “Frequently Asked Question” #3 of the sixth set of FAQ’s is as follows:

No. This increase in the copayment for these preventive services solely in the in-network outpatient hospital setting (subject to the waiver arrangement described above) without any change in the copayment in the in-network ambulatory surgery center setting would not be considered to exceed the thresholds described in paragraph (g)(1) of the interim final regulations on grandfather status and thus would not cause the plan to relinquish grandfather status.

The Departments are seeking further information on VBID and wellness programs and are planning to address issues relating to those designs and programs in future regulations. Comments from plan sponsors have expressed an interest in being able to retain grandfather status notwithstanding certain changes in plan terms that are intended to implement VBID and wellness programs. As the regulatory process progresses, the Departments will be giving close attention to these comments, and further guidance may be issued addressing other circumstances in which plan changes implementing those designs and programs may be made without relinquishing grandfather status.

Department of Labor Releases Self-Funded Health Plan Report

The Patient Protection and Affordable Care Act (the “Affordable Care Act”) (P. L. 111-
148, as amended) requires the Secretary of Labor to provide Congress with an annual
report containing general information on self-insured employee health benefit plans and
financial information regarding employers that sponsor such plans.

The first such report is now available. From the DOL’s news release:

Department of Labor releases Affordable Care Act study on self-insured plans
WASHINGTON – The U.S. Department of Labor today transmitted to Congress the first annual report on self-insured employee health benefit plans. The report, which was mandated by the Affordable Care Act, contains general information on self-insured employee health benefit plans and financial information on the employers that sponsor them.

Self-insured plans, unlike fully insured plans, are generally plans in which the sponsor retains the risk associated with paying covered health expenses, rather than paying a premium and transferring the risk to an insurance company. Some sponsors retain the risk for a subset of the benefits, but transfer the risk for the remaining benefits to health insurers – that is, they finance the plans’ benefits using a mixture of self-insurance and insurance. Self-insurance is more common among larger sponsors, mainly because the health expenses of larger groups are more predictable and therefore larger sponsors face less risk.

The report includes information on self-insured and mixed health benefit plans that are required to file a Form 5500 Annual Return/Report of Employee Benefit Plan. The department estimates that 12,000 health plans filing a Form 5500 for 2008 were self-insured and 5,000 mixed self-insurance with insurance. These plans respectively covered 22 million and 25 million participants. Many self-insured health plans do not meet the filing requirements and therefore do not file the Form 5500. Therefore, it is likely that the report underestimates the total number of self-insured plans.

Health benefit plans covering private-sector employees must file a Form 5500 if they cover 100 or more participants or hold assets in trust. This report presents data on such plans for 2008, the latest year for which complete data are available.

The full report can be found on the department’s Employee Benefits Security Administration Affordable Care Act page here. 

:: New ERISA Health Plan Subrogation Website

Professor Roger Baron has a new website on which he addresses ERISA subrogation issues.  The website is available here.

Professor Roger Baron teaches at the University of South Dakota School of Law. A 1976 graduate of the University of Missouri at Columbia School of Law, he practiced law in Missouri for nine years before beginning his teaching career. He is licensed in Missouri, Texas and South Dakota.  Professor Baron has a strong academic interest in the matter of subrogation on personal injury claims and related ERISA reimbursement issues. He has authored three significant law review articles and numerous shorter articles which address subrogation and reimbursement issues in the context of personal injury claims

:: Summary Judgment Procedural Changes Highlighted

The federal courts have been in some disagreement as to whether, under Rule 56, a court is obliged to consider the materials “on file” in deciding whether a “genuine issue as to any material fact” is shown (as Rule 56(c)(2) indicates). Indeed, a majority of our sister circuits appear to have taken the view that a court, in assessing a summary judgment motion, may confine its consideration to materials submitted with and relied on in response to the motion (as Rule 56(e)(2) may contemplate).

Consistent with the majority view, subdivision (c)(3) of the 2010 version of Rule 56 now specifies that a “court need consider only the cited materials,” though “it may consider other materials in the record.” See Fed. R. Civ. P. 56 advisory committee’s note (explaining that the 2010 version’s “[s]ubdivision (c)(3) reflects judicial opinions and local rules provisions stating that the court may decide a motion for summary judgment without undertaking an independent search of the record”).

Sinclair v. Mobile 360, 2011 U.S. App. LEXIS 4112 (4th Cir. N.C. Mar. 3, 2011) (unpublished)

This rather unusual case does serve the useful purpose of highlighting a requirement that briefs opposing a motion for summary judgment must cite to the record and adduce affidavits or other materials necessary to the opposition.  In the case at bar, the pro se appellants argued that the court below erred by not considering materials previously filed by their (now withdrawn) legal counsel.

Specifically, the Appellants contend that, under the plain terms of Rule 56(c)(2) as it existed in 2009, a court assessing a summary judgment motion must consider the materials “on file,” and the Counseled Response was “on file” in this case when summary judgment was awarded.

The Defendants respond that it was the Appellants’ burden, under Rule 56(e)(2), to bring the Counseled Response to the court’s attention, and that there was nothing preventing the Appellants from resubmitting, in response to the Renewed Motion, any exhibits that had been filed as part of the Counseled Response.

The Fourth Circuit, noting that its prior, more generous, holding on the issue may have been superseded by the rule change noted above, nonetheless chose to apply the old rule here, particularly in view of the pro se litigants’ predicament.

In candor, a majority of the other circuits might prefer a view contrary to our Campbell decision [Campbell v. Hewitt, Coleman & Associates, Inc.], and that view may have since been ensconced in Rule 56 by way of the 2010 amendments. In any event, a careful assessment of the Counseled Response would not impose an unwarranted burden on the magistrate judge, for several reasons. . . .  [E]ven though the First Motion was withdrawn, the Counseled Response and Auto Advantage’s Reply were never withdrawn or stricken from the record. As a result, the Counseled Response remained “on file” in this case when summary judgment was awarded to the Defendants. In such circumstances, the award of summary judgment to the Defendants must be vacated under the applicable 2009 version of Rule 56.

(emphasis added)

Note: Judge Wilkerson dissented, stating:

. . .  the Federal Rules of Civil Procedure were amended in 2010, and these amendments eliminated the “on file” language from Rule 56. Fed. R. Civ. P. 56. Rule 56 now explicitly states that district courts “need consider only the cited materials” when ruling on summary judgment. Fed. R. Civ. P. 56(c)(3).

And the current Rule 56 makes clear that parties are obligated to support their assertions with citations to the record. Fed. R. Civ. P. 56(c)(1). If a party neglects this obligation and “fails to properly support an assertion of fact or fails to properly address another party’s assertion of fact . . . the court may: . . . (2) consider the fact undisputed for purposes of the motion; [and] (3) grant summary judgment if the motion and supporting materials — including the facts considered undisputed — show that the movant is entitled to it . . . .” Fed. R. Civ. P. 56(e).

As the Advisory Committee Notes explain, these changes “reflect[] judicial opinions and local rules provisions stating that the court may decide a motion for summary judgment  without undertaking an independent search of the record.” Fed. R. Civ. P. 56 advisory committee’s note. Thus, the 2010 amendments rejected our minority position in Campbell in favor of the approach followed by the majority of the circuits that had considered the issue. Accordingly, under the current Rule 56, district courts need consult only those materials cited by the parties when ruling on summary judgment.

Decisions From Other Circuits – As noted in the opinion, the Fourth Circuit opinion had been a minority point of view:

At least seven of our sister circuits have weighed in on the apparent tension between the language in subdivisions (c)(2) and (e)(2) of Rule 56. The First Circuit has concluded that the materials “on file” should be considered by the district court in ruling on a summary judgment motion. See Stephanischen v. Merchs. Despatch Transp. Corp., 722 F.2d 922, 930 (1st Cir. 1983). The Second Circuit has decided that summary judgment cannot be awarded “on the ground that the nonmovant’s papers failed to cite to the record unless the parties are given actual notice of the requirement.” See Amnesty Am. v. Town of W. Hartford, 288 F.3d 467, 471 (2d Cir. 2002).

