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Context Important in ERISA Dispute Over Unclear Language (PA)

November 23, 2022

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On November 16, 2022 in a lawsuit entitled, <em><a href="https://www.wcmlaw.com/wp-content/uploads/2022/11/Frietas-et-al.-v.-Geisinger-Health-Plan-et-al..pdf">Frietas, et al. v. Geisinger Health Plan, et al.,</a> </em>No. 4:20-CV-01236, Third Circuit Chief Judge Brann disposed of a proposed class action alleging that Geisinger Health Plan (“GHP”) illegally tried to recoup payments from plan users following their injury settlements, finding that documents uncovered through discovery explicitly gave the company the right to do so.

Specifically, Lori Freitas and Kaylee McWilliams, lead plaintiffs in the subject lawsuit (“Plaintiffs”), were subscribers to employer-based health insurance provided by defendant, Geisinger Health Plan (“GHP”). Unfortunately, Plaintiffs were involved in separate car accidents resulting in personal injuries, and subsequently, personal injury settlements from the respective third-party tortfeasors. Prior to settlement, Plaintiffs filed respective claims with GHP for costs related to treatment of their injuries.

Upon learning of Plaintiffs’ settlement(s), GHP brought reimbursement action(s) against Plaintiffs to recover costs from their settlements related to health insurance benefits provided by GHP relying on a clause in the Group Subscription Certificate (“Certificate”).  However, the clause in the Certificate did not explicitly set out GHP’s right to reimbursement or include the ERISA Employer Welfare Plan (“Plan”) and its declarations. Plaintiffs, in protest, paid a portion of GHP’s demand and countersued in the form of class action. Specifically, Plaintiffs sought monetary relief and alleged that GHP violated the Employee Income Security Act (“ERISA”) and its fiduciary duties therein.

When GHP’s initial motion to dismiss was denied, the case proceeded to discovery giving rise to the Plan and its declarations, which authorized GHP to seek both reimbursement from Plaintiffs and subrogation from third-parties. GHP filed a FRCP 12(b)(6) motion, which was converted into a motion summary judgement, stating that the related plan documents, when read in its entirety, allowed GHP to seek reimbursement of such costs. Ultimately, the court agreed and granted GHP’s motion for summary judgment.

Specifically, the court found no inconsistency between the Certificate and the Plan. While the Certificate only provided a general right to subrogation from third-parties (rather than reimbursement from Plaintiffs), the language of the Certificate as supplemented by the Plan, authorized more expansive rights for GHP to enforce recovery.

The court additionally found that the Plaintiffs’ allegations did not establish willful or bad faith conduct by GHP which would constitute a violation of its fiduciary duty as an aggravated beneficiary under ERISA. Importantly, the court indicated that GHP could have violated federal law by seeking reimbursement through the Certificate alone, however, any such violation could not have been willful being that GHP believed in good faith that they were enforcing the terms of the Plan in its entirety. Further, GHP’s good faith interest of enforcing its own reimbursement provisions did not give rise to a violation of GHP’s fiduciary duty of loyalty.

Interestingly, after Plaintiffs’ suit had commenced, each of their respective employers elected to use a non-GHP plan and GHP ceased any further demand for reimbursement. Thus, since Plaintiffs had already agreed to and paid a portion of the demand, and GHP was no longer seeking reimbursement, the court rendered the rest of Plaintiffs’ claims as moot.

In practice, <em>Fritas</em> acts as a word of caution to insurers and subscribers alike. When seeking reimbursement from subscribers, insurers are not necessarily limited to the language on the certificate of subscription so long as such authority is contained elsewhere in the plan. However, recovery efforts must abide by federal laws and be executed through the specific clause providing such authority. Conversely, subscribers are reminded of the age-old expression – be careful what you sign up for.

Thanks to Kendal Hutchings contribution to this post.   Should you have questions, contact <a href="mailto:mcare@wcmlaw.com">Matthew Care</a>.

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