Employee Benefit Plan Review – From the Courts

November 19, 2019 | Employment & Labor | Insurance Coverage

Eleventh Circuit Affirms Denial of Plaintiff’s Request for Attorneys’ Fees

The U.S. Court of Appeals for the Eleventh Circuit has affirmed a district court’s decision denying a plaintiff’s motion for attorneys’ fees under the fee-shifting provision of the Employee Retirement Income Security Act of 1974 (ERISA).


The plaintiff, who suffered from anorexia, was enrolled in an employee benefit plan that covered medical and mental health services determined by the insurer to be medically necessary. In December 2010, the plaintiff entered a “partial hospitalization” program at an eating disorder treatment center.

The insurer provided coverage for the first three weeks of treatment. After that, it determined that partial hospitalization was no longer medically necessary and that the plaintiff – who had gained three pounds and was eating 100 percent of her recommended diet – could safely transition to outpatient care. The insurer denied further coverage for partial hospitalization.

The plaintiff exhausted her internal appeals, all of which upheld the insurer’s decision. She also sought an external review under New York law, and a state-assigned independent reviewer agreed that partial hospitalization was not medically necessary.

Thereafter, the plaintiff sued the insurer, challenging the denial of benefits under ERISA. The U.S. District Court for the Southern District of Florida granted summary judgment to the insurer, concluding that the external review precluded the plaintiff from challenging the insurer’s medical necessity determination under ERISA.

On appeal, the U.S. Court of Appeals for the Eleventh Circuit held that the external review did not preclude the plaintiff’s ERISA suit and it remanded to the district court for further proceedings.

On remand, the district court granted summary judgment in favor of the insurer on the merits; the Eleventh Circuit affirmed that decision.

Although she did not prevail in her ERISA suit, the plaintiff nevertheless moved for attorneys’ fees under ERISA’s fee-shifting provision. She argued that although she had not achieved what she sought in bringing her lawsuit, she had achieved “a significant victory in the Eleventh Circuit” when the Eleventh Circuit held that the external review did not preclude her ERISA suit and it remanded the district court’s first order granting summary judgment. Therefore, the plaintiff contended, she was entitled to recover the attorneys’ fees that she had incurred up until that point.

The district court denied her motion, and the plaintiff again appealed to the Eleventh Circuit.


The Eleventh Circuit affirmed.

In its decision, the circuit court explained that, in most lawsuits seeking relief under ERISA, the district court in its discretion may allow reasonable attorneys’ fees and costs of the action to either party. Moreover, the circuit court added, even a losing party can move for attorneys’ fees under the statute.

The circuit court added, however, that a claimant must show “some degree of success on the merits” before the claimant may be awarded attorneys’ fees.

The Eleventh Circuit then stated that it would not overrule the district court’s decision denying the plaintiff’s request for attorneys’ fees, noting that it need not decide whether she was correct that she had achieved “some degree of success on the merits” because it ruled that the district court had not abused its discretion when it analyzed the following five factors in deciding whether to award fees to her:

  1. The degree of the opposing parties’ culpability or bad faith;
  2. The ability of the opposing parties to satisfy an award of attorneys’ fees;
  3. Whether an award of attorneys’ fees against the opposing parties would deter other persons acting under similar circumstances;
  4. Whether the parties requesting attorneys’ fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and
  5. The relative merits of the parties’ positions.

The circuit court reasoned that the district court had concluded that:

  1. The insurer had not acted in bad faith by arguing that the plaintiff’s ERISA suit was precluded;
  2. The insurer had the ability to satisfy an award of attorneys’ fees;
  3. Awarding fees would not have a useful deterrent effect as there was no bad behavior to deter;
  4. Even if the case presented a significant legal question, the insurer should not be punished for litigating an unresolved point of law; and
  5. The relative merits of the parties’ positions were too close to favor an award of fees.

The Eleventh Circuit observed that only the second factor “squarely favored” the plaintiff and that the district court was in the best position to judge the propriety of awarding fees. It then upheld the district court’s decision denying attorneys’ fees to the plaintiff, finding no abuse of discretion in the district court’s analysis. [Alexandra H. v. Oxford Health Ins., Inc., No. 18-14846 (11th Cir. July 15, 2019).]

Eighth Circuit Affirms Decision Rejecting Provider’s Effort to Reform ERISA Plan

The U.S. Court of Appeals for the Eighth Circuit, affirming a district court’s decision, has ruled that insureds’ assignments to an air ambulance services company did not entitle the company to seek to reform the insureds’ health insurance plan under Section 502(a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA).


Air Evac EMS, Inc., sued USAble Mutual Insurance Company, d/b/a Arkansas Blue Cross and Blue Shield (Arkansas Blue), regarding Arkansas Blue’s allegedly inadequate reimbursement for air ambulance services that Air Evac provided to Arkansas Blue plan members.

Air Evac contended that its average actual charge for air ambulance transportation in 2014 was over $30,000 but that Arkansas Blue’s insurance plans typically limited reimbursement for air ambulance services to $5,000 per trip – and in some cases to $1,000 or less.