Five other courts of appeals have taken the view that requiring a district court to review materials not relied on by the parties is unduly burdensome to the judiciary. See Carmen v. S.F. Unified Sch. Dist., 237 F.3d 1026, 1029 (9th Cir. 2001);  Adler v. Wal-Mart Stores Inc., 144 F.3d 664, 672 (10th Cir. 1998); Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir. 1994); L.S. Heath & Sons, Inc. v. AT&T Info. Sys., Inc., 9 F.3d 561, 567 (7th Cir. 1993); Guarino v. Brookfield Twp. Trs., 980 F.2d 399, 405 (6th Cir. 1992).However, the Federal Rules of Civil Procedure were amended in 2010, and these amendments eliminated the “on file” language from Rule 56. Fed. R. Civ. P. 56. Rule 56 now explicitly states that district courts “need consider only the cited materials” when ruling on summary judgment. Fed. R. Civ. P. 56(c)(3). And the current Rule 56 makes clear that parties are obligated to support their assertions with citations to the record. Fed. R. Civ. P. 56(c)(1). If a party neglects this obligation and “fails to properly support an assertion of fact or fails to properly address another party’s assertion of fact . . . the court may: . . . (2) consider the fact undisputed for purposes of the motion; [and] (3) grant summary judgment if the motion and supporting materials — including the facts considered undisputed — show that the movant is entitled to it . . . .” Fed. R. Civ. P. 56(e).

Of Interest – Mark Debofsky wrote an interesting article a few years back about the abuse of summary judgment in the ERISA setting.  Though not pertinent to the issue above, the article draws important conclusions about the odd way in which Rule 56 is applied in ERISA cases.  Mark notes that federal courts have migrated toward application of a “substantial evidence” test to determine whether a plan administrator’s decision is rational rather than applying the typical summary judgment standard focused on genuine issues of fact.  See, DeBofsky, The Paradox of the Misuse of Administrative Law In ERISA Benefit Claims, 37 John Marshall Law Review 727 (2004).

:: ERISA Symposium – South Dakota Law School

I returned Friday from South Dakota Law School’s ERISA Symposium. The program was well attended by attorneys, law professors, students and members of the public.

One of the highlights for me was the presentation by Peter Stris on litigation before United States Supreme Court. Peter has had several ERISA cases before the Court, including LaRue, and he related his experience in an informative style with dry humor from time to time that really engaged the audience.

John Morrison took up a discussion of discretionary clauses bans which we took up in a panel discussion. Of course John has some experience with that subject, not only through the NAIC, but also as the prevailing party in the matter of Standard v. Morrison. Professor Radha Pathak joined in this discussion and related a number of issues arising in this context which will be addressed in an upcoming article for the South Dakota Law School.

Professor Roger Baron presented on several hot topics in the ERISA health plan subrogation field. I joined David Abney in a discussion of these topics with Roger. As always, the subrogation topic draws varying points of view, but the interplay of opinions really helped to sharpen perspectives on the issues.

I concluded the program with an evaluation of ERISA after health care reform. In particular, I examined the DOL claims procedure, the new external review and several open questions that affect judicial review in light of the PPACA changes. All of these points are given in-depth analysis in an article I wrote that will be published in an upcoming issue of the South Dakota Law Review.

Congratulations to the law school staff, the bright students on the law review staff, Professor Roger Baron and Dean Barry Vickrey on an excellent ERISA symposium covering highly relevant issues. At the risk of some self-promotion, I recommend the upcoming ERISA Symposium issue of the law review for a good source of timely information on ERISA developments.

:: Contractual Deference Standard Upheld In Favor Of Non-Fiduciary

In Comrie v. IPSCO (7th. Cir. 2/18/11) the Seventh Circuit considered whether a discretion-conferring clause in a SERP plan document should be applied when the plan administrator is not a fiduciary. Noting a difference of opinion on the issue, the Seventh Circuit, via Judge Easterbrook, saw the issue as very simple to resolve:

As for the fact that the administrator of a top-hat plan is not an ERISA fiduciary: One circuit has held that interpretations by a non-fiduciary must be ignored, and that courts must make independent decisions, no matter what a plan’s governing documents say. Goldstein v. Johnson & Johnson, 251 F.3d 433, 442–43 (3d Cir. 2001). Another has adopted an intermediate standard divorced from contractual language. Craig v. Pillsbury Non-Qualified Pension Plan, 458 F.3d 748, 752 (8th Cir. 2006). We don’t get it .

When the Supreme Court held in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), that judges presumptively make independent decisions (often, though misleadingly, called “de novo review”, see Krolnik v.Prudential Insurance Co., 570 F.3d 841, 843 (7th Cir. 2009)), about claims to benefits under ERISA, it derived this conclusion from an analogy to trust law. The Court understood trust law to call for a non-deferential judicial role. ERISA fiduciaries are like common-law trustees the Justices thought, so judges normally should make independent decisions in ERISA litigation.

In Firestone’s framework, deferential review is exceptional, authorized only when the contracts that establish the pension or welfare plan confer interpretive discretion in no uncertain terms. 489 U.S. at 111. See also, e.g., Diaz v. Prudential Insurance Co., 424 F.3d 635 (7th Cir. 2005)

In the Court’s view, Firestone authorizes deference even though the decision-maker is a fiduciary. Thus, when the contract confers discretion on a non-fiduciary, courts should find it “easier, not harder”, to defer to the decision-maker on contract principles.

:: New MEWA Opinion

Below appears a recent DOL Advisory Opinion on MEWA status of a health plan benefit plan:

3(40) & 514(b)(6)

Dear Mr. Wender:
This is in reply to your request on behalf of the Custom Rail Employer Welfare Trust Fund (“CREW” or “CREW Welfare Trust”) for an advisory opinion regarding Title I of the Employee Retirement Income Security Act of 1974 (ERISA).

Specifically, you ask the Department of Labor (Department) to determine that CREW is a “multiple employer welfare arrangement” (MEWA) within the meaning of ERISA section 3(40)(1) that is “fully insured” within the meaning of ERISA section 514(b)(6).(2) For purposes of that analysis, you ask the Department to assume that CREW is also an “employee welfare benefit plan” within the meaning of ERISA section 3(1).

For the reasons set forth below, it remains the Department’s view that CREW is a MEWA that is not fully insured for purposes of ERISA.

Continue reading

:: Claims Appeals – The New Order Of Affairs For ERISA Plans (Part II)

Following up on an earlier post, the new claims appeals and review rules present some opportunities to claimants and concomitant risks to plans.  PHS incorporate the existing claims regulation DOL Reg. Sec. 2560.503-1 into an augmented claims procedure for internal appeals.  PHS Act § 2719 provides that plans and issuers must initially incorporate the internal claims and appeals processes set forth in 29 CFR 2560.503-1 and update these processes as required by the DOL.

The interim final regulations (Interim Final Rules for Group Health Plans and Health Insurance Issuers Relating to Internal Claims and Appeals and External Review Processes Under the Patient Protection and Affordable Care Act) released on July 23, 2010 appear in the Federal Register at Volume 75, Number 141, Pages 43329-43364.

Grandfathered plans are exempt. The value of this exemption will become vividly apparent as the new rules are reviewed.

The regulations require “strict adherence” to the new claims procedure. Substantial compliance or de minimus violations are not, the regulations state, sufficient to avoid the determination of non-compliance.  (The consequences of non-compliance will be reviewed later — but note for now that the regulations purport to change the standard of review to de novo in this event.   Thus, plan fiduciaries would be well advised to put maximum effort toward compliance.

At the outset, careful observance of what constitutes an adverse benefit determination is necessary. The definition is broader than the definition in the DOL claims procedure regulation.

