ERISA Plans drafted to exclude coverage – For Anything?

ERISA Plans drafted to exclude coverage – For Anything?

When the Supreme Court issued its opinion in U.S. Airways v. McCutchen, 133 S. Ct. 1537 (2013), holding essentially that the plan language controls such that, “[t]he agreement itself becomes the measure of the parties' equities…”, the alarm bell rang loudly. If an ERISA plan can exclude any equitable defense such as the common fund doctrine and make whole rule, even if it means staking claim to the whole recovery – what limits are there?

While we tend to focus on ERISA plans’ lien recovery efforts, personal injury lawyers need to be on alert for ERISA plans denying coverage for care based on plan language

In CA, we saw an unpublished opinion out of the Ninth Circuit, entitled John Noecker v. So. Cal. Lumber Industry Welfare Fund (cited as 2013 U.S. App. Lexis 6841, April 4, 2013) in which an ERISA plan’s denial of coverage was upheld because the plan member answered “Yes” on a questionnaire, sent by the claim's administrator, asking if the member “intended” to file a claim against a third party.  The plan language read: 

"This plan does not provide benefits where the care required is for injuries or illness to you or your eligible dependents caused through the act or omission of another person, known as third party, and where you are pursuing, or you intend to pursue a claim or lawsuit for damages against the third party." 

At the time, the plan member had not made a claim or even hired an attorney, only when facing collection efforts from the health care providers for unpaid bills did, he seek counsel.  Of note is that the mere “intent” was enough to justify the plan’s denial of benefits.

Here’s another mind bender: Caldwell v. UNUM (10th Cir. Sept. 19, 2019).  UNUM issued accidental death coverage as part of an ERISA plan. The plan member died in a single vehicle incident on a dirt road while exceeding the speed limit by 20 miles per hour.  UNUM denied coverage claiming that speeding is a “crime” and thus excluded by the plan language [“accidental losses caused by, contributed to by, or resulting from . . . an attempt to commit or commission of a crime”]. This despite Wyoming law designating speeding a misdemeanor. The UNUM claims manual stating that the exclusion “was not intended to apply to activities which would generally be classified as traffic violations”, and the U.S. Supreme Court stating that the word “crime” is inherently ambiguous. (United States v. Stitt, 139 S. Ct.).

The court held that, because the claims manual was not part of the plan documents (SPD/MPD), not available to the insured, nor subject to plan member production demands [29 U.S.C. Sec 1024(b)(4)], it was not material.  Since the plan’s terms provided the Plan Administrator with discretion to resolve ambiguities, the decision denying benefits, “… survives arbitrary and capricious review so long as the interpretation is reasonable.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). The court found UNUM’s interpretation of “crime“ fell, “somewhere on the continuum of reasonableness.”.

The implications can be far-reaching in personal injury practices.  If your client was not wearing a seat belt in violation of CA vehicle code 27315, could his or her ERISA plan deny coverage for needed medical care?  Apparently so, if the plan can reasonably interpret this conduct as a “crime” which is excluded from coverage in the plan documents. Indeed, an expansive definition of the “crime” exclusion could support denials for just about any comparative fault of the insured.

Is there a silver lining? Perhaps. With the growing trend of plaintiffs treating outside of their insured networks on direct contractual liens, following Pebley v. Santa Clara Organics, LLC, (2018) 22 Cal.App.5th 1266, an ERISA plan that excludes coverage makes a plaintiff seeking care with providers on direct liens more workable. 

PRACTICE POINTER: At time of intake, identify health care coverages and make production demands for all relevant documents. Review all health plan documentation carefully for not just lien recovery issues that may affect a settlement – but also for coverage issues that may impact the client’s ability to receive good healthcare. Understand the application of Pebley and work to assure the client has access to the best healthcare possible.