:: Court Permits ERISA Contribution Claim By Claims Administrator Against Insurance Broker
The court notes IMA’s argument that this court should follow Chief Judge Lungstrum’s Aks opinion because no purpose will be served if every judge with this type of case should “immediately woo the Muse and set down a lengthy opinion having the same 50-50 chance of being right.†. . . Judge Lungstrum’s opinion is indeed well-reasoned, as IMA argues, but the court is persuaded by the opposing viewpoint that contribution furthers ERISA’s purposes by treating breaching fiduciaries according to their relative culpability. And when it comes to the thicket of ERISA litigation, the court would gladly settle for a 50-50 shot at being correct. Via Christi Regional Medical Center, Inc. v. Blue Cross and Blue Shield of Kansas, Inc.Slip Copy, 2006 WL 3469544 (D.Kan.)
In a case replete with legal arguments, Via Christi Regional Medical Center, Inc. v. Blue Cross and Blue Shield of Kansas, Inc. offers a broad vista of what can go wrong when a self-funded plan chooses to go fully insured.
Chance Industries sponsored a self-funded group health plan in 2001 under which defendant Blue Cross and Blue Shield of Kansas, Inc. (“BCBSâ€) served as claims administrator. IMA of Kansas, Inc. (“IMAâ€) served as the employer’s insurance broker.
Under the administrative services agreement, claims over $50,000 were subject to reimbursement under a stop loss policy. Very material to the case, the stop loss policy term ran from January 1, 2001 to January 1, 2002.
In October of 2001, Cecillia Arnold, a beneficiary under the plan, was admitted to Via Christi Regional Medical Center. There she gave birth to a premature baby. The confinement date extended from October 17, 2001 to March 19, 2002, with the total amount due for his care in that period being $647,996.26.
Meanwhile, in April of 2001, Chance filed a Chapter 11 bankruptcy petition, and as a part of the reorganization, decided it would convert the employee benefit Plan from a self-funded plan to a fully insured plan for the 2002.
According to the opinion:
Third-party defendant IMA, Chance’s insurance broker, assisted Chance in evaluating its options in this regard. Chance also obtained information from BCB S. Chance thereafter secured a fully insured plan, underwritten by BCBS, which became effective January 1, 2002. The policy period for the fully insured plan was from January 1, 2002 until January 1, 2003. Because the Plan became fully insured as of January 1, 2002, Chance allowed the Stop-Loss Policy to lapse on December 31, 2001.
All elements were then in place for conflict.
BCBS did not receive the “bulk of the billed medical expenses pertaining to such care until after the Stop-Loss policy had expired. Because Via Christi did not bill the Plan until after expiration of the policy, the Stop-Loss Policy did not cover those charges. When the plan refused to pay Via Christi’s bills, Via Christi, as assignee of plan benefits, and the Arnolds filed suit.
In the suit, the plaintiffs alleged that BCBS had specific knowledge of the care being provided by Via Christi but failed to properly advise Chance or the Plan in breach of its fiduciary duty. The suit further alleged that, after a partial payment by BCBS, $509,935.74 remained owed to Via Christi. Since the stop loss policy had lapsed, the Plan was unable to pay the claim.
Part I – BCBS Unable To Escape Beneficiary’s Claims For Breach of Fiduciary Duty
BCBS rather easily slipped out of the provider’s claims. The Court observed that Via Christi had not pointed to any language in the assignment that could reasonably be construed as assigning the right to pursue an action for damages caused by a breach of fiduciary duty. Thus, while the assignment permitted Via Christi to pursue claims for benefits, “only an express and knowing assignment of an ERISA fiduciary breach claim is valid.†(citing, Texas Life, Acc. Health & Hosp. Service Ins. Guar. Ass’n v. Gaylord, 105 F.3d 210, 218 (5th Cir.1997))
The beneficiary’s claims proved more effective. Though 29 U.S.C. § 1132(a)(2) and 1109(a) only allow a plan participant to bring an action to recover for losses to the plan as a whole, BCBS could not convince the district court that the Arnolds’ claims did not meet this criteria. The Court stated:
At first glance it appears this claim is one for individual relief that would be prohibited by Massachusetts Mutual Life. Inasmuch as the Arnolds’ claim for medical expenses was apparently the only outstanding claim not covered by either the stop-loss policy or the fully insured policy that replaced it, the Arnolds are the only participant/beneficiaries who stand to ultimately obtain payment if the request for relief is granted. But given the unusual posture of the claim, the court is persuaded that plaintiff has fairly alleged a loss to the plan itself and that plaintiff seeks relief for the plan as a whole within the meaning of § 1109.
