Health Administration Responsibility Project
c 1996 Robert Armand Perez Sr.
All rights reserved.

The interview

The two of them are in your office for an initial interview. She has breast cancer with involvement of more than twelve lymph nodes and is only thirty-eight years old with three children. Her oncologist has referred her to a hospital that performs high dosage chemotherapy with stem- cell replacement. The physicians believe that it is the best treatment for her condition and that it will definitely improve her chance of survival. The physician has said that recent tests indicate that it produces significantly improved results and is not experimental although investigative trials are being conducted by the National Cancer Institute. The alternative low dosage chemotherapy is much less effective he explains. It has been strongly recommenced by two physicians who state that it is not experimental and the insurance company should pay.

Her husband explains that their health insurance is through his employment at Acme Chemical, Inc. It is Big Blue Insurance. The carrier has refused to pay for the treatment stating that it is experimental. He tells you of his conversations with the claims manager with tears welling in his eyes. The hospital refuses to treat until he can produce forty thousand dollars up-front. He apologizes for crying and asks for your help. The treatment is about one hundred ten- thousand dollars. They do not have forty thousand let alone one hundred ten thousand.

You assure them that you will help. You ask that they leave the certificate of insurance with you for you to read and call you in two days. Your inclination is to file a bad faith claim in state court. Certainly if the treating physician states it is not experimental this is an excuse to not pay. You muse to yourself that this should scare the insurance company into at least paying for the treatment.

You call an attorney friend that has handled similar cases and explain your strategy to him. Much to your dismay he says, "That dog won't hunt. This is an ERISA case and there is no bad faith cause of action." "Why?" you query. "Because it is pre-empted," he replies. "Let me explain. You got a few minutes," he asks?

Although claims arise most frequently in the health benefit area, these principles apply to all employee health and welfare benefits and to pension benefits. The law governing employer-paid pension and benefit plans is a blend of third-party beneficiary contract law, trust law and administrative law. The first step is to determine who is an employee. It is someone who has a common law employee relationship with the employer even if the employer designates the individual as an independent contractor.1 The second step in the analysis is to determine who pays for the benefits. Follow the money. Does the employer contribute money in part or in full to fund the benefits? If so, then it is probably an ERISA benefit.2 Who is the claim submitted to? If it is an insurance carrier it is probably an indemnity plan.3 However, it may be that the employer is self-funded and the insurance carriers in administering the plan and billing the employer for the cost of the benefits and an administrative charge for the service.4 It may be submitted to a third-party administrator that is not an insurance company. It may be the employer itself.5 Finally, the benefits may be through a multiple employer plan.6

Applicable Law

The Employee Retirement Income Security Act of 1974 (herein "ERISA")7 is the federal statutory framework that governs the administration of employee benefit plans and the rights of the beneficiaries under the plan. ERISA applies to any employee benefits plan if the plan is established or maintained by an employer engaged in commerce or by an employee organization representing employees engaged in commerce or in any industry or activity affecting commerce.

An employee welfare benefit plan is defined under ERISA as:

[A]ny plan, fund, or program which [is] . . .established or maintained by an employer or by an employee organization . . . for the purpose of providing for its participants or beneficiaries . .. medical, surgical or hospital care or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs or day care centers, scholarship funds or prepaid legal services . . . .8

To fall within ERISA, a welfare plan must meet the following four criteria:

Government plans, church plans and foreign plans are among the plans that are statutory exemptions to ERISA.10 Self employed individuals are not employees and their benefits are not ERISA plans if only he and his family members are covered.11 Similarly, a partnership of lawyers, physicians or accountants that have a plan that only covers the partners is not covered by ERISA. 12 A plan is not an ERISA plan when all of the four elements are true:

However, this arrangement has adverse tax consequences and is therefore not a common type of plan.