For example,

Failure to make a payment in whole or in part includes any instance where a plan pays less than the total amount of expenses submitted with regard to a claim, including a denial of part of the claim due to the terms of a plan or health insurance coverage regarding copayments, deductibles, or other cost- sharing requirement.

In the next post I will summarize the new requirements for the claims regulations as augmented.

:: PPACA Individual Mandates Unconstitutional

So argued Professor James Ely today in a symposium on the PPACA sponsored by the Charleston School of Law.  And a federal district court judge agreed in a case in which he and fellow academics brought in U.S. District Court for the Eastern District of Virginia.  Brian Galle, Assistant Professor of Law, Boston College Law School presented an opposing point of view.   I found Professor Ely’s position more convincing, as did Judge Hudson.

There is one case going the other way and we will have to see how the matter turns on on appeal.  Aside from the ethereal world of constitutional law, we must also ask if the individual mandate is enforceable as a practical matter.  Seriously, do you really think that the tax can be collected against the vast majority of uninsured Americans?  Constitutional or not, the individual mandate is a bankrupt idea as Massachusetts’ experiment proves for anyone interested in empirical data.

For my part, I discussed the internal appeals and external review regulations as a part of a panel discussion on how the PPACA affects the practice of law.  The interim final regulations on this topic make some huge changes in current law that are likely unwarranted by the statute.  I will review some highlights in my next newsletter.

For now, congratulations to the Charleston School of Law faculty and their Federal Courts Law Review on an excellent contribution to scholarship and debate on this important policy issue.

Brian Galle, Assistant Professor of Law, Boston College Law Schoo

:: District Court Permits Supplementation Of Record But With Instruction On Law

ERISA provides federal courts with jurisdiction to review benefits determinations made by fiduciaries or plan administrators. 29 U.S.C. § 1132(a)(1)(B); see also Lopez ex rel. Gutierrez v. Premium Auto Acceptance Corp., 389 F.3d 504, 509 (5th Cir. 2004). A district court’s function when reviewing ERISA claims is like an appellate court’s.

“[The court] does not take evidence, but, rather, evaluates the reasonableness of an administrative determination in light of the record compiled before the plan fiduciary.” Leahy v. Raytheon Co., 315 F.3d 11, 18 (1st Cir.2002). Courts cannot consider additional evidence “resolve the merits of the coverage determination—i.e. whether coverage should have been afforded under the plan-unless the evidence is in the administrative record, relates to how the administrator has interpreted the plan in the past, or would assist the court in understanding medical terms and procedures.” Crosby v. La. Health Serv. & Indem. Co., — F.3d —, No. 10-30043, 2010 U.S. App. LEXIS 26323, *8, 2010 WL 5356498 (5th Cir. Dec. 29, 2010).   A claimant is not permitted to explore, through discovery in an ERISA lawsuit, what information a plan administrator “should have considered” in making its benefits determination, as opposed to analyzing the information that the plan administrator “did consider” in making its decision. Griffin, 2005 U.S. Dist. LEXIS 18720, 2005 WL 4891214, at *2.

Bullard v. Life Ins. Co. of N. Am., 2011 U.S. Dist. LEXIS 47 (S.D. Tex. Jan. 3, 2011)

In this claim for accidental death benefits, a factual dispute arose over policy exclusions given the circumstances of death. The deceased, Darnell Berryman, died six days after receiving 17 stitches for a knife wound to his face. He was on prescribed medication after the stitches but h also had a history of sleep anea. The death certificate and autopsy report listed the cause of death as “Acute Toxicity due to the Combined Effects of Hydrocodone, Alprazom, Carisprodol, and Promethazine.”

As explained in more detail below, the carrier denied the parents’ claim for death benefits. The issue before the court, however, was not simply whether that denial should be overturned.

In fact, the insurer and the claimants agreed that further proceedings were appropriate before judicial review — they just couldn’t agree on the extent of those proceedings. Continue reading

:: Virginia District Court Rules Individual Mandate Unconstitional

More on this later, but Judge Henry Hudson has ruled that the PPACA individual mandate is unconstitutional:

Judge Henry E. Hudson ruled Monday for the state’s claim that the requirement for people to purchase health care exceeds the power of Congress under the Constitution’s Commerce Clause or under the General Welfare Clause.


The opinion can be read here:


:: Failure To Substantially Comply With Claims Procedures Proves Costly To Plan

“ERISA provides certain minimal procedural requirements upon an administrator’s denial of a benefits claim.” Wade v. Hewlett-Packard Dev. Co. LP Short Term Disability Plan, 493 F.3d 533, 539 (5th Cir. 2007). The plan administrator must “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.”  29 U.S.C. § 1133(1).

Baptist Mem. Hosp. – Desoto v. Crain Auto., 2010 U.S. App. LEXIS 17518 (5th Cir. Miss. Aug. 19, 2010) (unpublished)

The plan fiduciary’s failure to follow the claims regulations had a surprisingly harsh effect on the outcome in this recent claim for benefits case.   Neither the standard of review nor the contractual limitations period served to deflect an award of benefits, attorneys’ fees and costs in favor of the claimant.

The Facts

Crain Automotive operates a series of automobile dealerships and related businesses in central Arkansas, and employs approximately 400 people. Crain Automotive sponsored a self-funded, ERISA-covered employee health plan for its employees.

CoreSource served as third party administrator and network discounts were secured for medical expenses through with NovaSys Health Network (“NovaSys”).  Under the network agreements, Baptist Health Services Group and its participant, Baptist Memorial Hospital—Desoto, Inc. (“BMHD”) agreed to discount charges for all inpatient and outpatient services by 15%.

After Dennis Brown, a plan beneficiary, had two cardiac stents implanted at BMHD during a November 6 to November 8, 2003 hospital confinement, BMHD rendered billed charges in the amount of $41,316.95. Before discharge, Brown assigned his benefits under the plan to BMHD.

BMHD submitted a claim to CoreSource on December 3, 2003, in the amount of $41,316.95, minus the 15% preferred-provider discount and CoreSource adjudicated the claim.  Crain did not fund the claim, however, and a dispute arose over the charges.

According to the opinion, Larry Crain (who had ultimate authority over payment) called BMHD’s billing office on April 12, 2004 and attempted to negotiate the bill.   When that approach failed, Crain called the next day to say that “he [was] not going to pay” until BMHD “answer[ed] all his questions.”

After some further exchanges between the parties failed to resolve the issue, BMHD ultimately filed suit on August 25, 2005, seeking recovery of plan benefits under 29 U.S.C. § 1132(A)(1)(B).  The district court t court found for BMHD in the amount of $39,751.08 plus prejudgment interest.  In addition, the district court awarded BMHD half of its requested fees and all of its requested costs, for a total award of fees and costs of $110,961.48.

On appeal, Crain argued that the district court erred in four respects (the fees and costs award analysis is omitted in the following discussion).

Failure To Exhaust Administrative Remedies

The district court found that because the plan never issued a formal denial letter to BMHD, the claim was “technically and practically . . . never denied.”   The Fifth Circuit agreed.

Noting that “ERISA does not require strict compliance with its procedural requirements,” the Court nonetheless found that the plan failed to meet the less demanding “substantial compliance” standard.  The Court further observed that the plan failed to timey provide written notice of the denial with specific reasons tied to the pertinent plan provisions.

One Year Contractual Limitations Period

The Plan appeared to have a good defense based on a one year contractual limitations period, a period which has been sustained in many similar cases.  In this case, however, the Court held that “the the Crain Plan’s one-year limitations period is unreasonable under the circumstances presented here.”

First, the one-year limitations period begins to run when a participant merely files a completed claim, potentially long before the claimant’s ERISA cause of action even accrues. The administrator’s initial denial of a claim could take as long as 90 days under the Crain Plan, depending on whether the administrator requests that the claimant submit additional information. The claimant then has an additional 180 days to administratively appeal the denial of a claim, and the administrator then has 60 days to issue a decision on the appeal. In total, the Crain Plan’s claim and internal appeal procedures could take as long as 330 days, leaving an unsatisfied claimant with only 35 days to file suit.