The key to the success of the claim lay in the court’s correct assessment of the plan’s liability to the beneficiary regardless of the existence of stop loss insurance. Though parts of the opinion use language suggesting that the stop loss insurance paid claims in excess of the specific limit, the Court’s analysis demonstrated that it held the proper view that, regardless of stop loss, the plan remained ultimately liable for the claims.
Contrary to BCBS’s argument, the Court thus concluded, if the plaintiffs recover it would not inure only to Plaintiffs’ benefit. On the contrary, “[a]ny payment ultimately received by the Arnolds would inure to the benefit of the Plan (as well as to the Arnolds) by reducing a substantial outstanding debt of the Plan.”
- Arguments That Plan Did Not Suffer a Loss Rejected
The Court quickly dispensed with BCBS various arguments that the bankruptcy prevented any loss to the plan by noting that the bankruptcy only affected the employer’s liability, not that of the plan. Again, the Court correctly analyzed the plan’s distinct legal standing and applied this concept in distinguishing the plan’s liability versus that of the plan administrator.
- Legal Relief Not Prohibited By Section 1132(a)(2)
BCBS advanced a now-familiar defense, post-Knudson, that the plaintiffs’ claims did not constitute a cognizable claim under ERISA. In effect, BCBS argued that ERISA only permits a court to award equitable relief, and that the essence of the plaintiffs’ claim is for recovery of monetary damages.
Not so, concluded the Court, stating,
[U]nlike § 1132(a)(3), is not strictly limited to equitable restitution or other “appropriate equitable relief†of the sort discussed in Sereboff v. Mid Atlantic Med. Serv., Inc., 126 S.Ct. 1869 (2006). Rather, section 1109 provides that a fiduciary with respect to a plan who breaches an obligation imposed by ERISA “shall be personally liable to make good to such plan any losses to the plan resulting from . . . such breach.”
- Disavowal of Fiduciary Status Unavailing
Essential to plaintiffs’ claims, of course, was the allegation that BCBS acted as a fiduciary. The Court found ample evidence in the administrative agreement to create an issue of fact on this point.
Under the limited facts presented, the court cannot say BCBS is entitled to judgment as a matter of law for lack of fiduciary status. BCBS may have had a fiduciary duty with respect to the plan insofar as it assumed a responsibility to advise and assist Chance concerning benefits and changes to the Plan. Moreover, plaintiff may be able to establish that BCBS breached such a duty by failing to adequately advise Chance and the Plan about the Arnolds’ outstanding claim and its potential impact.
Part II – IMA Unable To Escape BCBS Claim For Contribution
In the event the Court found BCBS to be a fiduciary, BCBS argued that IMA was also a fiduciary and that it had equal or greater responsibility than BCBS. This aspect of the case presented a difficult issue for the Court.
IMA offered several arguments in opposition, namely:
1. A fiduciary has no implied or federal common law right of contribution or indemnity under ERISA. (citing, Aks v. Southgate Trust Co., 1992 WL 401708 (D.Kan.1992) (declining to recognize an implied or common law claim for contribution among ERISA co-fiduciaries)).
2. The plaintiffs did not allege that BCBS was liable for any conduct of IMA under a vicarious liability theory or under a co-fiduciary theory pursuant to § 1105. As such, BCBS was not subject to joint and several liability and could claim a right to contribution or indemnity.
