In Briscoe I, this Court noted that with respect to the fiduciary duty set forth in ERISA, 29 U.S.C. § 1002(21)(A), “several courts have focused on the phrase ‘to the extent’ in holding that [f]iduciary status . . . is not an all or nothing concept, and that they must therefore ask whether a person is a fiduciary with respect to the particular activity in question.” Id. at 486 (quotations and citations omitted). Addressing PHP’s role, the Briscoe I Court concluded that although “neither the terms of [the Agreement] nor its day-to-day operations gave PHP discretionary authority over plan management . . ., PHP’s unilateral disposition of funds held in an account over which it exerted control makes it a fiduciary to the extent that it exercised such control upon the termination of its relationship with the Company.”
Briscoe v. Preferred Health Plan, 2009 FED App. 0309P (6th Cir.) (6th Cir. Ky. Aug. 25, 2009)
This recent Sixth Circuit opinion addresses the important issue of claims administrator responsibility for unpaid health plan benefits. This opinion, which we may refer to as Briscoe II, follows upon a remand from a prior appeal in which the Briscoe I court held that the claims administrator was a functional fiduciary to the extent it managed plan assets.
The facts are typical of a group health plan meltdown case where the employer edges into bankruptcy. Ultimately, the plan account has a deficit of over $300,000 which means that benefits, stop loss premiums and administrative fees were not getting paid. The period of decline stretched over several months and a key issue was whether the claims administrator had a duty to disclose the plan’s condition to participants.
In early March 2001, as it edged toward bankruptcy, M. Fine stopped depositing funds into the Plan account, after regularly making its monthly payments until that time. PHP’s chief executive asserted in her deposition that PHP never informed M. Fine’s employees that the Plan was becoming insolvent because PHP had a contractual obligation to notify only M. Fine, and that it was M. Fine’s responsibility to notify Plan members that the Plan was on the verge of insolvency. By letter dated May 17, 2001, PHP informed M. Fine that it was terminating the Agreement effective immediately, citing PHP’s “understanding of [M. Fine’s] current financial circumstances[.]”
PHP’s letter noted that M. Fine currently owed the Plan account “$ 305,184.91 . . . to satisfy outstanding claim funding requirements, stop loss premiums, and administrative fees due” into the Plan account.
Termination Of Agreement
The claims administrator ultimately terminates the agreement and writes several checks as follows:
Upon terminating the Agreement, PHP wrote itself a check out of the Plan account for $ 5,793.40, paid on June 13, 2001, to cover its own administrative fees in connection with the Plan. Enclosed in a letter dated June 6, 2001 from PHP to M. Fine were two checks: a check for $ 2,849.30 representing COBRA payments that employees had made directly to PHP for the months of April and May 2001, and a check for $ 2,036.99 that covered “the funds remaining in [the M. Fine] claim account.” According to the Plan account’s monthly statement, as of June 30, 2001, the Plan was $ 320,552.04 in arrears on its outstanding obligations.
As noted above, Briscoe I determined that the claims administrator could be held accountable as a fiduciary to the extent it exercised control over plan assets. That notion sounds unpleasant at first blush for the claims adminstrator. But the claims administrator made a virtue of this vice by pointing out on remand that it only exercised authority over a limited amount of funds and thus should not be held accountable for all of the unpaid benefits.
On remand, PHP moved for partial summary judgment, seeking a finding that, based upon this Court’s holding in Briscoe I, PHP could potentially be held liable only for the losses to the Plan’s funds after it terminated its contractual relationship with M. Fine. On January 29, 2007, the district court granted PHP’s motion. The parties then filed dueling motions for summary judgment regarding PHP’s liability, and on September 3, 2008, the district court granted summary judgment for Plaintiffs and awarded judgment in the amount of $ 10,769.59, the combined amount of the three payments PHP made out of the Plan account in June 2001. Plaintiffs timely appealed the district court’s judgment, arguing on appeal that the district court erred in limiting the extent to which PHP could be held liable on their ERISA claim.