. . .

We know of no decisions, and Crain Automotive has pointed to none, approving such a short limitations period, particularly where the administrator utterly failed to adhere to its procedural obligations. Accordingly, we conclude that Crain Automotive’s failure to follow its obligation to properly deny the claim, coupled with its communications leading BMHD to believe that its claim was actively under consideration, caused the one-year limitations period to be unreasonably  [*18] short in this case.

Standard Of Review

The plan’s argument that the district court applied an incorrect standard of review met with equally unfavorable treatment based upon the procedures applied by the plan fiduciaries in reaching its decision.

We need not consider whether Crain Automotive applied a legally correct interpretation of the plan because, even under its interpretation, Crain Automotive abused its discretion in determining that the charges were not “customary and “reasonable.”

In sum, Crain Automotive and its responsible party, Larry Crain, had no evidence upon which to base its decision to deny BMHD’s claim. Rather, Larry Crain relied only on his own speculation and uninformed assessment of the reasonableness of the charges to conclude they were not customary and were unreasonable.

Note: The dissenting judge agreed with the majority that the plan’s failure to comply with the claims regulations precluded any need for the plaintiff to exhaust administrative remedies.

On the other hand, the dissenting judge found much to disagree with in the majority opinion:

I disagree, therefore, with the majority opinion’s attempt to divorce this exhaustion analysis from its assessment of the contractual limitations period. Instead, the majority opinion assesses the contractual limitations period under a “worst case scenario” approach to conclude that a fully exhausted claim could leave a party with only thirty-five days to file suit. But that did not happen in this case. Instead, BMHD’s claim was  fully accrued and exhausted upon the operation of § 2560.503-1(l). Thus, in ascertaining whether the period of limitations was “reasonable,” I would consider only how the limitations period applied under the facts of this case and not under a worst-case hypothetical.

On the reasonableness of the contractual limitations period, on the worst case analysis of when the claim accrued:

Additionally, I do not necessarily accept that thirty-five days  to file suit following a thorough and complete eleven month review process would leave a party with an unreasonably short period to bring an action. Previous courts have found short periods of limitations reasonable in light of the preparation for suit afforded by the administrative processing period. See, e.g., Northlake Reg’l Med. Ctr. v. Waffle House Sys. Employee Benefit Plan, 160 F.3d 1301, 1304 (11th Cir. 1998) (finding that a ten month appeals process combined with a ninety day limitations period provided an adequate opportunity to investigate a claim and file suit).

The dissenting judge actually felt that BMHD had much longer than 35 days to file:

At the latest, BMHD was on notice that Mr. Crain was not going to adhere to the parameters of the Crain Plan on April 12, 2004. At that point, BMHD had been informed by CoreSource, the claims processor, that Mr. Crain was refusing to release payment. Moreover, on that date, Mr. Crain contacted BMHD to try to settle the outstanding debt outside of the Crain Plan’s claims review process. Thus, BMHD appears to have had approximately 214 days to file suit from the time its cause of action accrued under § 2560.503-1(l).

On the accrual on the cause of action, the dissent made a very good point about jurisdiction.

I cannot accept the majority opinion’s reasoning that “BMHD’s ERISA cause of action had not yet accrued as of October 13, 2004.” By that logic, BMHD’s claim never accrued because it has not been formally denied even now. Not only does the majority opinion’s position conflict with the aforementioned exhaustion analysis, but, taken to its logical conclusion, the majority opinion’s position suggests this matter is not yet ripe for adjudication. Thus, if that position was correct, the court would be required to dismiss this case for lack of jurisdiction.

I disagree, therefore, with the majority opinion’s attempt to divorce this exhaustion analysis from its assessment of the contractual limitations period. Instead, the majority opinion assesses the contractual limitations period under a “worst case scenario” approach to conclude that a fully exhausted claim could leave a party with only thirty-five days to file suit. But that did not happen in this case. Instead, BMHD’s claim was  [*31] fully accrued and exhausted upon the operation of § 2560.503-1(l). Thus, in ascertaining whether the period of limitations was “reasonable,” I would consider only how the limitations period applied under the facts of this case and not under a worst-case hypothetical. 1 See Dye v. Assocs. First Capital Corp. Long-Term Disability Plan 504, 243 F. App’x 808, 810 (5th Cir. 2007) (unpublished) (holding that the actual application of procedural safeguards made a 120-day period reasonable “in this specific case” (emphasis added)) 2; see also Davidson v. Wal-Mart Assocs. Health & Welfare Plan, 305 F. Supp. 2d 1059, 1074 (S.D. Iowa 2004) (cited favorably by Dye after finding 45-day period reasonable as applied to the facts of that case); Sheckley v. Lincoln Nat’l Corp. Employees’ Ret. Plan, 366 F. Supp. 2d 140, 147 (D. Me. 2005) (cited favorably by Dye after finding that, under the pled facts, “there [was] no causal connection between the Plan’s failure to follow the claims procedures laid out in [the plan document] and Plaintiff’s failure to file this action . . . [until] after the Plan’s six-month limitation period had run”).
1 Additionally, I do not necessarily accept that thirty-five days  [*32] to file suit following a thorough and complete eleven month review process would leave a party with an unreasonably short period to bring an action. Previous courts have found short periods of limitations reasonable in light of the preparation for suit afforded by the administrative processing period. See, e.g., Northlake Reg’l Med. Ctr. v. Waffle House Sys. Employee Benefit Plan, 160 F.3d 1301, 1304 (11th Cir. 1998) (finding that a ten month appeals process combined with a ninety day limitations period provided an adequate opportunity to investigate a claim and file suit).
2 Although an unpublished decision is not precedent, it is cited for its persuasive reasoning. Moreover, Dye appears to constitute our court’s only direct attempt thus far to assess the reasonableness of an ERISA contractual limitations period.
In keeping with the exhaustion analysis, the first step in assessing the reasonableness of the contractual limitations period is pinpointing the exact date at which § 2560.503-1(l) cleared the way for BMHD to bring suit. 3 At the latest, BMHD was on notice that Mr. Crain was not going to adhere to the parameters of the Crain Plan on April 12, 2004. At that point, BMHD had been  [*33] informed by CoreSource, the claims processor, that Mr. Crain was refusing to release payment. Moreover, on that date, Mr. Crain contacted BMHD to try to settle the outstanding debt outside of the Crain Plan’s claims review process. Thus, BMHD appears to have had approximately 214 days to file suit from the time its cause of action accrued under § 2560.503-1(l).
3 I cannot accept the majority opinion’s reasoning that “BMHD’s ERISA cause of action had not yet accrued as of October 13, 2004.” By that logic, BMHD’s claim never accrued because it has not been formally denied even now. Not only does the majority opinion’s position conflict with the aforementioned exhaustion analysis, but, taken to its logical conclusion, the majority opinion’s position suggests this matter is not yet ripe for adjudication. Thus, if that position was correct, the court would be required to dismiss this case for lack of jurisdiction. Cf. Paris v. Profit Sharing Plan for Employees of Howard B. Wolf, Inc., 637 F.2d 357 (5th Cir. 1981) (“[C]laims filed before a pension actually has been denied might be challenged for lack of ripeness.”); Schwob v. Std. Ins. Co., 37 F. App’x 465, 469-70 (10th Cir. 2002) (unpublished)  [*34] (dismissing as unripe after plan administrators reopened administrative review to reconsider denial of benefits).

Benefit Accrual Cases – The Fourth Circuit held that a limitations period that begins to run before the ERISA cause of action accrues is unreasonable per se. White v. Sun Life Assur. Co., 488 F.3d 240, 247 (4th Cir. 2007) (holding that a plan limitations period that “start[s] the clock ticking on civil claims while the plan is still considering internal appeals” is categorically unreasonable).

