In 2017, while insured under the plan, Plaintiffs were injured in separate accidents by third-party tortfeasors. Plaintiffs subsequently received a collective total of $61,525.59 in health benefits under the plan. At some point, Plaintiffs settled their claims against the tortfeasors who injured them. After Plaintiffs settled their claims, SCIOinspire contacted them by letter and demanded reimbursement for the cost of medical benefits they had received pursuant to the plan.
The Plaintiffs challenged the plan’s reliance on the recovery provision, asserting “five breach of fiduciary duty claims under § 502(a)(3), four of which arise from Defendants’ allegedly wrongful interpretation of the plan’s subrogation clause” and sought class certification. In all, the Plaintiffs included twelve counts against the Defendants, Geisinger Health Plan and SCIOinspire Corp. and the matter appeared before the court in the context of a Rule 12(b)(6) motion to dismiss.
The Subrogation Clause
The Court noted that “because the plan at issue here does not contain an explicit reimbursement provision, the parties’ dispute largely revolves around whether the plan’s subrogation clause, standing alone, has created an enforceable right of reimbursement.”
The group health plan recovery process is so often simply referred to as “subrogation” that the distinction between true subrogation and plan contractual reimbursement provisions may be neglected. They are quite different and almost all of what passes for “subrogation” in the benefits plan context is technically contractual reimbursement. In this case, the Court refused to bend the subrogation clause to fit the plan’s purposes by interpretation or substitution of equitable remedies.
§ 502(a)(1)(B) Claim
To successfully challenge a plan’s denial of benefits under § 502(a)(1), a beneficiary must show that the denial was based on an improper interpretation of the plan’s terms. The provision provides that “[a] civil action may be brought by a participant or beneficiary . . . to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.”
Even under the stringent abuse of discretion standard of review, the Court found that the Plaintiff’s had made out a case for violation of § 502(a)(1)(B).
The Court noted that:
“While subrogation and reimbursement are similar in their effect, they are different doctrines. With subrogation, the insurer stands in the shoes of the insured. With reimbursement, the insurer has a direct right of repayment against the insured. As a matter of logic and case law, a party can have one right, but not the other.”
The Court rejected the plan’s interpretation as contrary to the language of the plan document (directed at third parties, not plan participants). The Court also rejected the plan’s dismissal argument based on equitable notions of unjust enrichment.
§ 502(a)(3) Claims
ERISA § 502(a)(3) provides that a civil action may be brought “by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan . . .”
The Defendants sought to dismiss these claims on two bases. First, they maintained that four claims are barred as duplicative of Plaintiffs’ § 502(a)(1) benefits claim. Second, they asserted that all claims failed as a matter of law. The Court disagreed with both assertions.
The first defense has been controversial among the courts. In Varity Corp. v. Howe, citing one of ERISA’s “basic purposes” of providing “plaintiffs with a remedy,” the Supreme Court held that beneficiaries may maintain a breach of fiduciary duty claims under § 502(a)(3). However, because the text of § 502(a)(3) only provides for “appropriate” relief, the Court noted that “where Congress elsewhere provided adequate relief for a beneficiary’s injury, there will likely be no need for further equitable relief” because relief, at that point, “would not be ‘appropriate.”
In this case, the court sided with the Second Circuit and held that, at the pleading stage, remedies may be pled in the alternative, stating:
Though the Court acknowledges that a plaintiff may not recover under truly duplicative claims, that does not mean a plaintiff should be barred from asserting a claim under § 502(a)(3) where it is not yet clear that relief is actually available under another provision. Moreover, the Court does not read Varity as wholly barring relief where a plaintiff seeks a remedy that is not available under § 502(a)(1).
The court summarily rejected the remainder of the plan’s arguments “because they all rest on the premise that Defendants can establish a right of reimbursement under the plan. For all of the reasons previously discussed, this is not the case. Consequently, Defendants arguments are inapposite, and their motion to dismiss these counts is denied.”
The plan’s reliance on equitable remedies drew on cases that predated the important Supreme Court decisions that focused the query on plan contractual rights that gave rise to an equitable lien. Provident Life had some success with unjust enrichment arguments back in the early 1990’s but contractual language must be included in the plan under current ERISA jurisprudence.
§ 502(a)(3) Claims – Duplicative Remedies Defense – This case arose in the Third Circuit where the issue remains open. Circuits opposing the Second Circuit view (adopted by the district court) are listed as follows:
Mondry v. Am. Fam. Mut. Ins. Co., 557 F.3d 781, 805 (7th Cir. 2009) (“[A] majority of the circuits are of the view that if relief is available to a plan participant under [§ 502(a)(1)], then that relief is unavailable under [§ 502(a)(3)].”) (emphasis in original) (citations omitted); see, e.g., Korotynska v. Metro. Life Ins. Co., 474 F.3d 101, 107 (4th Cir. 2006); Antolik v. Saks, Inc., 463 F.3d 796, 803 (8th Cir. 2006); Ogden v. Blue Bell Creameries U.S.A., Inc., 348 F.3d 1284, 1287 (11th Cir. 2003); Wilkins v. Baptist Healthcare Sys., Inc., 150 F.3d 609, 615 (6th Cir. 1998); Tolson v. Avondale Indus., Inc., 141 F.3d 604, 610-11 (5th Cir. 1998); Forsyth v. Humana, Inc., 114 F.3d 1467, 1474-75 (9th Cir. 1997), abrogated on other grounds by Lacey v. Maricopa Cnty., 693 F.3d 896 (9th Cir. 2012).
Freitas v. Geisinger Health Plan (M.D. Pa. 2021).
The opposing Second Circuit case is n Devlin v. Empire Blue Cross and Blue Shield, 274 F.3d 76 (2d Cir. 2001).
Claims Procedure – The court permitted a breach of fiduciary duty claim to survive based upon the plan’s alleged failure to provide and follow a reasonable claims procedure as required by ERISA Section 503.
Section 503 requires that an ERISA plan must:
• (1) 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 participants; and
• (2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.
The facts are a bit foggy here. If claims were denied based on the subrogation provision this argument might make sense. But a challenge to the application of a plan reimbursement provision or subrogation provision alone would not be a denial of a benefit claim so there is no basis for a Section 503 argument.