ERISA was enacted for the purpose of, among other things, giving employers certain protections when they sponsor employee benefit plans. A recent decision from the Fifth Circuit, however, highlights how those protections can sometimes be used by insurance companies against employers.
In Bank of Louisiana v. Aetna U.S. Healthcare, Inc., 468 F.3d 237 (5th Cir. 2006), the plaintiff bank had contracted with Aetna both to administer and to provide stop-loss insurance for the bank’s employee medical benefits plan. From 1995 to 2000, the plan was self-funded. At the 2001 renewal, the bank converted to a “fully-insured” plan. To protect itself from incurred-but-notreceived claims, the bank purchased 90 days of "runoff" stop-loss coverage.
Just prior to renewal, the employee claims on the plan hit the aggregate stop-loss levels, triggering coverage. All of the relevant claims were submitted to Aetna—in its capacity as plan administrator—for payment within the run-off period, but Aetna paid less than half of them during that time. Aetna did not pay those remaining claims until after the runoff period ended. The problem arose when Aetna, switching hats and acting as the stop-loss insurer, then denied coverage for those later-paid claims.
The bank sued Aetna on numerous grounds, including state-law claims for breach of contract, misrepresentation and detrimental reliance. Aetna raised preemption and the district court decided that those state-law claims were completely preempted. The Fifth Circuit reversed in part, based on the determination that the only claims to fall under ERISA were those which required proof of improper plan administration. It held that claims turning on plan administration are preempted because: (1) plan administration is an area of exclusive federal concern, and (2) claims of improper plan administration impact a relationship among traditional ERISA entities.
In finding that the bank’s state-law claim for breach of contract was partly preempted, the Fifth Circuit held that the stop-loss policy was not a plan asset because it protected the employer, not the employees. As such, the policy fell outside ERISA and so did causes of action relating to coverage. In contrast, causes of action relating to Aetna’s failure to timely process and pay medical claims fell under ERISA because they related to plan administration.
The decision is at odds with some of the central purposes of ERISA—to protect employers and permit them to provide cost-effective benefit plans. Aetna itself has taken the position that contracts for plan administration are outside ERISA and not preempted. For example, a previous issue of this newsletter discussed a case that Aetna brought
against an employer alleging state-law breach of contract for the employer’s alleged failure to reimburse Aetna for a claim that Aetna had paid. The contrast between these two positions shows that insurance companies try to take advantage of ERISA’s complexities—and that employers need to be sure that they are fully informed about these complexities, and protect from such tactics, at all times.