Under ERISA, the concept of a fiduciary is important because the essence of the failure to pay a valid claim is a breach of the fiduciary's responsibilities. The fiduciary under ERISA is required to exercise "The care, skill, prudence and diligence . . . that a prudent man acting in the like capacity ... would use."14 Under ERISA, a fiduciary is a person who exercises discretion over the management of plan assets or exercises discretionary control over the administration of the plan.15 Fiduciaries have a duty to act "solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries."16 Courts are guided by principals of trust law in interpreting the language of ERISA plans and the breach of duty.17

Federal Statutory Relief

A participant or beneficiary18 may recover denied employee benefits through a civil action. "A civil action may be brought . . . by a participant, beneficiary or fiduciary for appropriate relief . . . ."19 The defendants against whom the action may be brought are the fiduciaries of the plan and the plan itself.20 Among the possible defendants who may have fiduciary status are the plan administrator, plan sponsor, employer, and others who can acquire this status by their relationship to the plan or the plan assets. The relevant section provides: "Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries . . . shall be personally be held liable to make good to such plan any losses to the plan resulting from such breach . . . ."21

The participant or beneficiary may seek relief under the section that provides, "A participant, beneficiary or fiduciary [may] . . . enjoin any act or practice which violates any provision of this subchapter or the terms of the plan or . . . to obtain other appropriate equitable relief to redress such violations or to enforce any provisions of this subchapter or the terms of the plan . . . ."22


ERISA jurisdiction rests in the federal district courts.23 However, an action for the recovery of benefits due under the terms of the plan may be filed in either federal or a state court of competent jurisdiction as long as the case does not require the interpretation of ERISA but only the interpretation or application of the terms of the plan.24

State Law Preempted

ERISA was established to provide minimum standards that assure the equitable character of these plans and their financial soundness; as well as to protect employees and their beneficiaries.25

The policy purposes that underlie this statute are to foster and to facilitate interstate commerce and protect the interests of the participants.26 The intent of Congress in drafting ERISA might be best summarized after interpretations by the Supreme Court as attempting to preserve the state's traditional role as the primary regulators of insurance companies thereby allowing the states to regulate group health insurance claim settlement practices while still providing an overall scheme of regulation, on the federal level, to enhance consistency in interstate commerce in the provision of employee benefits. ERISA preempts a claimant's right to recover benefits under state law. The Supreme Court has held that an employee's state-law common-law bad faith claim against an insurer's improper processing of a claim is preempted.27

The preemption provision broadly preempts state laws relating to employee benefit plans and reads as follows: "[T]he provisions of . . . this chapter shall supersede any and all state laws insofar as they may now or herein after relate to any employee benefit plans . . . " This provision is known as the "preemption clause."28 A second provision preserves state insurance laws from preemption: "[N]othing in this subchapter shall be construed to exempt or relieve any person from any law of any state which regulates insurance . . . "29 This section is known as the "savings clause." The third provision within the statute which is of importance in interpreting preemption is sometimes called the "deemer clause" that provides, notwithstanding the savings clause, that employee benefit plans that might otherwise be characterized by state law as insurance companies are subject only to the uniform ERISA rules regulating employee benefit plans. This section states in part, "Neither an employee benefit plan . . . nor any trust established under such a plan shall be deemed to be an insurance company or other insurer . . . or to be engaged in the business of insurance . . . for purposes of any law of any State purporting to regulate insurance companies [or] insurance contracts . . . ."30

To determine whether ERISA preempts a particular state law requires the answering of the following questions. Does the law relate to an employee benefit plan? If the answer to this question is yes, then it may be preempted by ERISA. If the answer is no, then ERISA has no effect on the application of state law to a particular fact situation and state law is applied. However, if the state law does involve an employee benefit plan, the next issue is whether the law regulates insurance. If the law does regulate insurance, then the state law is safe from preemption. If the law does not regulate insurance, then ERISA preempts the law.

The final issue is whether the entity against whom the enforcement of the law is sought, is a fiduciary such as the employer, the administrator, or sponsor of an employee benefit plan. If the attempt to enforce the law is against an entity that administers, funds or sponsors an employee benefit plan, then an otherwise "saved" state law is again preempted.

In general, the courts have been consistent in construing the interpretation of what "relates to" an employee benefit plan and therefore falls under ERISA's express preemption clause.31 The Supreme Court has concluded that this preemption clause is expansive in nature and that, "[t]he phrase 'relate to' was given its broad commonsense meaning, such that a state law 'relate[s] to a benefit plan' in the normal sense of the phrase, if it has a connection with or reference to such a plan'."32 The primary focus of analysis as to whether the law relates to an employee benefit plan is, that if it is a benefit that is provided directly or indirectly by an employer to an employee, it is preempted by ERISA. The Supreme Court has emphasized that the preemption clause is not limited to "state laws specifically designed to affect employee benefit plans."33 The intent of the statute is to preserve state laws that regulate insurance. In contrast, the central question to whether a claim is an ERISA claim is not whether the activity or enterprise has or is engaged in the business of insurance, but whether the state law asserted against the insurer is a law, whether statutory or common law, that regulates insurance.

