W.E. Aubuchon Co. v. BeneFirst, LLC, 2009 WL 3272491 (D. Mass. 2009

The employer in this case sued the former TPA of its two self-insured medical plans for claims processing errors that allegedly created millions of dollars in additional costs for the plans. Asking the court to enter judgment in its favor, the TPA argued that the employer’s ERISA fiduciary breach claims failed because the TPA was not a fiduciary and that the employer’s state-law claims for breach of contract failed because they were preempted by ERISA. In this pre-trial decision, the court rejected the TPA’s position that the employer had no claims, saying that it would effectively render TPA contracts unenforceable. Instead, the court entered two alternative rulings: (1) that although the TPA was not an ERISA “functional” fiduciary, it might be a “named” fiduciary under the TPA contract, allowing the fiduciary breach claims to proceed, and (2) that, if the TPA was not a fiduciary, then the state-law claims should be allowed to proceed because they would not be preempted.

On the ERISA functional fiduciary question, the court examined the terms of the TPA contract and the claims processing functions performed by the TPA. It concluded that the TPA did not exercise the necessary discretionary authority over plan administration to become a functional fiduciary because payment of claims was ultimately subject to the employer’s direction (with the employer reserving final authority over disputed claims). While the TPA also had checkwriting authority over a TPA account funded by the employer, the court held that this authority existed merely to execute the nonfiduciary claims processing function and therefore did not make the TPA a functional fiduciary, either. On the named fiduciary question, although factual disputes rendered the TPA contract ambiguous on the point (so that a trial would be required to resolve them), the court held it was possible under the terms of the contract that the TPA had become a named fiduciary for claims processing purposes. On the preemption question, the court relied on several reported decisions to find no preemption of the state-law claims, holding that such claims against a nonfiduciary TPA did not sufficiently implicate the objectives of ERISA (in particular, the relationship among the employer, the plan, and its participants and beneficiaries) or require reference to the plan for resolution.

EBIA Comment: This well-written decision (collecting numerous other cases) is recommended reading for employers and TPAs alike, as it reviews and summarizes many of the most important contractual provisions and legal principles governing the TPA relationship. One lesson to be learned: In the event of contract disputes, TPAs that successfully argue they are not ERISA fiduciaries should be prepared to face alternative claims under state law. For more information, see EBIA’s ERISA Compliance manual at Sections XXVIII.B (“Who Is a Fiduciary?”) and XXX.G (“Litigation Involving TPAs”); see also EBIA’s 401(k) Plans manual at Sections XXIV (“ERISA Fiduciary Rules: Overview”) and XXXVII.L (“Litigation Against ERISA Plan Service Providers”).

Tags:

This entry was posted by Adam V. Russo on Wednesday, November 18th, 2009 at 9:41 am and is filed under Massachusetts, Preemption. 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.