Case: Nationwide Children’s Hospital Inc. v. D.W. Dickey & Son, Inc. Employee Health and Welfare Plan, S.D. Ohio, No. 2:08-cv-1140, 1/27/10. Court’s Opinion
MyHealthGuide Source: Meredith Z. Maresca, BNA’s Pension & Benefits Daily, 1/27/2010, www.bna.com
In a decision addressing identification of the proper defendant in a benefit claim action brought pursuant to the ERISA’s civil enforcement provision, the U.S. District Court for the Southern District of Ohio held that the health plan’s TPA potentially could be liable for the alleged wrongful denial of benefits to cover a beneficiary’s bone cancer treatment.
Judge Gregory L. Frost noted that there is a split in authority among federal courts as to whether a party other than an ERISA plan itself is the only proper defendant in a claim brought pursuant to ERISA Section 502(a) (1)(B). However, Frost said that within the U.S. Court of Appeals for the Sixth Circuit, courts have found that a party with control over the administration of a plan is the proper party defendant in an ERISA action concerning benefits.
The court thus declined to dismiss the claim against the TPA.
Reinsurer Decides Claims Paid by TPA are Not Reimbursable
The case stemmed from the denial of benefits for treatment that a D.W. Dickey & Son Inc. Employee Health and Welfare Plan participant’s minor son underwent to treat an aggressive form of bone cancer, known as Ewing’s Sarcoma. Dickey sponsored and administrated the plan, and The Masters Agency Inc., which did business as American Benefits Management, was the plan’s third-party administrator. United Re AG reinsured the plan.
Health care providers, as assignees of the participant’s rights under the plan, sued after United Re determined that treatment the beneficiary underwent as part of a children’s cancer study was barred under a plan exclusion for “experimental and/or investigational” treatments.
As part of the study, the beneficiary utilized two drug therapies in addition to undergoing standard chemotherapy. Following United Re’s decision, American Benefits notified the providers that already-approved and paid claims were not payable, and sought reimbursement.
United Re declined to change its position on administrative appeal, even though multiple doctors opined that the treatment was not experimental and should have been covered.
In the lawsuit against Dickey, the plan, and American Benefits, the providers sought benefits under ERISA Section 502(a)(1)(B). In addition, the participant filed a counterclaim alleging that the plan, through American Benefits, wrongly denied over $684,623 in valid medical claims. He brought a benefit claim under ERISA Section 502(a)(1)(B) and two claims under ERISA Section 502(a)(3) for breach of fiduciary duty.
In a previous decision issued days before the current decision, the court denied a motion to dismiss by Dickey and the plan regarding the participant’s counterclaims. The court said the participant could continue with his lawsuit for coverage for his son’s treatment, finding that the motion was premature at that time.
TPA May Be Liable
In its motion for judgment on the pleadings, American Benefits argued that it could not be held liable under ERISA Section 502(a)(1)(B) for the alleged wrongful denial of benefits because it was a TPA. According to American Benefits, under ERISA Section 502(d)(2), a money judgment against a plan can only be enforceable against the plan.
The court said that American Benefits misread Section 502(d)(2) in light of “persuasive authority” within the Sixth Circuit that Section 502(d)(2) does not lead “inexorably” to the conclusion that the only proper defendant in a Section 502(a)(1)(B) action is the plan. Although there is a circuit split regarding whether a plan is the only proper defendant in a Section 502(a) (1)(B) action for benefits, the court was persuaded by several cases that declined to read Section 502(d)(2) as having the effect American Benefits advanced.
Citing to cases within the Sixth Circuit that did not all explicitly address Section 502(d)(2) but concluded that a plan was not the only proper defendant in a Section 502(a)(1)(B) action to recover benefits, the court said the “essential rationale” was whether the defendant had control over the administration of the plan.
The pleading at issue did not “foreclose” that American Benefits controlled the administration of the plan or was a fiduciary, the court said. Furthermore, the district court said that the Sixth Circuit’s decision in Daniel v. Eaton Corp., 839 F.2d 263, 10 EBC 1197 (6th Cir. 1988), taught that control can subject entities other than a plan to a claim under Section 502(a)(1)(B).
“Today’s conclusion is a notably close call with which this Court has admittedly wrestled, but as the Children’s Plaintiffs’ briefing recounts, they have pled factual allegations that, necessarily construed in their favor, raise sufficiently the issues of American Benefits’ discretionary authority or control over (or relationship to) the Plan,” the court said.
Although the court declined to dismiss the Section 502(a)(1)(B) claim against American Benefits, it noted that the evidence could ultimately demonstrate that American Benefits did not interpret the plan’s definition of “experimental and investigational” treatment and did not deny the benefit claims.
The providers were represented by James P. Schuck and Vladimir P. Belo of Bricker & Eckler, Columbus, Ohio. Dickey and the plan were represented by Jack Frederick Fuchs of Thompson Hine, Cincinnati. American Benefits was represented by Ellyn Tamulewicz Mehendale of Janik, Cleveland. The beneficiary was represented by Ethan T. Vessels of Fields Dehmlow & Vessels, Marietta, Ohio.