According to Air Evac, Arkansas Blue’s limited reimbursement for air ambulance services violated a number of federal and state laws, including laws that prohibited annual limits on “essential health benefits,” laws that mandated minimum payments for certain emergency services, and laws that required adequate provider networks. Air Evac asserted claims for, among other things, violations of ERISA. Under ERISA, Air Evac sought equitable relief, namely an injunction and reformation of Arkansas Blue’s insurance plan terms so that they did “not include limits on benefits for emergency air ambulance transportation.”

Air Evac contended that it had the right to sue Arkansas Blue for equitable relief under ERISA because Arkansas Blue plan members with ERISA-governed plans had executed assignments in its favor that included that right.

The U.S. District Court for the Eastern District of Arkansas concluded that Air Evac did not have the right to seek equitable relief under ERISA. It reasoned that the assignments to Air Evac “only convey[ed] patients’ benefits and rights to bring related litigation in order to obtain payment” and that “[n]othing . . . appear[ed] to convey the right to sue for clarification or reformation of plan terms, which are extraordinary equitable remedies that extend far beyond litigation for payment on claims.”

After the district court dismissed Air Evac’s claims, Air Evac appealed to the Eighth Circuit.


The Eighth Circuit affirmed.

In its decision, the circuit court ruled that when Arkansas Blue plan members assigned their rights to Air Evac, they did so “in the context of facilitating payment for Air Evac’s past provision of services.” Thus, the circuit court continued, when Arkansas Blue plan members assigned “all rights to (and related or associated with) any benefit claims” to Air Evac, at a minimum they assigned Air Evac the right to recover benefits under ERISA Section 502(a)(3).

The Eighth Circuit added, however, that, “[g]iven the context of the assignment[s],” it did not automatically follow that the assignments also conveyed the right to sue for reformation of plan terms and other equitable relief. Indeed, the circuit court observed, the assignments did not specifically mention the right to sue for equitable relief but, rather, limited the rights conveyed to those “related or associated with . . . benefit claims and/or payments due from any third-party payor.” (Emphasis added.)

Moreover, the circuit court continued, the rights specifically mentioned – “the rights to pursue administrative claims, request documents, receive payment and pursue litigation in order to obtain payment” (emphasis added) – all suggested that Air Evac sought assignment of ERISA rights “related to obtaining payment, not equitable relief.”

Accordingly, the Eighth Circuit concluded that the insureds’ assignments to Air Evac did not convey the right to sue for equitable relief under Section 502(a)(3) of ERISA. [Air Evac EMS, Inc. v. USAble Mutual Ins. Co., No. 18-2264 (8th Cir. July 23, 2019).]

Third Circuit Affirms Dismissal of Insured’s Claim for Benefits Where Insured Breached Condition for Recovering Benefits 

The U.S. Court of Appeals for the Third Circuit, affirming a district court’s decision, has ruled that an insured under a healthcare plan governed by the Employee Retirement Income Security Act of 1974 (ERISA) was not entitled to reimbursement for medical expenses she paid because she had not fulfilled a condition to recovering those benefits that was set forth in the plan.


In April 2012, the plaintiff in this case was injured when she tripped due to a pothole. She filed a lawsuit in a New Jersey state court (the Liability Action) alleging that various third parties were liable for her injuries. However, when she filed the Liability Action, the plaintiff failed to seek damages for the medical expenses she incurred.

The plaintiff also filed a claim for reimbursement of medical expenses under her employer-sponsored healthcare plan, which was administered by the Local 464A United Food and Commercial Workers Union Welfare Service Benefit Fund and which was governed by ERISA. The plan was not a “primary plan” or a “secondary plan.” Rather, the plan was a “tertiary plan” and payer of last resort that stated that it did “not cover healthcare expenses for which a third party” was responsible. In other words, the fund had to pay benefits only when payments from other sources were unavailable.

The fund denied the plaintiff’s claim.

Dissatisfied with the fund’s decision, the plaintiff filed a lawsuit in the U.S. District Court for the District of New Jersey seeking to compel the fund to pay her medical expenses.

The fund moved to dismiss the plaintiff’s lawsuit, and the district court granted its motion.

The plaintiff continued to pursue her claims against third parties in the Liability Action, but she did not amend that action to include a claim for medical expenses. The jury entered a verdict in favor of the defendants in the Liability Action.

Within a few weeks after the verdict, the plaintiff’s attorney sent a letter to the fund asserting that because the plaintiff’s medical expenses were not recoverable from any third party by virtue of the jury’s verdict, “those bills should now properly be paid under the terms of your plan.”

The fund denied that claim and the plaintiff filed a second lawsuit against the fund in federal court. The district court granted the fund’s motion to dismiss the complaint, and the plaintiff appealed to the Third Circuit.


The Third Circuit affirmed.

In its decision, the circuit court explained that, as a condition to receiving reimbursement of medical expenses from the fund, the plaintiff had signed an agreement promising to first seek those expenses from third parties who might be liable for them. The circuit court pointed out that, notwithstanding that agreement, the plaintiff chose not to expand the Liability Action to seek those medical expenses.