The Court addressed the arguments as follows:
As the parties point out, this area of ERISA law is unsettled, with two circuit courts allowing implied or common law claims for contribution and one circuit court rejecting such claims. See Free v. Briody, 732 F.2d 1331, 1337 (7th Cir.1984) (“In our opinion ERISA grants the courts the power to shape an award so as to make the injured plan whole while at the same time apportioning the damages equitably between the wrongdoers.â€); Chemung Canal Trust Co. v. Sovran Bank/Maryland, 939 F.2d 12 (2nd Cir.1991) (the traditional trust law right to contribution must be recognized as part of ERISA). But see Kim v. Fujikawa, 871 F.2d 1427, 1432 (9th Cir.1989) (section 1109 only establishes remedies for the benefit of the plan; therefore it cannot be read as providing for equitable contribution in favor of a breaching fiduciary). The Tenth Circuit has yet to address the issue. District courts within the Tenth Circuit are similarly divided, with the [Emmons v. Equitable Life Assurance Soc. of U.S., 799 F.Supp.1123 (D.N.M.1992)] decision from the District of New Mexico approving of implied contribution claims and Chief Judge Lungstrum of the District of Kansas rejecting them in his 1992 [Aks v. Southgate Trust Co., 1992 WL 401708 (D.Kan.1992)] opinion.
Both parties cited Cort v. Ash, 422 U.S. 66 (1976) to support their arguments. In that case, the Supreme Court identified several factors for determining when a private remedy should be implied in a statute. Yet, the Court observed that, “[l]ike seemingly everything else having to do with ERISA, application of this test produces mixed results.”
After reviewing the cited authorities, the Court noted that the caselaw identifies “a multitude of valid arguments pro and con on this issue.” Inasmuch as the remedial provisions of ERISA directed at breaches of fiduciary duty are primarily focused on restoring the plan rather than obtaining equitable allocation among fiduciaries, the Court concluded that nothing in those provisions indicated an intent to preclude contribution.
Coming down on the side of permitting contribution, the district court stated:
The question largely boils down to whether Congress’ silence should be interpreted as a rejection of contribution, see Chemung Canal Trust Co., 939 F.2d at 18, or whether it is attributable to Congress’ expectation that the courts would supplement ERISA’s integral provisions with principles from trust law as necessary and appropriate. The court concludes this is one instance where a matter not treated by ERISA should be supplemented by federal common law derived from the law of trusts. The equitable allocation of responsibility among breaching fiduciaries was obviously a secondary concern to providing redress to protect plan beneficiaries, so its absence from the remedies approved by Congress does not, in this court’s view, warrant an inference that Congress rejected this traditional remedy. Cf. Mertens v. Hewitt Associates, 508 U.S. 248, 254 (1993) (ERISA’s explicit imposition of liability on co-fiduciary who knowingly participates in breach reflects a deliberate rejection of such liability for non-fiduciaries); Smith v. Local 819 I.B. T. Pension Plan, 291 F.3d 236, 240-41 (2nd Cir.2002) (rather than explicitly enumerating all powers and duties of trustees, Congress invoked the common law of trusts to define the general scope of their responsibility). Moreover, § 1109 subjects a breaching fiduciary to, among other things, “such other equitable or remedial relief as the court may deem appropriate . . .” The court does not see how the availability of contribution in these circumstances undermines the purposes of ERISA, so long as contribution does not impede the plaintiff’s ability to pursue a claim for relief against any breaching fiduciary. Accordingly, the court concludes that ERISA permits a claim of contribution among fiduciaries who are subject to joint and several liability for a breach of a fiduciary duty.
Note: The issue of the availability of contribution among fiduciaries has previously been discussed in :: Court Holds ERISA Does Not Permit Suit For Contribution. As with many other ERISA issues, the split in the circuits awaits Supreme Court attention. Nontheless, the reasoning of the Court in the Via Christi case appears compelling.
Given the dismissal of the provider’s claims, the only avenue for payment lay in the success of the beneficiary’s fiduciary claims against BCBS. As the various defenses in Via Christi illustrate, the path to recovery in such situations is not an easy one.
The opinion discloses that Via Christi was a party to a provider agreement with the plan. Thus, a possible approach for the provider may have been a case based upon that agreement as in Newark Beth Israel v. Northern New Jersey Teamsters Ben. Plan 2006 WL 2830973 (D.N.J.) (September 29, 2006). For more discussion of that approach, see the previous article, :: Participant Benefit Assignments Do Not Foreclose Hospital’s State Law Claims Against Health Plan.