ERISA preserves state insurance regulatory schemes, but precludes state law from regulating employee benefit plans solely because those plans provide benefits. State law as it relates to a benefit plan is preempted if it has a connection with, or reference to such a plan.34 To determine whether specific statutes are preempted by ERISA the issue is whether the statute in question regulates the "business of insurance," as defined by the McCarran-Ferguson Act.35 The test to determine preemption is not the label on the claim but whether the essence of such claim is for recovery of a benefit under an ERISA plan by a "participant" or "beneficiary" within the meaning of ERISA.36 Generally, if ERISA does provide a remedy for the alleged wrong then the state claim is preempted.37 Clearly, the more direct the claim is for the payment of benefits, the more likely ERISA has preempted the state law claims. The scope of ERISA preemption has recently been found to have limits and it is not complete.38

Plan Document

ERISA includes reporting and disclosure requirements designed to protect the employee's rights to benefits. The plan document is summarized by a disclosure document called a Summary Plan Description that is given to the plan participants. The purpose of a Summary Plan Description is to advise plan participants in ordinary language of their rights under the plan.39 Severe technical noncompliance with ERISA requirements without harm does not entitle the participants to relief.40 Mere error in the Summary Plan Description does not give rise to liability. However, the misstatements in the Summary Plan Description may control over conflicting language within the plan document itself thereby making benefits available.41 Poor drafting of the summary plan description may extend or enlarge benefits that might not otherwise be available.42 In construing benefits plans, ambiguities and implicit contradictions are construed in favor of the participants or beneficiaries of the plan.43

In construing benefits plans, ambiguities are construed in favor of the participants of the plan.44 In insurance-based plans, common law established the rule of contract construction known as contra pro ferentem. This term describes the concept that the construction of written documents requires that an ambiguous provision be construed against the person who selected the language.45 The federal common law of ERISA has adopted this principal of contract construction.46 When the language is not ambiguous, the principal is that the language should be interpreted without referring to either the interpretation of the claimant or the plan administrator.47

Due Process and Exhaustion of Administrative Remedies

There is no express statutory provision in ERISA requiring exhaustion of administrative remedies. The portion of ERISA which permits a civil action is silent with regard to the exhaustion requirement prior to filing suit.48 However, this same section requires all welfare and pension plans to have appeal and claims procedures.49 The courts have interpreted the sections and the regulations which have been promulgated to imply that Congress intended that claimants exhaust administrative remedies prior to initiating action in court.50

When there is a denial of benefits to a participant or beneficiary the regulations require that the plan send a notice of denial that is written; easily understood; contains the specific reason for the denial; refers to the specific plan provision upon which the denial is based; describes the additional material or information that is necessary to have the claim paid; informs that participant or beneficiary of what steps are necessary to have the denial of benefits reviewed (appeals process).51 The claims procedures should be set forth in writing in every employee benefit plan. The purpose of this administrative process is to reduce the number of frivolous law suits, to provide a non-adversarial framework for the review of claims, and to reduce the costs of the resolution of benefit claim disputes.52

The regulations for the processing of claims requires that the plan's procedure be reasonable.53 A claim is a request for benefits.54 If the claim is denied either wholly or partially, the notice must be furnished to the claimant within a reasonable period of time but no more than ninety (90) days after the receipt of the claim by the plan. If it is not furnished within a reasonable period of time, it is deemed denied and the claimant is permitted to proceed to the review stage. If a benefit notice fails to explain the proper steps for appeal, the plan's time limitation for appeal may not be triggered. 55 The minimum requirements under the plan review procedure must permit a claimant or his representative to request a review on written application; a review of pertinent documents and the ability to submit issues and comments in writing. 56

