Diamond Post

eRISA Newsletter

Below are summaries of some of the more interesting and/or significant ERISA decisions decided throughout the circuits in August 2008.  Please call or e-mail us if you have any questions or need more information about these cases.

Franciscan Skemp Healthcare, Inc. v. Central States Joint Bd. Health and Welfare Trust Fund, 2008 WL 2927347 (7th Cir. July 31, 2008): In this case, the 7th Circuit considered whether a provider's claim against an employee benefit plan for negligent misrepresentation and estoppel was pre-empted by ERISA.  During a call from a provider to the plan representative to verify coverage of an insured member, the plan representative advised that the patient (and former plan participant) was insured under the Plan, but neglected to advise that coverage was subject to COBRA.  When the patient failed to pay COBRA premiums, coverage was retroactively cancelled and the patient was not entitled to benefits for treatment.  The lower court initially ruled that the provider's claims were subject to ERISA and, therefore, pre-empted.  The 7th Circuit overruled the decision, concluding that the provider's claim was not based on ERISA and instead was based on an alleged independent duty of the plan representative to disclose the fact that coverage was subject to COBRA.  Such a claim was not pre-empted under the Davila pre-emption test because, unlike a claim for benefits, (1) it could not be brought under ERISA, and (2) it was derived from duties imposed apart from ERISA and plan terms.  The Court emphasized that it was not deciding whether the provider could prevail on its theory of negligent misrepresentation arising out of the failure to disclose, and limited its holding to the determination that such claims were not pre-empted by ERISA and should remain in state court.

Pell v. E.I. DuPont de Nemours & Co., 2008 WL 3166997 (3rd Cir. Aug. 8, 2008): Retired employee of DuPont, Pell, initiated litigation under ERISA claiming that his pension benefits were lower than DuPont led him to expect.  Pell worked for Consol when Consol merged with DuPont.  After receiving oral and written assurances about his pension benefit, Pell accepted a permanent transfer to DuPont.  DuPont assured Pell that his benefits would be calculated using a service date of 1971 but DuPont actually used a service date of 1975.  The District Court found that Pell was entitled to relief under ERISA based on the theory of equitable estoppel, issued an injunction requiring DuPont to use a different service date in the future, and held that Pell was not entitled to restitution for the past pension payments that were too low. On appeal, the Third Circuit found that the District Court was correct that Pell was entitled to relief under ERISA on an equitable estoppel theory and found that Pell had established (1) a material representation, (2) reasonable and detrimental reliance upon the representation, and (3) extraordinary circumstances.  After making this determination, the Third Circuit considered the appropriate relief.  The Court first analyzed under Great-West and Sereboff whether the injunction was equitable or legal and concluded, like the District Court, that it was equitable because the injunction was not to compel the payment of money or specific performance, but to entitle Pell to an amount of money in the future.  Finally, the Third Circuit reversed the District Court's decision denying Pell restitution.  In doing so it held that Pell was entitled to restitution of the past payments that were too low because the funds were held in trust by DuPont and thus were specifically identifiable property.

Quality Infusion Care Inc. v. Humana Health Plan of Texas Inc., 2008 WL 3471861 (5th Cir. August 13, 2008): In this unpublished opinion, the Fifth Circuit addressed whether claims by Quality Infusion Care, Inc. (QIC), a prescription drug company which  provided medication to two insureds under an ERISA-governed plan, were preempted and subject to dismissal under ERISA.  QIC was denied payment of plan benefits because it was an out-of-network provider.  Although the insureds at issue assigned their claims for benefits to QIC, QIC's claim was based on Texas' "any willing provider" statute, which provides that "a health care plan may not prohibit a pharmacy from participating 'as a contract provider under the...plan' if it otherwise meets 'all terms and requirements and to include the same administrative, financial, and professional conditions that apply to pharmacies and pharmacists who have been designated as providers under the policy or plan.'"  As such, QIC attempted to show that it was making a claim for discrimination under the statute, not benefits under the Plan - although both complaints clearly based the right to payment on the terms of the Plan.  QIC relied primarily on Kentucky Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329 (2003), which held that a similar AWP law in Kentucky was saved from preemption as a law regulating insurance.  However, the Fifth Circuit found that Miller was distinguishable in that the claim at issue was one by a group of HMOs for a declaration on the application of the Kentucky statute to their network arrangement generally, whereas the claim by QIC was based, at least in part, on an assignment of benefits.  For that reason, QIC's claim for benefits was subject to complete preemption under ERISA Sec. 502(a), and not saved under Sec. 514.