The court did not go so far as to adopt that standard and collected the following cases on the issue:

Other circuits have disagreed with the Fourth Circuit’s approach, opting instead to consider reasonableness on a case-by-case basis—even when the limitations period begins to run before a cause of action accrues. See Salisbury v. Hartford Life & Accident Co., 583 F.3d 1245, 1249 (10th Cir. 2009); Burke v. PriceWaterHouseCoopers LLP Long Term Disability Plans, 572 F.3d 76, 81 (2d Cir. 2009); Abena v. Metro. Life Ins. Co., 544 F.3d 880 (7th Cir.2008); Clark v. NBD Bank, N.A., 3 F. App’x 500 (6th Cir. 2001); Blaske v. UNUM Life Ins. Co. of Am., 131 F.3d 763 (8th Cir. 1997).

The Second Circuit in Burke concluded that we also declined to follow the Fourth Circuit’s rule with our decision in Harris Methodist. Although Harris Methodist involved a three-year limitations period that began  to run with the filing a completed claim, and thus before the claimant’s ERISA cause of action accrued, we had no occasion to address this question because the parties did not dispute the reasonableness of the limitations period. See Harris Methodist, 426 F.3d at 337-38. This case similarly presents no occasion to decide the question because the limitations period is unreasonable in the circumstances of this case, even assuming arguendo that we would decline to follow the Fourth Circuit’s holding in White.

For claims administrators and fiduciaries, this case demonstrates the importance of careful attention to the claims regulations and supporting claims decision rationale on technical issues with expert opinion.

:: EBSA Publishes Guidance On Health Care Reform (PPACA)

The Department of Labor’s Employee Benefits Security Administration has posted the following related to preexisting condition exclusions, lifetime and annual limits, rescissions and patient protections under the Affordable Care Act:

The EBSA has published guidance regarding preexisting condition exclusions, lifetime and annual limits, rescissions and patient protections under the Patient Protection And Affordable Care Act:

Published version of Interim Final Regulation, available at

http://www.dol.gov/federalregister/HtmlDisplay.aspx?DocId=23983&AgencyId=8&DocumentType=2Model Notice on Patient Protections, available at

http://www.dol.gov/ebsa/patientprotectionmodelnotice.docModel Notice on Lifetime Limits No Longer Applying and Enrollment Opportunity, available at

http://www.dol.gov/ebsa/lifetimelimitsmodelnotice.docModel Notice of Opportunity to Enroll in Connection with Extension of Dependent Coverage to Age 26, available at


:: Plan Administrators Cannot Invoke “SPD Prevails” Rule To Cure Plan Language Deficiencies

Here, there are no terms in the plan which allow it to be amended by inserting into the SPD such critical provisions as the administrator’s discretionary authority to interpret the plan or to determine eligibility for benefits. Indeed, this particular plan wholly fails to comply with § 1102(b)(3)’s requirement to include a procedure governing amendment of the plan.

Thus, there is no basis for concluding that the purported grant of discretion in the SPD is a procedurally proper amendment of the policy, and therefore “the policy’s failure to grant discretion results in the default de novo standard.” Jobe, 598 F.3d at 486. “Consequently, the district court should not have reviewed the administrator’s decision for abuse of discretion but, rather, should have reviewed it de novo.” Id.

Ringwald v. Prudential Ins. Co. of Am. (8th Cir.) (06/21/10)

It is not unusual to see plan documents and summary plan descriptions merged into one document these days, or for summary plan descriptions to take on the role as the source of authority and documentation of administrative practices.   This recent Eighth Circuit opinion should give plan fiduciaries pause as they delegate such paperwork to their claims administrators and benefit communications consultants.

Here, the question was whether the plan granted discretionary authority to the plan administrator so as to invoke the benefit of an abuse of discretion standard of review.  The answer – the summary plan description did, but the plan document did not.  And therefore, a de novo standard of review applied.

Some of you may be saying, but I thought the summary plan description controlled in the case of a conflict between the plan and the SPD?   The Eighth Circuit observes that this rule of “SPD prevails” only applies where necessary to protect the plan participants.

the policy underlying the “SPD prevails” rule was ERISA’s important goal of providing complete disclosure to plan participants, such that where disclosures made in an SPD pursuant to 29 U.S.C. § 1022(a)(1) . . .  ERISA’s policy of full disclosure – inuring to the benefit of employees, not employers – would not be advanced by a blanket rule indicating an SPD “prevails over the policy in all circumstances.”

Thus, the door opens for the plan participant to introduce the plan document as a means of impeaching the SPD.   ERISA forbids a plan administrator from using the SPD “to enlarge the rights of the plan administrator at the expense of plan participants when the plan itself does not confer those rights.”

Note: This case does not address the combination of the plan and the SPD into one document.   It does illustrate, however, the risks incurred when plan administrators deviate from ERISA’s documentary scheme.

ERISA contemplates plan documents which control many important legal matters, such as allocation of fiduciary responsibilities, specification of amendment procedures, eligibility, participation and claims adjudication rules.  ERISA further contemplates an SPD or SMM that put these matters in the vernacular for the plan participants.

In view of Ringwald, if important language fails to appear in the plan document, such as a grant of discretion, the SPD cannot cure this deficiency. Plan fiduciaries should review and compare the plan language on this issue as well as other important issues, such as ERISA subrogation and reimbursement rights, to ensure consistency in plan documentation.

:: Ninth Circuit Upholds Ban Of Discretionary Clauses

[Regarding discretionary clauses,] the Commissioner’s practice is “specifically directed toward entities engaged in insurance,” Kentucky Ass’n, 538 U.S. at 342, and it “substantially affect[s] the risk pooling arrangement between the insurer and the insured,” more so than other laws which have been upheld by the Supreme Court. The practice of disapproving discretionary clauses is thus saved from preemption under 29 U.S.C. § 1144(a) by the savings clause in section 1144(b)

Standard Insurance Co. v. Morrison (08-35246)

Dan Schelp noted on erisaboard.com today that the Supreme Court denied the petition for writ of certiorari in the case ofStandard Ins. Co. v. Lindeen, leaving in place the 9th Circuit’s decision in Standard Ins. Co. v. Morrison.

This opinion concludes the issue first raised in :: State Regulation Barring Grants Of Discretion To ERISA Plan Administrators Sustained

For fully insured plans, this is another indication that state regulations banning discretionary clauses will survive ERISA preemption challenge.   Bear in mind that these regulations, in states adopting them (often based upon the NAIC model act) will apply to disability plans as well as health plans.  The consequence will be de novo review of claim denials with augmented discovery in many cases.

For a similar decision, see American Council of Insurers v. Ross here.

:: District Court Remands ERISA Subrogation Case

Prior to settling and releasing the tortfeasors in exchange for a proffered settlement of $606,488.99, this personal injury plaintiff (and ERISA participant) persuaded the Washington state trial court to enter an Order To Show Cause against the ERISA Plan, causing it to appear in the state court action for the purpose of resolving the lien issues.

The participant argued that the lien of $525,601 would “consume his entire settlement.” The Order To Show Cause directed the ERISA plan to “show cause why [it] should not substitute its draft in favor of the plaintiffs in the amount of [settlement]” offered by the tortfeasors.

Upon receipt of the Order to Show Cause, the ERISA Plan filed a Notice of Removal in Federal Court. The U.S. District Court for the Western District of Washington in Thomas v. Powell, Case No. C10-53 MJP, grants the Plaintiff’s Motion for Remand and awards the Plaintiff reasonable costs and attorney fees.

The Court enforces the language of 28 U.S.C. 1441(a), holding that only the defendant or defendants are permitted to remove a case from state court. Merely being the recipient of an Order to Show Cause does not transform the ERISA Plan into a defendant.

post by Professor Roger Baron, erisaboard.com

Thanks to my friend Roger Baron for notifying me of this recent important opinion in an ERISA subrogation case.  For more information, including an upload of the district court opinion, please visit erisaboard.com.

:: Health Care Providers Warn Of Failure In HIT Compliance

The proposed rule takes an “all-or-nothing” approach, where failure to meet any one of the requirements means the provider will not receive an incentive payment.