29 C.F.R. 2560. 503-1(g). 1

29 C.F.R. 2560.03-1(h). 2

The participant must exhaust the appeal procedures set forth in the plan document.57 "The administrative scheme of ERISA requires a participant to exhaust his or her administrative remedies prior to commencing suit in federal court."58 This requires that the participant comply with the substantive and procedural requirements of the plan.59 The failure to give timely notice of a denial of benefits with a specific reasons may not apprize the participant or beneficiary of the deficiency to permit additional evidence be presented and reviewed in the administrative review process.60

Judicial Review

Judicial review of the benefit denial is available under the statute which provides in part that,

A civil action may be brought (1) by a participant or beneficiary . . . (A) for the relief provided in subsection (c) of this section, or (B) to recover benefits due him under the terms of this plan, to enforce his rights under the terms of this plan, or to clarify his rights to future benefits under the terms of this plan; (3) by a participant, beneficiary, or fiduciary, (A) to enjoin any act or practice which violates any provision of this sub-chapter or the terms of this plan, or (B) to obtain other appropriate equitable relief (I) to redress such violations or (ii) to enforce any provisions of the sub-chapter or the terms of the plan.61

An action for a fiduciary's breach of any responsibility, duty or obligation generally may be brought within the earlier of, six years after the last action that constituted part of the breach, or three years after the Plaintiff's actual knowledge of the breach.62 When the claim is not based upon a violation of a fiduciary duty, the most analogous state statute of limitation must be applied.63

State courts also have jurisdiction to resolve employee benefits claims matters.64 However, the defendant employer, third-party administrator or insurance carrier may remove a cause of action to federal court from state court.65

Standards of Judicial Review

The courts will review the denial of benefits to determine whether the denial was proper and should be sustained or improper and the benefits paid. There are essentially three standards that the courts have defined as the judicial review standards in ERISA matters.66 Among these are the arbitrary and capricious standard that is applied to the denial of benefits by the administrators of plans when there is a particular reservation of the discretionary authority to the administrator to construe and interpret the eligibility for benefits written in the plan. A de novo standard is applied when there is no articulated standard written within the plan and these discretionary rights have not been expressly reserved to the administrator or trustee to permit the determination of the eligibility for benefits. Finally, the courts have defined an conflict of interest test that analyzes the interests of the parties in light of traditional common-law rules regarding conflict of interests and fiduciary duties.

A. Arbitrary and Capricious Standard of Review

When the administrator has denied benefits, and there is an articulated right in the plan document that permits the administrator to determine whether benefits should be paid, the arbitrary and capricious standard of review should be used by the court to review the decision of the administrator to deny benefits.67 This standard of judicial review of the denial of benefits requires an articulated standard in the plan document and clear authority to make the determination on the payment of benefits.68 It is a deferential standard and will result in the sustaining of the administrator's decision unless it is not based on any evidence or is otherwise unreasonable. The arbitrary and capricious standard, at times termed an abuse of discretion standard, requires the court to determine whether there was a reasonable basis for the decision to deny benefits, based upon the facts known to the administrator at the time the decision was made.69 However, the plan document or contract must clearly articulate a reservation of rights or delegation of authority to make benefits determinations.

Another definition of this standard of judicial review is whether the exercise of the administrator's authority in the determination of benefits was in bad faith.70 The court may not substitute its judgment for that of the fiduciary absent bad faith. The decision of the administrator is not arbitrary and capricious when the plan document grants discretion to the fiduciary to determine the entitlement to benefits.71 To review a denial of benefits by the plan administrator when there is an expressed articulation of the administrator's right to use discretion and the authority to determine eligibility, the court must determine whether the administrator considered the relevant factors or whether there has been a clear error of judgment.72 The benefit plan defined in various manuals and booklets must explicitly give the administrator discretionary authority.73

B. De Novo Standard of Review

As a general rule, the de novo standard of review applies to the judicial review of the denial of benefits under ERISA when there is no clear delegation of authority in the plan and no clear articulation of the standard by which the determination of benefits should be made. It is a less deferential standard than the arbitrary and capricious standard.74 Where there is no delegation of authority to the administrator or fiduciary to determine the eligibility for benefits or to construe the plan terms, the appropriate judicial review standard is the de novo standard.75