Taylor v. Broadspire Serving, Inc., 2008 WL 3864252 (11th Cir. Aug. 21, 2008): Broadspire, the third-party administrator for the Participant's employer, denied the Participant's claim because he failed to provide examination findings to substantiate his functional impairments.  The District Court agreed and granted summary judgment on behalf of Broadspire.  On appeal, the Eleventh Circuit explained that when discretion is granted to the administrator, the court applies either an arbitrary and capricious or a heightened arbitrary and capricious standard of review depending on whether the administrator was acting under a conflict of interest.  Further, the Eleventh Circuit stated that the court does not look for a conflict unless it first concludes that the administrator's decision was "wrong."  A decision is wrong when "the court disagrees with the administrator's decision" or when the court would have itself reached a different decision.  "If the district court determines that the administrator's decision was correct, the inquiry ends."  The District Court found that Broadspire's decision was correct and ended its inquiry.  The Eleventh Circuit agreed and upheld the District Court's grant of summary judgment in favor of Broadspire.

Gaeth v. Hartford Life Ins. Co., 2008 WL 3833879 (6th Cir. Aug. 19, 2008): The plan  participant, Gaeth, was receiving LTD benefits when the plan administrator, Hartford, determined he was no longer disabled based on a surveillance video showing him moving without difficulty and his operation of an antique-lamp restoration business.  The District Court found that Hartford's determination was arbitrary and capricious because it was not supported by any medical evidence of Gaeth's physical condition and remanded the case back to Hartford for further review of eligibility for benefits.  It also awarded Gaeth attorney's fees.  Harford appealed and the Sixth Circuit reversed the award of attorney's fees.  In doing so, it noted that the District Court applied the wrong test and, instead, should have utilized the King five-factor test.  Under that test, the fourth and fifth factors did not support an award of attorney's fees.   For example, under the fourth factor - "conferring a common benefit on plan participants or resolving a significant legal question under ERISA" - there was no evidence that Gaeth sought to obtain a common benefit, that other participants were in his same position or that other participants would obtain a re-determination of a similarly adverse benefits decision as a result of Gaeth's success.   Under the fifth factor - "relative merits of the parties' positions" - the Sixth Circuit focused on the fact that Gaeth may ultimately lose the benefits determination and this would lead to an incongruous situation where the party that ultimately wins is required to pay attorney's fees to the losing party.

Chalker v. Raytheon Co., 2008 WL 3843503 (10th Cir. Aug. 19, 2008): The plan participant, Chalker, brought the underlying action against Raytheon, Chalker's employer, and Metropolitan Life Ins. Co., claims administrator, alleging wrongful termination of LTD benefits.  The District Court disposed of the case on two grounds: (1) the suit was time-barred by the one-year limitation contained in the plan and (2) the insurer's decision was not arbitrary and capricious.  The Tenth Circuit focused solely on the merits of the case and did not address whether the district court was correct in disposing of the case on limitations grounds.  In analyzing the merits, the Court noted that the question is not whether the insurer made the correct decision but whether it had a reasonable basis for making its decision.  The Court affirmed the District Court's decision and held that there was  a reasonable basis  for Met Life's decision based on the fact that it relied on the evaluations of two independent, board certified rheumatologists as well as an independent FCE, all of which suggested that that  plaintiff  could do some type of work.