Letter to Health and Human Services Secretary Kathleen Sebelius

Healthcare providers need additional time and greater flexibility to meet criteria of the Centers for Medicare and Medicaid Services’ proposed electronic health record rule, according to an article in Healthcare Leaders Media.

If the current rule is finalized, it would likely result in providers with advanced HIT systems not meeting requirements in fiscal 2011. For those physicians in small practices and rural providers, the letter notes, “the unrealistic timeframes are even more problematic because they have further to go in their implementation of EHRs compared to larger providers.”

Here’s another take:

Under the Medicare incentive plan, if physicians meet stage 1 requirements by 2011 or 2012, they can earn a total of $44,000 over five years, starting with $18,000 the first year. But if meeting the requirements takes longer, the totals are lower: $39,000 in 2013 and $24,000 in 2014. The bonuses turn into penalties in 2015 if meaningful use has not been reached.

:: Online Resources On The Patient Protection Act

“Health Care Reform” is now the subject of a variety of excellent summaries which are accessible online for the employee benefits practitioner:

This alert summarizes the major provisions of the Patient Protection and Affordable Care Act (“PPACA”) and the Health Care and Education Reconciliation Act of 2010 (together with the PPACA, the “Act”) that will impact employers and their group health plans (“GHPs”).


The Patient Protection and Affordable Care Act (PPACA) of 2010 brings both promise and peril for primary care. This Act has the potential to reestablish primary care as the foundation of US health care delivery.


On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care weeping measure designed to expand access to health insurance, reduce health care spending (particularly in the Medicare program); expand federal fraud and abuse authorities and transparency requirements; impose new taxes and fees on health industry sectors; and institute a variety of other health policy reforms.


:: Health Care Legislation Creates Uncertainty For Employer Plans

The text of H.R.3590, dubbed the Patient Protection and Affordable Care Act, may be viewed here and here.

Readers of this page will find the following exception to “TITLE I — QUALITY, AFFORDABLE HEALTH CARE FOR ALL AMERICANS” of interest:

(B) EXCEPTION FOR SELF-INSURED PLANS AND MEWAS- Except to the extent specifically provided by this title, the term ‘health plan’ shall not include a group health plan or multiple employer welfare arrangement to the extent the plan or arrangement is not subject to State insurance regulation under section 514 of the Employee Retirement Income Security Act of 1974.

And then there is also the provision regarding “grandfathered plans” which reads as follows:



(a) No Changes to Existing Coverage-

(1) IN GENERAL- Nothing in this Act (or an amendment made by this Act) shall be construed to require that an individual terminate coverage under a group health plan or health insurance coverage in which such individual was enrolled on the date of enactment of this Act.

(2) CONTINUATION OF COVERAGE- With respect to a group health plan or health insurance coverage in which an individual was enrolled on the date of enactment of this Act, this subtitle and subtitle A (and the amendments made by such subtitles) shall not apply to such plan or coverage, regardless of whether the individual renews such coverage after such date of enactment.

(b) Allowance for Family Members To Join Current Coverage- With respect to a group health plan or health insurance coverage in which an individual was enrolled on the date of enactment of this Act and which is renewed after such date, family members of such individual shall be permitted to enroll in such plan or coverage if such enrollment is permitted under the terms of the plan in effect as of such date of enactment.

(c) Allowance for New Employees To Join Current Plan- A group health plan that provides coverage on the date of enactment of this Act may provide for the enrolling of new employees (and their families) in such plan, and this subtitle and subtitle A (and the amendments made by such subtitles) shall not apply with respect to such plan and such new employees (and their families).

(d) Effect on Collective Bargaining Agreements- In the case of health insurance coverage maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers that was ratified before the date of enactment of this Act, the provisions of this subtitle and subtitle A (and the amendments made by such subtitles) shall not apply until the date on which the last of the collective bargaining agreements relating to the coverage terminates. Any coverage amendment made pursuant to a collective bargaining agreement relating to the coverage which amends the coverage solely to conform to any requirement added by this subtitle or subtitle A (or amendments) shall not be treated as a termination of such collective bargaining agreement.

(e) Definition- In this title, the term ‘grandfathered health plan’ means any group health plan or health insurance coverage to which this section applies.

And then there is the possibility of state waivers as provided in Section 1332(a), entitled: “WAIVER FOR STATE INNOVATION.”

(1) IN GENERAL- A State may apply to the Secretary for the waiver of all or any requirements described in paragraph (2) with respect to health insurance coverage within that State for plan years beginning on or after January 1, 2017 . . .

These various conditions are likely to create substantial controversy as the boundaries of the exceptions are worked out through judicial interpretation. Still undecided, of course, is the fate of the set of amendments proposed by the House which the Senate must consider. Add to that the imminent litigation over the constitutionality of the bill and it appears fair to say that it may be some time before employers can sort out their compliance burdens under the health care legislation.

:: Equitable Liens In Restitution – An Alternative Under ERISA Section 502(a)(3)?

Werner also sought restitution, asking the district court to impose a constructive trust or an equitable lien on the $ 3895 that Primax obtained from Progressive. The court found that request to be moot, however, because Primax had returned those funds to Progressive nearly 20 months prior to Werner’s filing of this action. Werner argues that the district court erred by assuming that a specific res had to be identifiable before it could impose an equitable lien.

Werner v. Primax Recoveries, Inc
., 2010 FED App. 0112N (6th Cir.) (6th Cir. Ohio 2010)

The Sixth Circuit’s unpublished opinion in Werner v. Primax Recoveries touches on an interesting issue regarding the nature of “equitable liens by agreement” as distinguished from “equitable liens in restitution” and the scope of ERISA Section 502(a)(3). .

The Facts

Werner was involved in a traffic accident on June 28, 2002, and required medical treatment for his injuries.

In addition to coverage through an employer-sponsored health-insurance policy through Medical Mutual of Ohio he also had “medpay” coverage through his automobile insurance policy that covered up to $ 5000 in medical-expense benefits.

Some of his medical bills were submitted to his health plan and some were submitted against his medpay coverage. The health plan apparently paid the bills submitted to it, but then asserted a claim against Werner’s medpay coverage. This subrogation claim exhausted the $ 5000 medpay limit.

For reasons undisclosed, some of the providers ended up with their bills unpaid. In fact, one of Werner’s medical providers sued him for non-payment.

Demand On Progressive

Rather than pursue payment of the outstanding bills through the health plan, Werner demanded that Progressive seek a refund from the health plan’s recovery agent (Primax) of what had been previously paid to the health plan out of his medpay coverage. (The reasons for this approach are not clear from the opinion.)  The repayment would apparently restore the medpay coverage in sufficient amount to satisfy the health care provider’s claims.

Werner added claims against Primax in the course of the personal injury claim based upon its claim on the medpay coverage.  In an effort to settle the controversy, Primax refunded the money it had recovered to Progressive.

The matter did not end there, however.  Werner sought class action relief in an independent action in federal district court – a case which was ultimately dismissed.   The district court based its holding on a number of grounds, including standing, mootness, and preemption.

Appeal Of Denied ERISA Claims

Of the arguments asserted on appeal, the most interesting argument was Werner’s attempt to impose liability under ERISA in terms of equitable relief under ERISA Section 502(a)(3).  (We will ignore the standing and mootness problems with his claims for purposes of discussion.)

In the words of the Court:

Werner also sought restitution, asking the district court to impose a constructive trust or an equitable lien on the $ 3895 that Primax obtained from Progressive. The court found that request to be moot, however, because Primax had returned those funds to Progressive nearly 20 months prior to Werner’s filing of this action.

Werner argues that the district court erred by assuming that a specific res had to be identifiable before it could impose an equitable lien. He relies solely on a passage in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 126 S. Ct. 1869, 164 L. Ed. 2d 612 (2006), in which the Court explained that “strict tracing” of funds is not necessary when an equitable lien is established by an agreement. See id. at 364-65.