The United States Supreme Court has ruled that the de novo standard of review should be used to review the plan benefit administrator's determinations when the denial of benefits was made without an articulated delegation in the plan document.76 Although the court has recognized the importance of the arbitrary and capricious standard, the Court held that, "[t]he wholesale importation of the arbitrary and capricious standard into ERISA is unwarranted . . . [the] denial of benefits [that is] challenged . . . is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary, discretionary authority to determine eligibility for benefits or to construe the terms of the plan."77

C. Conflict of Interest and Interest Analysis Standard of Review

Recently, courts have recognized the inherent conflict of interest in the fiduciary's decision-making, between the paying of benefits to or on behalf of the beneficiary and the fiduciary's interest in the retention of the funds resulting from the denial of payments. When a plan beneficiary can demonstrate that there is a substantial conflict of interest on the part of the fiduciary who exercised his or her discretionary authority to deny benefits, the burden shifts to the fiduciary to show that the fiduciary's determination was not tainted by self-interest.78 However, the decision by an employer that has the primary effect of benefitting employees and only an incidental effect of being prudent from the employer's perspective does not violate ERISA.79

An analysis of the source of the funds for the benefits may be in order. If the benefits are to be paid from a trust the burden on the plaintiff may be to show that the conflict is not just apparent. For example, where the employer is the administrator and the plan is unfunded as are many welfare plans but that this self-interest affected the decision.80 In contrast, the review of a decision of an employer that is also the administrator where the plan does give discretion, the decisions of the employer-administrator should be reviewed under a more stringent (less deferential) version of the abuse of discretion standard.81 An insurance carrier has even less interest in making an objective decision because it affects the bottom line. The carrier should be presumed to be more interested in saving money than paying the claim.82 This suggests that the participant or beneficiary should inquire into the claims practices and underwriting. However a conflict lessens the deference the court should give to the administrator-fiduciary without regard to the language in the plan.

D. What is reviewed?

The federal circuit courts are divided on whether a reviewing court may consider evidence not presented to the plan administrator during the administrative process when the court is reviewing the decision to deny benefits. Some courts have remanded the case to the plan administrator for further consideration.83 Some circuits have held that evidence not presented to the administrator may not be considered by the court to determine whether the decision was appropriate.84 In contrast, some circuits have permitted additional evidence that was not presented to the administrator to be presented to the trial court for it to determine whether the benefits should be paid.85

De novo review in some circuits is a review of the record established during the claims review process before the administrator and no new evidence may be considered at the trial level.86 This narrow interpretation of the de novo standard places great significance on the evidence presented by Plaintiffs during the administrative review. In essence, the administrative appeal is a one-time opportunity to introduce evidence. Failure to introduce evidence during the administrative review is costly and may result in a dismissal of a claim in court despite the existence of strong evidence supporting the plaintiff that was not in the record and before the decision maker during he administrative determination.87

Equitable Remedies

The most obvious remedy for a benefit denial is payment of the benefits due. ERISA has statutory remedies allowing a beneficiary to recover the benefits due him or her and allow the clarification of future rights under the plan.88 This provision permits the plan beneficiaries to bring an action for appropriate relief against ERISA fiduciaries who breach their, "responsibilities, obligations or duties."89 By statute, such relief may be monetary or equitable.90 However, the court may not order the payment of benefits in derogation of the express terms of the plan's contractual provisions.91

Federal Common Law

The federal courts are developing a body of federal common law under ERISA to interpret the statute and provide relief to Plaintiffs. Several Circuits have incorporated the doctrine of equitable estoppel to determine whether benefits were payable under ERISA.92 The elements of this principle are:

Errors in a summary plan document that is given to the employees may bind the administrator of the plan if they conflict with terms in the plan itself. The trend of the courts is to hold that the summary governs.93 However, it is not required that a claimant who has been misled by a summary plan description prove that he or she actually relied upon it to obtain relief.94

The doctrine of reasonable expectations has been recognized as a federal common law principle to supplement the explicit provisions of ERISA.95 This doctrine requires that an exclusion or limitation in a plan or policy be written clearly enough for a common layperson to understand.

