In Smith v. Medical Benefit Administrators Group, Inc., No. 09-3865 (7th Cir. 2011), the plaintiff, Jeffrey L. Smith (“Smith”), sued Medical Benefits Administrators Group, Inc. (doing business as “Auxiant”), the claims administrator for his workplace health insurance plan (the “Plan”). Smith contended that Auxiant breached its fiduciary obligations to Smith under ERISA when it preauthorized his gastric bypass surgery, and then turned around and denied his claim for benefits after the surgery took place, saying that it was excluded from coverage under the terms of the Plan. He further alleged that Auxiant routinely preauthorized medical treatment, without first ascertaining whether that treatment is covered by the Plan, and without warning the insured that coverage might be denied notwithstanding the preauthorization. Smith sought both monetary and injunctive relief under ERISA. The district court dismissed Smith’s complaint , and Smith appealed. The issue for the Seventh Circuit: is monetary and/or injunctive relief available under ERISA for this complaint?
The Court said that Auxiant’s preauthorization of medical treatment, without first ascertaining whether that treatment is actually covered by the Plan or warning the insured that the treatment might not be covered, could be treated as misleading the insured to his detriment. Thus, Smith’s complaint articulates a viable theory of breach of fiduciary duty under ERISA. But what relief is available?
The Court further said that Section 502 of ERISA contains three provisions that are potentially relevant here. First, section 502(a)(1)(B) permits a plan participant to recover benefits due him under the plan. But Smith concedes that the Plan’s terms exclude his gastric bypass surgery from coverage, so this section does not help him. Second, section 502(a)(2) of ERISA permits a plan participant to seek appropriate relief pursuant to section 409 of ERISA. In turn, Section 409 deems a fiduciary personally liable for any losses to the plan resulting from a breach of duty, plus such other equitable or remedial relief as the court may deem appropriate. However, the relief under section 502(a)(2) must inure to the benefit of the plan as a whole. This is not the type of relief that Smith seeks, since he want to redress his own injuries. The final provision is section 502(a)(3), which authorizes a plan participant to file suit to: (A) enjoin any act or practice which violates ERISA or the Plan’s terms, or (B) obtain other appropriate equitable relief to redress such violations or enforce ERISA or the Plan’s terms. The relief provided by that section is limited to injunctive or other appropriate equitable relief.
As such, the Court concluded that Smith cannot obtain monetary relief under those three provisions, or otherwise under ERISA, since that type of relief is a legal remedy. Restitution for being required to pay the medical bills for his gastric bypass surgery could be deemed an equitable remedy, in appropriate circumstances, such as when the fiduciary is wrongfully holding money that belongs to Smith. But none of those circumstances are present here. Still, the Court continued, section 502(a)(3) authorizes an award of declaratory and injunctive relief under ERISA. Smith could be entitled to this type of relief. But the determination of that entitlement must be made by the district court. Accordingly, the Court remanded the case with the instruction for the district court to make this determination.
Note: The types of injunctive relief the Court had in mind appear to relate to Auxiant’s future behavior, so it is not clear how the injunctive relief might help Smith solve his current problem of paying the medical bills for the surgery he already had. Also, the Court hints that, although not raised in this case, the Plan might have ways to bind Auxiant and the Plan to any advice Auxiant gives as to Plan coverage, so that the Plan will be required to honor that coverage.