In Hartsfield, Titus & Donnelly LLC v. Loomis Co., (DC NJ 2010), the employer (“Hartsfield”) sued an insurance agency (“Loomis”) that had administered its employee medical benefits plan because the TPA had made payments in excess of the minimum allowed under the Plan in three instances –two infertility claims and one substance abuse claim in excess of the Plan’s $35,000 lifetime limit.

Loomis did not deny that it had made these overpayments, and wanted to seek repayment from the employees or the providers. Hartsfield rejected those avenues of recovery for fear that the effected employees would leave the company. Instead, it sued Loomis for (1) breach on fiduciary duty under ERISA for failure to exercise due care, (2) breach of fiduciary duty under ERISA for failure to administer the Plan according to its terms, (3) ERISA breach of contract, (4) common law breach of contract and (5) breach of implied covenant of good faith and fair dealing. Hartsfield, however, only focused on the ERISA claims because, as the Court surmised in a footnote, it realized that its other claims are preempted by ERISA.

The Court had little trouble finding that Loomis was a fiduciary under ERISA because it failed to properly process claims and made payment on unqualified claims, and because it did not act with care and prudence expected under the circumstances. In both instances, Loomis, the Court held, owed a duty to the Plan and failed to meet its obligations. The Court found no material issues of fact in dispute on this issue.

The Court stated that “The fact that the overpayments made by Loomis inured to the benefit of the Plan participants does not render this an improper 502(a)(2) action. The improper payments were made from the Plan assets; therefore, Hartsfield, as a Plan fiduciary, may sue to seek redress on behalf of the Plan from Loomis.” The Court held that the TPA was required to pay the Plan all of the approximately $85,000 requested by the employer.

The Court’s broad statement that “The fact that the overpayments made by Loomis inured to the benefit of Plan participants does not render this an improper 502 (a)(2) action,” without more, leaves open in future cases a very broad basis for plaintiff’s to argue that indirect participants losses, not just plan losses, are a proper basis for imposing fiduciary liability.

The Court stated that a failure to properly pay a claim is a fiduciary breach. While the Court gives lip service to the TPA’s argument that negligence cannot be presumed, it somewhat negates that recognition by saying that “bad faith is not a prerequisite to a breach of fiduciary duty claim.”

Finding neither bad faith nor negligence, the Court then proceeds to impose a strict liability standard in its assessment of the claims determination process. As the Court noted, “Loomis does not dispute the clarity of the plan language nor does it argue that it misunderstood the nature of its responsibilities. Instead, Loomis concedes that it made the overpayments, despite its obligation to vet the qualifications of each submitted claim before making payments out of the Hartsfield fund.”

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This entry was posted by Adam V. Russo on Tuesday, April 27th, 2010 at 7:49 am and is filed under ERISA, Third Party Administrators. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.