The Sixth Circuit Agrees
In Briscoe II, the Court met the district court’s interpretation of its prior opinion with approbation, stating that:
In short, the Briscoe I Court held that Plaintiffs had presented “competent evidence” that PHP had exercised control over assets, but only to the extent that PHP “allott[ed] to itself an administrative fee and return[ed] the remaining funds after its relationship with [M. Fine] terminated.” Id. at 494. The assets involved in these three transfers totaled $ 10,679.59. No evidence exists in the record of any additional assets over which PHP exercised control upon terminating the Agreement. Plaintiffs allege that PHP improperly accepted COBRA payments and employees’ withheld contributions after it became aware of the Plan’s lack of funding, but the only evidence of the acceptance of such payments was the $ 2,849.30 in premiums that PHP received for the months of April and May 2001, an amount for which the district court already held PHP liable in the $ 10,679.59 judgment.
Duty To Warn?
The most dangerous allegation of the Plaintiff’s was the the claims administrator owed them a duty to warn them of the employer’s predicament. The Sixth Circuit reject this argument stating that:
Plaintiffs argue that in addition to its liability for transferring Plan assets out of the Plan account, PHP should also be liable for more than $ 300,000 in unpaid benefits owed to Plan participants between March and May, because PHP’s fiduciary duty required it to warn existing participants that the Plan was underfunded. . . . Plaintiffs cite no precedent for the proposition that a third-party administrator acquiring fiduciary status only by exercising of control over a plan’s assets may be held liable for funds that were never contributed to the plan. Accordingly, this Court’s holding in Briscoe I necessarily limited PHP’s liability to the $ 10,679.59 it transferred from the Plan account, given the absence of evidence of any other assets under PHP’s control at the time.
Note: The Court rejected as inapposite several authorities on the duty to warn issue on the grounds that the fiduciaries in those cases exercised authority over plan management.
To support their argument, Plaintiffs cite one decision of this Court and two from the Fourth Circuit–Drennan v. Gen. Motors Corp., 977 F.2d 246 (6th Cir. 1992); Griggs v. E.I. DuPont de Nemours & Co., 237 F.3d 371 (4th Cir. 2001); Phelps v. C.T. Enters., Inc., 394 F.3d 213 (4th Cir. 2005)–that are inapposite. Although the defendant fiduciaries in those cases were required to disclose material information to ERISA plan beneficiaries, those defendants were fiduciaries with discretionary authority over their plans’ management–not fiduciaries solely through the exercise of control over a plan’s assets, as PHP was. See Drennan, 977 F.2d at 249-52; Griggs, 237 F.3d at 374; Phelps, 394 F.3d at 216.
This distinction carries an important message for TPA’s and others involved in claims adminstration.
I am not fond of the “plan supervisor” designation, for example, but the claims administrator in this case got by notwithstanding that title.
The Plan Document specified that PHP was the “Plan Supervisor,” who “will provide technical services and advice in connection with the operation of the coverage and performing other functions.”
Finishing Well – Though the meltdown of a plan is almost always a litigation igniter, the claims administrator in this case took some steps that aided its case before the Court:
There is also no evidence that PHP enrolled new employees after it learned of M. Fine’s financial difficulties in March 2001; Plaintiff William Briscoe asserts in his deposition that he switched to the Plan in March 2001, but he does not provide evidence that this occurred after PHP learned of M. Fine’s inability to fund the Plan, and there is no evidence that M. Fine ever deposited any withheld portion of his subsequent paychecks into the Plan account.
Functional Fiduciary – This is the definition that the Bricoe opinions relied upon:
a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such [*10] plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.
29 U.S.C. § 1002(21)(A)
Planning Pointers – This case provides several planning pointers worthy of note. Here is a brief run down on the claims administration agreement at issue:
The “Agreement”) described PHP’s responsibilities as:
- enrolling M. Fine employees in the Plan,
- investigating claims and determining claimants’ eligibility for benefits,
- processing benefits,
- issuing checks from a Plan bank account to pay the employees’ benefits and PHP’s administrative expenses.
- “Final Authority for payment any benefit the employers
- either party could terminate the Agreement if the other party became bankrupt or insolvent.