Plan Participant Is Not Entitled To Monetary Relief For Breach Of Fiduciary Duty, But Is Entitled To Seek Equitable Relief
SMITH v. MEDICAL BENEFIT ADMINISTRATORS GROUP (March 15, 2011)
Brenner Tanks of Fond du Lac, Wisconsin employs Jeffrey Smith. It also offers a group health plan, to which Smith belongs. Taking the allegations of the complaint as true: In 2006, Smith's doctors advised that he undergo gastric bypass surgery. Smith sought preauthorization for the surgery from the plan's third party claims administrator, Auxiant. Auxiant took four months to act on his request and authorized the surgery, but they later denied his claims based on a plan exclusion for obesity related surgeries. In fact, according to Smith, Auxiant routinely takes a long time in responding to authorization requests and routinely denies coverage for procedures that it has already preauthorized. Smith brought suit under ERISA, seeking damages, restitution, and other relief. Judge Randa (E.D. Wis.) dismissed the complaint, concluding that Smith was not entitled to the relief he sought under ERISA. Smith appeals.
In their opinion, Judges Flaum, Rovner, and Sykes affirmed in part and reversed and remanded in part. The Court first concluded that Smith had adequately alleged that Auxiant breached a fiduciary duty. Auxiant is an ERISA fiduciary, has a duty of loyalty, must exercise reasonable care, and must not mislead an insured. Accepting the factual allegations as true, the Court concluded that Auxiant’s preauthorization practices could be considered a breach of a fiduciary duty. But is Smith entitled to relief? The Court identified three possibilities. Under § 502(a)(1)(B), a plan beneficiary is entitled to recover benefits due him -- but Smith has conceded that Auxiant’s ultimate denial of benefits was proper under the plan terms. Under § 502(a)(2), a plan beneficiary is entitled to recover losses to the plan that result from a breach of fiduciary duty -- but Smith is seeking damages for himself, not the recovery of plan losses. The plan had no losses. Finally, under § 502(a)(3), a plan beneficiary may seek to enjoin an improper practice or obtain other equitable relief for ERISA or plan violations. Smith has a cause of action under (a)(3), but only for equitable relief. The Court concluded that Smith adequately requested such relief in his complaint. The Court warned that any such relief should be carefully crafted so as not to modify the plan terms.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select