But that reliance is misplaced: Werner has no agreement with Primax that creates an equitable lien. Rather, he seeks an equitable lien in restitution, i.e., the return of something that he alleges Primax wrongfully took. Sereboff expressly distinguishes such claims.

The return of the funds by Progressive proved fatal to this claim:

Moreover, Sereboff still requires that a request for restitution under § 502(a)(3) target “‘particular funds or property in the defendant’s possession.'” Id. at 362 (quoting Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 213, 122 S. Ct. 708, 151 L. Ed. 2d 635 (2002) (emphasis added)).

Werner does not dispute that Primax returned the $ 3895 to Progressive. We fail to see why that would not already amount to restitution here, thus mooting the request–unless what Werner actually seeks is possession of the $ 3895 for himself. But for that, presumably he may now file reimbursement claims with Progressive. Restitution certainly does not require that Primax pay twice.

Our review of Sereboff also leads us to conclude that Werner’s restitution claim is for relief that a court cannot grant under § 502(a)(3), because he seeks legal rather than equitable restitution. See id. at 361-62 (distinguishing the two types and explaining that only equitable restitution is available under § 502(a)(3)); Fed. R. Civ. Pro. 12(b)(6).

The district court properly granted summary judgment on this claim.

Note: The “agreement” required to impose a Sereboff-like remedy is an intriguing issue.  In Sereboff, of course, the Court did not based its finding of an “agreement” on any contractual document.  The “agreement” was implied from the terms of the plan which contained a reimbursement provision.

So when may such an agreement be implied?  When Primax recovered funds as the health plan’s recovery agent, it did no more than act under the terms of the plan.   The Court was correct in finding that no equitable lien by express or implied agreement supported Werner’s claims.

The Court goes further, however, and makes an observation that may have some value beyond a typical subrogation case.  The Court describes the relief sought by Werner as an “equitable lien in restitution”.  Note that the Court does not find that claim to be “legal” (and thus unavailable under (a)(3) as “other equitable relief”).  Rather, since the funds have been returned, the claim was legal inasmuch as no res remained upon which to impose an equitable remedy.

This notion of equitable relief in restitution may just the remedy that an ERISA plan should dial up when seeking refunds from recalcitrant health providers.  The troubling issue of whether an equitable lien by agreement can be found may perhaps by sidestepped by this arabesque.  What the plan asserts is simply an equitable lien in restitution.   The Werner opinion, though unpublished, should go in the desk file.

:: Final Regulation On Definition Of “Plan Assets”

The Employee Benefits Security Administration has posted a link to the final rules regarding the definition of “plan assets”.

The final regulation establishes a safe harbor period during which amounts that an employer has received from employees or withheld from wages for contribution to certain employee benefit plans will not constitute “plan assets” for purposes of Title I of ERISA.

Here is the link:

1/14/2010 – Final Rules – EBSA – Definition of “Plan Assets”–Participant Contributions [PDF]

:: New Article Analyzes Proposed Levies Under Health Care Reform

Rodney P. Mock and Jeffrey Tolin, both of California Polytechnic State University, have published an article entitled “Purchase or Else: The Health Insurance ‘Tax’” in Tax Notes. The article examines the nature of the tax or penalty imposed on taxpayers who fail to purchase health care coverage meeting proposed criteria of acceptability.

Both the Senate and House version of health care legislation contain such a provision.

Is the financial extraction a tax or a penalty?   Is a constitutionally legitimate exercise of the federal government’s power?  These issues are given extensive and persuasive analysis in the article.

From the article abstract:

With the Affordable Health Care for America Act, H.R. 3962, 111th Cong. (2009) passed by the U.S. House of Representatives and the U.S. Senate’s version of a health care bill, the Patient Protection and Affordable Health Care Act, H.R. 3590, 111th Cong. (2009) recently passed, this article reviews the particulars of each Act’s respective tax or penalty imposed on individual taxpayers who fail to purchase acceptable health care coverage, and questions whether or not such constitutes a “tax” at all, and if such does, whether or not it is an unconstitutional regulatory tax, indirectly regulating that which Congress cannot under the “Commerce Clause” of the U.S. Constitution; namely, non-participating taxpayers who merely “fail to purchase.”

The article appears in Tax Notes, Vol. 126, No. 224, 2010 and may be downloaded from SSRN.

See, Mock , Rodney P. and Tolin, Jeffrey, Purchase or Else: The Health Insurance ‘Tax’ (January 11, 2010). Tax Notes, Vol. 126, No. 224, 2010.

:: Tribute To Janell Grenier, Esq.

Like many, I have long regarded Janell Grenier’s blog and websites as exemplary.  Instructive, interesting, topical and well-ordered, her work has always provided the example for the rest of us as to how it ought to be done.    She has freely provided a tremendous resource on benefits law, fiduciary guidance and related issues.

I am sad to have read of recent developments of which I was unaware until this morning on Benefitslink which I will re-post from Janell’s Benefitsblog:

A thank you and good-bye . . .

As some of you may have heard, I have been diagnosed with a very rare and aggressive form of cancer which started in my kidney and spread to my lymph nodes. Because of that, it is with sadness that I am announcing I will no longer be writing here at Benefitsblog or any of the other blogs that I have written. I just want to thank so many who have been readers here and have emailed or called through the years. Writing this blog has been a wonderful experience which has connected me to so many people and I have enjoyed both writing as well as getting to know so many of you.

As a believer in the Lord Jesus Christ, my life rests with Him and I know that I have a home in heaven, at whatever time the Lord decides my time on earth is finished. “All the days ordained for me were written in your book before one of them came to be.” Ps. 139:16. You can read my testimony about how I came to know Jesus Christ at this location here.

I will be taking this blog down in the next month or so so print off anything you want to keep ASAP. Blessings to all of you!

Please keep Janell in your thoughts and prayers.

:: Notice Versus Fact Pleading – When Additional Facts Must Be Alleged Under F.R.Civ. P. 8

This post is a follow up on the previous two posts regarding the tactic of challenging the sufficiency of pleadings.  Of course, since this is an ERISA website, this subject is a digression.  On the other hand, the issue is quite topical and often arises in ERISA litigation. 

Furthermore, I would be remiss, having posted on the Braden v. Wal-Mart Stores, Inc. opinion today not to mention this significant aspect of the opinion.

First, some context is in order.  Here is a brief overview of the tension between notice and fact pleading.  It is legal history, but it is also history that is repeating itself.

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:: Defensive ERISA Preemption Inadequate To Sustain Removal Of Subrogation Dispute

Following an automobile accident, Plaintiffs Richard and Pamela Cottrill filed suit in the Court of Common Pleas of Perry County against Allstate Insurance Company (“Allstate”) and Blue Cross Blue Shield of Michigan (“Blue Cross”). In addition to seeking damages against Allstate, Plaintiffs asked the court to declare the rights and obligations of the parties to the two insurance contracts.

Blue Cross removed the case to federal court, alleging that Plaintiffs’ claim against Blue Cross was completely preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”). This matter is currently before the Court on Plaintiffs’ motion to remand the case to state court.

Cottrill v. Allstate Ins. Co., 2009 U.S. Dist. LEXIS 101518 (S.D. Ohio Oct. 30, 2009)

Cottrill reveals how complex ERISA subrogation and reimbursement issues remain notwithstanding two relatively recent Supreme Court opinions addressing the scope of these remedies.

In this opinion, the district court holds that the group health insurer improperly removed the reimbursement dispute to federal court.  In its opinion the court provides perspective on complete versus conflict preemption in the context of ERISA plan reimbursement claims.

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:: A Primer On Venue Choice In ERISA Claim Disputes

Plaintiffs originally filed their complaint in the Court of Common  Pleas of Philadelphia County, Pennsylvania. Defendants then removed the action to federal court. The plaintiffs’ choice of venue is generally accorded great weight, but other factors such as where the underlying events occurred and where the plaintiffs reside can override this concern.