Attorney's Fees

An award of attorney's fees is available to the client, as well as the costs of the action.96 An award of attorney's fees is discretionary with the court. It is in the nature of a permissive rather than a mandatory award and is within the sound discretion of the court.97 Attorney's fees are available to the prevailing party or even to a party that does not prevail where the services rendered by the attorney were beneficial or necessary to the administration of the fund.98 The factors that have been adopted to determine whether attorney fees should be awarded are:

These are guides for the determination of the court and no one factor controls. 100

One circuit has advanced the idea that there is a mild presumption that the court should award attorney fees to the prevailing plaintiff.101 Some courts have suggested that to make an award of attorney fees against the participant or beneficiary who loses is inappropriate. 102 This award would not advance the policies underlying ERISA.103 A plaintiff who prevails against an insurance company should have attorney fees paid.104

In general, the fee shifting section of ERISA provides that a party, not an attorney, is eligible to receive a statutory award of attorney's fees. This award may coexist with a private fee agreement and the parties may waive, settle and negotiate these costs.105 The fees are usually based on the attorney's loadstar ( the reasonable hours multiplied times a reasonable hourly rate). Enhancements for a contingency are generally not permitted under fees shifting statutes.106

The Right to a Jury Trial

ERISA does not expressly provide a right for a jury trial and the courts are divided on whether a jury trial is available to the beneficiary or participant who is seeking redress in the courts. There are two primary steps to determine whether a party is entitled to a trial by jury. The Seventh Amendment preserves the right to a jury trial at "common law." The court must first determine whether the right to a jury is expressly or implicitly available. 107 When, the statute is unavailing, the court must determine whether the Seventh Amendment of the United States Constitution guarantees the right to a jury trial.108 Is the relief sought the sort that is traditionally a "legal claim" (general money damages) rather than a "equitable claim" (injunction or restitution).

The recovery of benefits under 502(a) of ERISA; 29 U.S.C. 1132(a), has generally been held to be an equitable action where a jury trial is not available.109 If relief is equitable, there is no right to a jury trial under the Seventh Amendment.110 In contrast, some court permit the participant or beneficiary who is seeking welfare benefits rather than pension benefits to a jury trial.111

This matter is not resolved and is still unsettled as the Supreme Court has implied that a right to jury trial might exist in certain ERISA actions seeking "legal relief."112 The decision to request a jury trial should be well thought through by plaintiff's counsel. Equitable relief may be preferred in some cases.113

Extra-Contractual Damages

The courts have struggled mightily with extra- contractual damages under ERISA. The early position was that extra-contractual damages were not available nor were punitive damages.114 A beneficiary does not have a private right of action for extra-contractual damages for the delay in processing a claim for benefits.115 Traditional equitable remedies are the relief available to the participant or beneficiaries. Compensatory or punitive awards to the plaintiff who recovered benefits through litigation will be denied.116 United States Supreme Court held that the right by plan participants to bring a civil action to obtain, "appropriate equitable relief" to redress violations of the statute117 or plan, "does not authorize suits for money damages."118 The traditional equitable remedies are restitution, disgorgement, an accounting or an injunction. It is the right of ERISA plan participants to bring a civil action to obtain, "appropriate equitable relief" to redress violations of the statute or plan.119

Managed Care Preemption

Managed care is a particularly thorny problem under ERISA. Initially, it did not have the market penetration twenty-two years ago when ERISA was written. Today, it is an increasing concern for lawyer who represent consumers. An improper denial of benefits to an ERISA claimant in a managed care setting falls squarely within ERISA's remedial section to recover these denied benefits. When a managed care utilization review results in death, preemption occurs to prevent traditional state-law remedies.120 If the basis of the litigation is the denial of benefits, preemption is proper. 121 The bright line appearing is that the judgmental denial of benefits for cost containment reasons is an ERISA claim whereas the state court claim that does not involve these denials is likely to survive a preemption challenge.

