ERISA – Role Of Plan Administrator – Discretion

The case discussed here is from the Houston Division, Southern District.  The style of the case is Connecticut General Life Insurance Company, et al v. Elite Center For Minimally Invasive Surgery LLC, et al.  This is a Motion for Clarification.

Connecticut (Cigna) sued under ERISA, Section 502(a)(3) to enforce and redress violations of the healthcare benefit plan terms at issue in this case.  The plans purportedly delegate Cigna to serve as the authorized claims fiduciary “to interpret and apply Plan terms,” including “the determination of whether a person is entitled to benefits under the plan and the computation of any and all benefit payments.”  The plans also authorize Cigna to collect overpayments made on behalf of the plans by recovering funds or offsetting the overpayment amount from future benefits claims payments.

The Court applied an abuse of discretion standard, asking first if Cigna’s interpretation of the plan was legally correct and then whether Cigna abused its discretion in interpreting the plan language as it did.  The Court found that Cigna’s interpretation of the plan was legally incorrect.  Despite this, the Court did not rule on Cigna’s ERISA claim because the abuse of discretion question is fact intensive and inappropriate to decide at the motion to dismiss stage.

The Court now finds that it should not have engaged in this abuse of discretion analysis for Cigna’s 502(a)(3) claim.  Logic alone reveals that the inquiry does not function smoothly for a claim like Cigna’s.  When Cigna sued under 502(a)(3), it sought to recover overpayments it had already issued to the Elite Centers, after realizing it had been billed in violation of the plan terms (according to Cigna’s interpretation.)  Thus, Cigna did not make an adverse determination regarding these payments.  The factors applied in the abuse of discretion inquiry — whether the plan administrator had a conflict of interest, the internal consistency of the plan, the factual background of the determination, and any inferences of lack of good faith — presuppose an adverse determination.

The Elite Centers are understandably confused about how to apply these factors to Cigna’s conduct, when Cigna originally made a benefits determination favorable to the Elite Centers, and only later claimed those payments were improper.  Given the inapplicability of the abuse of discretion factors, the Court must either provide an alternate set of factors responsive to the present scenario, or return to the foundation of its analysis.  The latter is appropriate.

The Courts focus should be on whether a party’s 502(a)(3) claims seek equitable relief.  The Court should have limited its analysis of Cigna’s ERISA claim to the question of whether Cigna requested equitable relief.  After considering widespread views on this issue, the Court found that some of Cigna’s relief sought under ERISA sound in equity.  Therefore, Cigna’s 502(a)(3) claims survived the motion to dismiss.

These ERISA cases and ruling can be confusing and rightfully so because courts in various parts of the country treat these cases differently.  Even experienced ERISA lawyers find it difficult to tell clients what to expect.