In other words, the Third Circuit ruled, the plaintiff did not fulfill her promise under the reimbursement agreement and, therefore, she was not entitled to receive payer-of-last-resort benefits under the plan.

Accordingly, the Third Circuit concluded, the fund clearly was within its discretion to deny her claim. [Guariglia v. United Food & Commercial Workers Local 464A Union Welfare Service Benefit Fund, No. 18-2224 (3d Cir. Aug. 6, 2019).]

Ninth Circuit Reverses Decision Barring Arbitration of ERISA Claims and Enforces Plan Prohibition on Class Arbitrations

The U.S. Court of Appeals for the Ninth Circuit has reversed a 35-year-old circuit precedent and ruled that claims under Section 502(a)(2) of the Employee Retirement Income Security Act of 1974 (ERISA) may be arbitrated. It also decided that a prohibition of class arbitrations in a plan governed by ERISA was enforceable.


The plaintiff in this case was employed by Charles Schwab & Co., Inc., from February 17, 2009 until October 8, 2015. Through his employment, the plaintiff participated in a defined contribution 401(k) retirement plan, and he voluntarily contributed to his retirement account through payroll deductions until he stopped working for the company. Under the plan, participants were given the choice to allocate their earnings among a menu of investment funds, and they could alter their investment allocations at any time.

The plaintiff withdrew his full account balance on December 18, 2015 and ceased participating in the plan at that time.

In December 2014, the plan was amended to add an arbitration provision that stated that “[a]ny claim, dispute or breach arising out of or in any way related to the [p]lan shall be settled by binding arbitration. . . .” The arbitration provision also stated that any arbitration would be conducted “on an individual basis only, and not on a class, collective or representative basis,” and that plan participants waived the right to be part of any class action.

The arbitration provision took effect on January 1, 2015, nine months before the plaintiff ended his employment at Schwab and nearly a year before he terminated his participation in the plan.

In June 2017, the plaintiff sued various Schwab entities, asserting claims under ERISA Section 502(a)(2) and (3) and seeking plan-wide relief on behalf of a class comprising all participants in, and beneficiaries of, the plan at any time within six years of the filing of the complaint. The plaintiff alleged that various defendants had breached their fiduciary duties of loyalty and prudence and had violated ERISA’s prohibited transaction rules by selecting for inclusion in the plan investment funds that were affiliated with Schwab.

According to the plaintiff’s complaint, the Schwab-affiliated funds performed poorly but were kept in the plan solely to generate fees for Schwab and its affiliates. The complaint also alleged that members of Schwab’s board of directors had breached their duty to monitor the plan fiduciaries who selected the investment funds for inclusion in the plan. The complaint further asserted claims for co-fiduciary breach and knowing participation in a breach against various defendants.

In response to the complaint, the defendants moved to compel arbitration of the claims asserted by the plaintiff.

The U.S. District Court for the Northern District of California denied the motion, and the defendants appealed to the Ninth Circuit.


The Ninth Circuit reversed, holding that ERISA claims may be subject to mandatory arbitration and that the district court should have compelled arbitration of the ERISA breach of fiduciary duty claims asserted by the plaintiff.

The Ninth Circuit explained that in 1984, in Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), it decided that ERISA mandated “minimum standards [for] assuring the equitable character of [ERISA] plans” that could not be satisfied by arbitral proceedings. In that decision, the circuit court reasoned that arbitrators, many of whom were not lawyers, lacked the competence of courts to interpret and apply statutes as Congress had intended.

The Ninth Circuit then pointed out that, since its decision in Amaro, the U.S. Supreme Court has ruled that arbitrators were competent to interpret and apply federal statutes.

Therefore, the circuit court said, Amaro was no longer binding precedent.

Next, the circuit court ruled that the district court was incorrect in ruling that the plaintiff was not bound by the plan’s arbitration provision, given that he had participated in the plan for nearly a year while the provision was in effect. According to the circuit court, a plan participant “agrees to be bound by a provision in the plan document when [the plan participant] participates in the plan while the provision is in effect.”

The circuit court also decided that the district court was incorrect when it determined that because the plaintiff was not bound by the plan’s arbitration provision, he had not agreed to arbitrate his Section 502(a)(2) claims. According to the circuit court, those claims belonged to the plan – not to an individual – and the plan “expressly agreed” in the plan document that all ERISA claims should be arbitrated.

Moreover, the circuit court continued, the plan’s arbitration provision selected an arbitral forum for resolving fiduciary breach claims and required the arbitration to be conducted on an individual rather than on a collective basis. These claims, the Ninth Circuit observed, arose out of and related to the plan because the claims were asserted under ERISA and alleged that plan fiduciaries had breached their duties to the plan. Therefore, the Ninth Circuit ruled, these claims fell within the scope of the arbitration provision.

Concluding that the plaintiff and the plan both had agreed to arbitration on an individualized basis, the Ninth Circuit instructed the district court to order arbitration of the plaintiff’s individual claims, limited to seeking relief for the impaired value of the plan assets in his own account resulting from the fiduciary breaches he alleged had taken place. [Dorman v. Charles Schwab Corp., No. 18-15281 (9th Cir. Aug. 20, 2019).]

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