:: Employer’s State Law Claims Against Stop Loss Carrier Dismissed

The only claim to implicate Aetna’s fiduciary relationship with the Bank is the Bank’s claim that Aetna breached the stop-loss extension by failing to reimburse the Bank for claims that Aetna delayed processing and paying and, hence, that were not paid during the extension period. Accordingly, Aetna has established the second element of its preemption defense only as to this latter claim.

Bank of Louisiana v. Aetna US Healthcare Inc., 468 F.3d 237, 244 (5th Cir. 2006).

Bank of La. v. Aetna US Healthcare, Inc., 2008 U.S. Dist. LEXIS 58090 (E.D. La. July 31, 2008), the above-cited Fifth Circuit case on remand, highlights an area of particular interest to those of us that work with self-funded group health plans – the relationship between the employer and the stop loss carrier. In this case, the Fifth Circuit gave the employer an opportunity to pursue several state law claims against Aetna, the stop loss carrier, but these claims failed to reach the conduct that was the gravamen of the employer’s complaint.

The employer, the Bank of Louisiana, employed several Aetna entities to assist in claims administration. Though the defendants emphasized the finer points of which entity did what in the litigation, I will not attempt to delineate the defendant companies and their roles here. Suffice it to say that Aetna administered claims through one entity and through another provided stop loss insurance.

The gist of the matter was that the Bank felt that Aetna delayed paying claims, or at least failed to pay claims timely enough, to have them “paid”, as defined, under the stop loss policy in the plan year. That led to a substantial disappointment in what the bank expected from the risk “tail” (the court’s characterization) purchased by the bank.

Despite various state law claims sounding in contract and tort, the bank’s case against the carrier ran afoul of the policy definition and the fact that the claims were not “paid” as specified in the policy to be eligible for reimbursement. The phrasing of the complaint in a manner to reach the real issue triggered preemption defenses.

As noted by the district court:

the. . . Fifth Circuit stated, “the Bank’s breach of contract claim, to the extent it is premised on Aetna’s alleged delaying the processing of claims, is preempted.” Id. at n. 13.

Note: The Fifth Circuit consideration of the preemption issue was discussed in:: Fifth Circuit Rejects Carrier ERISA Preemption Defense to State Law Claims. The preemption test applied by the Court was as follows:

. . . this court applies a two-prong test to the defense of ERISA preemption. A defendant pleading preemption must prove that: (1) the claim “addresses an area of exclusive federal concern, such as the right to receive benefits under the terms of the Plan; and (2) the claim directly affects the relationship among traditional ERISA entities, the employer, the plan and its fiduciaries, and the participants and beneficiaries.” Mayeaux v. La. Health Serv. and Indem. Co., 376 F.3d 420, 432 (5th Cir.2004). Because ERISA preemption is an affirmative defense, Aetna bears the burden of proof on both elements (citations omitted).

Area Of Exclusive Federal Concern – As the district court opinion reflects, the boundaries of the dispute were set by the Fifth Circuit. To the extent that the Bank intended to adduce evidence that Aetna improperly delayed processing and paying benefit claims in support of its contractual claims, the Fifth Circuit agreed that this inquiry would encroach upon an area of exclusive federal concern. As for the second requirement, it seems open to dispute whether the delays affected employees – it was the bank’s stop loss policy that was in issue – but the district court did not give this point any analysis.

Breach Of Fiduciary Duty? You may wonder what happened to this claim. A footnote in the Fifth Circuit opinion explains that the bank withdrew it.