Schoonmaker v. Highmark Blue Cross Blue Shield, 2009 U.S. Dist. LEXIS 101088 (E.D. Pa. Oct. 30, 2009)

This district court opinion features an ample discussion of an important preliminary issue that is often taken for granted – choice of venue.   One of the advantages of modern medical advances has been the proliferation of centers of excellence for various diseases.  On the other hand, access to these facilities often requires travel.

What factors should a court take into account in determining proper venue in a dispute over benefit payment?  The Court in Schoonmaker reviews this question in considerable detail.

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:: First Circuit Finds Plan Language Adequate For Delegation Of ERISA Fiduciary’s Authority

In this case, the Plan gives its named fiduciary- the Pension Committee–express power to “exercise its discretion” to decide on benefits, construe the Plan and render binding decisions.

Unquestionably, the Pension Committee purported to delegate to Corporate Benefits this authority by a 1998 written instrument. Wallace, however, argues that the delegation is invalid because allegedly the Plan did not comply with statutory preconditions for delegation and therefore–Wallace argues–no deference is due to Corporate Benefits’ reading of the Plan.

Wallace v. Johnson & Johnson, 2009 U.S. App. LEXIS 22529 (1st Cir. Mass. Oct. 14, 2009)

Section 1105(c)(1)(B) of ERISA (29 U.S.C. 1105(c)(1)(B)) states that “[t]he instrument under which a plan is maintained may expressly provide for procedures . . . for named fiduciaries to designate persons other than named fiduciaries to carry out fiduciary responsibilities (other than trustee responsibilities) under the plan.” 

This First Circuit opinion examines the nature of the delegation process and provides guidance on the requirements necessary for an effective delegation of fiduciary authority.  The issue is important since an ineffective delegation may lead to a benefit decision by a person or entity that has no claim to deferential judicial review.

The underlying dispute involved the definition of compensation for purposes of a disability benefit calculation.  The gist of the issue required a decision on how commissions were to be taken into account.   The decision was reached by a corporate department of the Defendant, Johnson & Johnson.  Was this decision entitled to deference?

Grants Of Discretion

The Court set the stage for answering this question by noting the basic rule under Firestone v. Bruch that:

. . . any judicial review of the ERISA entity’s own reading [of the plan] is . . . de novo “unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan,” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989). 

And, by extension:

Where a fiduciary properly delegates its discretionary authority under the plan to another entity, we review that entity’s exercise of the authority under a more deferential standard. See Terry v. Bayer Corp., 145 F.3d 28, 36-38 (1st Cir. 1998); Rodriguez-Abreu v. Chase Manhattan Bank, N.A., 986 F.2d 580, 584 (1st Cir. 1993).

The Plan Language

The Court pointed out that the plan’s  named fiduciary–the Pension Committee– had express power to “exercise its discretion” to decide on benefits, construe the Plan and render binding decisions.

Furthermore, the Pension Committee took steps to delegate its authority:

Unquestionably, the Pension Committee purported to delegate to Corporate Benefits this authority by a 1998 written instrument.

The Requirements For Delegation

The Plaintiff argued that the Pension Committee had not done enough to meet the requirements for delegation. 

In a nutshell:

Wallace, however, argues that the delegation is invalid because allegedly the Plan did not comply with statutory preconditions for delegation and therefore–Wallace argues–no deference is due to Corporate Benefits’ reading of the Plan.

Examining The Statute

Here it may be helpful to recapituate the rule.  ERISA provides that  a plan

“shall . . . describe any procedure under the plan for the allocation of responsibilities for the operation and administration of the plan (including any procedure described in [section 1105(c)(1)]),” 29 U.S.C. § 1102(b)(2) . . .   

and section 1105(c)(1) provides that

“[t]he instrument under which a plan is maintained may expressly provide for procedures” for delegating fiduciary responsibilities to other entities, id. § 1105(c)(1).

So, first the plan must contain language authorizing the delegation, and as noted above, that was clearly true in the case before the Court.  The issue, then, was whether the procedures for delegation were adequately described.

Wallace admits that the Plan allowed delegation, but says that it failed adequately to “describe any procedure” for such delegation.

Plaintiff’s Interpretation “Too Rigid”

The Court first pointed out that “Congress seemingly attached no talismanic significance to the term “procedure” nor required some special level of detail.”  Thus, the Court concluded that the essential requirement was that the plan provide for delegation and set forth any limitations that may apply to that delegation.

For delegation, it is hard to divine what Congress could have wanted any plan to contain beyond a grant of authority to delegate, together with any limitations that might exist on any such grant or the method of making it. Beyond that, we do not see why more would be expected than that the delegating fiduciary comply with any general formalities provided in the plan or under corporate or trust law. Here, the delegation did specify what authority was being delegated and to whom, and Wallace does not claim that the delegation instrument in this case was deficient in generally apposite  formalities.

Consonantly, the 1974 House and Senate Conference Reports on ERISA suggest only that if delegation authority were limited, that limitation should be spelled out. The Reports explain, “[f]or example, the plan may provide that delegation may occur only with respect to specified duties, and only on the approval of the plan sponsor or on the approval of the joint board of trustees of a Taft-Hartley plan.” H.R. Rep. No. 93-1280, at 43 (1974); S. Rep. No. 93-1090, at 301 (1974). Here, the Plan permitted delegation of benefit decisions and plan interpretation without limitation.

Applying the forgiving deferential standard, the Court had little trouble holding for the Defendant:

This means that Corporate Benefits’ decision must be upheld “unless it is arbitrary, capricious, or an abuse of discretion,” Morales-Alejandro v. Med. Card Sys., Inc., 486 F.3d 693, 698 (1st Cir. 2007). The standard is generous–“the decision ‘must be upheld if there is any reasonable basis for it,'” id. (quoting Madera v. Marsh USA, Inc., 426 F.3d 56, 64 (1st Cir. 2005))–but it is not a rubber stamp, Lopes v. Metro. Life Ins. Co., 332 F.3d 1, 5 (1st Cir. 2003).  In this instance, we think that Wallace’s arguments are not frivolous but that Corporate Benefits’ position is by no means unreasonable and so must prevail.


Note:  The conflict of interest factor was discounted since the plan was funded with employee contributions:

The deference may be less generous where the deciding entity has a financial stake in the outcome, Metro Life Ins. Co. v. Glenn, 128 S. Ct. 2343, 2348, 171 L. Ed. 2d 299 (2008); but in the present case the Plan is funded by employee contributions–not those of Johnson & Johnson–and no argument has been made for such an adjustment to the standard of review.

See also:: Thorny Issues Presented In Grants Of Discretion To Benefit Administrators; :: Sixth Circuit Reviews ERISA Plan TPA Benefit Denial De Novo; :: Tenth Circuit Opinion Creates Split In Circuits In Standard of Review Decision (on issue of whether delegation must be to fiduciaries)

:: Health Care Economics – Why Prices ≠ Costs & Why That Matters

Prices are not costs.  Prices are what pay for costs.  Where the costs ar not covered by the prices that are allowed to be charged, the supply of the goods or services simply tends to decline in quantity or quality . . .

Thomas Sowell, “Basic Economics : A Common Sense Guide to the Economy” (3rd ed. 2007)

The nonpartisan Joint Committee on Taxation has revised estimates of the tax burden imposed by the Senate bill.  According to the report, the bill would raise $121 billion in fees on drug companies, health insurers and the makers of medical devices, up from the $29 billion over the amount it reported last month.

Of course, only the very naive would fail to understand that these taxes will be passed on to consumers.   At the same time, history is replete with examples of the deleterious  effect of attempts to control prices through government control.    (The economist Friedrich Hayek has provided several such examples in his classic work, The Constitution of Liberty, and observes that price controls must be combined with direct control of production, i.e., who is to perform what services for whom, to be effective.)

These basic economic axioms appear lost on the proponents of non-market-based health care delivery models.  Yet, one only has to look to Massachusetts to see the inherent problems in health care legislation that does not realistically encounter the cost of entitlements.

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