Escaping Preemption

A managed care organization [MCO] may be practicing medicine. It may be making medical decisions rather that benefit decisions. The MCO may be held liable under several theories of liability, whether tort or contract, and those are agency (respondeat superior), and ostensible agency. None the less when a state law claim is alleged against the MCO plaintiff's counsel should be prepare for a motion to remove to federal court on an preemption argument. The key issue that counsel must resolve is whether the claim that is being asserted is the type of action that is preempted by ERISA. The determination as to whether a claim is preempted by ERISA the federal court must us the well- pleaded-complaint rule that confines the search to determine whether a federal question jurisdiction exist is "what necessarily appears in the plaintiff' statement of his own claim in the bill and declaration, unaided by anything alleged in anticipation or avoidance of defenses which it is thought the defendant may interpose."122 One corollary to the well-pleaded- complaint rule that was developed in the case law is that Congress may so completely preempt a particular area that any civil complaint raising this select group of claims is necessarily federal in character. 123 State common law claims in the nature of ERISA civil enforcement actions, the recovery of benefits or breach of fiduciary duty are to be treated as federal claims. The established exception to the general rule is that a state claim not preempted by ERISA, does not sound in the recovery of benefits or breach of fiduciary duty, may not without more, be considered a federal claim for the purposes of a well- pleaded-complaint rule. This exception is that a complaint may be found to assert a federal claim warranting removal only if the claim asserts a right to recover benefits due to him under the terms of his plan, or to clarify his rights to future benefits under the terms of the plan.

The facts that permit preemption should be distinguished from those that do not. The circuits seems to differ on how they will treat a motion to remove and whether they will treat a claim as asserting a federal question. An allegation of professional malpractice, breach of fiduciary duty and intentional infliction of emotional distress both in state court against a company that provided psychotherapy services under an ERISA plan should not have been dismissed because the plaintiff's claims did not arise under ERISA for the purpose of federal question jurisdiction and diversity did not exist when the amount in the ad damnum clause did not show that the controversy exceeded fifty thousand dollars.124 Similarly, litigation in state court against a Health Maintenance Organization for malpractice should have not been removed because the plaintiff did not seek to enforce ERISA rights. 125 A writ of mandamus will not issue to force the trial court to rescind an order remanding two state court claims when those claims involved allegations against an HMO for vicarious liability for alleged malpractice of one of its physicians.126 In contrast, claims of wrongful death, medical malpractice, negligent and intentional refusal to authorize inpatient treatment for a decedent that was in reckless disregard of his safety and in violation of the insurance policy, insurance bad faith, breach of contract, negligent retention of services, loss of consortium and violation of the Emergency Medical Treatment and active Labor Act were determined to be preempted and presented a federal question. 127 Other courts have reached the same conclusion.128

Class Actions and Breaches of Fiduciary Duty

In the past there was some conflict whether a participant could bring an action for the breach of fiduciary duty on behalf on only the plan or fund or whether an action could be brought on behalf of the other participants or beneficiaries for their individual benefit. Recently, the Supreme Court has made it clear that participants may bring a class action to recover benefits that were lost from a breach of fiduciary duty.129 The Court also concluded that a fiduciary has the duty to tell the truth. This far reaching decision clarifies the right to recovery in the form of a class action. Because of the nature of the limited relief in the form of equitable damages, class actions are the best method to recover from generalized wrongdoing of the health care insurer or other third- party payers where the damages may individually be limited.

Future Developments

Until recently the claim by a participant or beneficiary for was thought by some Circuits to be limited to the recovery of benefits from the plans and that these individual could not bring a claim for the breach of fiduciary duty unless it was on behalf of the plan and would result in a recovery to the plan itself.130 An ERISA section provides for the recovery of benefits by the beneficiary or participant. Another section provides for a civil action for a breach of fiduciary duties.131 The Supreme Court has determined that a beneficiary participant may recover for the breach of fiduciary duty in their own name and not simply in the name of the plan.132 This may open door to plenary damages including traditional legal damages.


The litigation of employee benefits is evolving at a rapid pace. A body of common law is evolving to interpret and supplement the statute. The trend is to provide restitution to the participant or beneficiary who has been injured by the denial of benefits, but to deny any compensatory or punitive damages. This is dynamic and changing area of the Law. As the cataclysmic changes run through the health care delivery system, as disability policies that were oversold result in denials to the disabled, as the problem of payment for health care and the inherent conflicts of interest in managed care increase litigation is assured. The well-prepared plaintiff's counsel can not only protect the rights of his or her client, but be a positive force for change in the system.


Attorney at Law
7672 Montgomery Rd. #378
Cincinnati, Ohio 45236-4204
Telephone: 513.891.8777
Fax: 513.891.0317

Robert Armand Perez Sr., M.S., J.D. is the current First Vice Chair of the Insurance Law Section of the Association of Trial Lawyers of America.
He limits his practice to civil litigation of health care and insurance issues.
He has taught and published extensively on health care, health care delivery systems and health care benefits.