Approximately 300 employers and other organizations, many of which are in Northern California, were named as co-defendants in an ERISA¹ class action lawsuit filed on November 22, 2013, in the U.S. District Court for the Northern District of California. Aetna Life Insurance Company also was named as a co-defendant, largely based on its denial of claims under the health plans that Aetna administers for the employers and other organizations.

Action Items

If your company and/or health plan is or becomes a defendant in this class action lawsuit, we recommend that you consider taking the following actions:

1. Focus on compliance with ERISA and other legal and contractual obligations to respond to claims and requests for documents in a timely manner. ERISA, in particular, provides for explicit statutory monetary penalties for a failure to promptly respond to claims and requests for documents. ERISA requires that plan documents be provided within 30 days to participants who request them and imposes a $110 per day penalty for not complying.
2. Review the health plan's administrative services agreement with your third-party administrator and determine who is responsible for responding to claims, defending benefit claim litigation, and paying attorneys' fees.
3. Our expectation is that, for most employers, Aetna is responsible for defending benefit claim litigation. However, if the company is responsible in whole or in part for defense of benefit claim litigation, consider reviewing your employer liability insurance policy (or policies) to see if any litigation defense costs can be defrayed.

Background

The class action lawsuit was filed by six ambulatory surgery centers that provided health care services to self-funded group health plan participants² who sought treatment and had portions of their claims denied because they were above the usual, customary, and reasonable (UCR) charges, as determined by Aetna.

Once Aetna denied a claim (in whole or in part) under the health plans, the surgery centers appealed the claim, in many instances to the plan sponsor, requesting a wide array of ERISA and claims determination documents. The plaintiffs claim that Aetna and the employers, through their affiliated health plan:

1. failed to pay ERISA plan benefits by underpricing and underpaying for out-of-network services;
2. breached their fiduciary duty by delegating their duties to administer the plans to Aetna;
3. failed to produce documents as required under ERISA;
4. violated ERISA by not following ERISA claims procedures; and
5. participated in unfair business practices under California's Business and Professions Code.

Given that the crux of the lawsuit revolves around the actions of the insurer/third-party administrator, most administrative service contracts provide that the insurer/third-party administrator who manages claims administration for these employers is responsible for defending against these claims. A well-drafted administrative service agreement will allocate between the insurer/third-party administrator and the employer the responsibility for benefit claim litigation.

To best position your company to defend future claims related to employee benefits plans, it is important to make sure that your retirement and health plan documents don't contain flaws that would make it easy for plaintiff's lawyers to maintain claims against the plan sponsor. In addition, it is vital to ensure that your contracts with the third parties who service your employee benefits plans clearly allocate responsibility for defense of claims and related lawsuits. Wilson Sonsini Goodrich & Rosati has a number of lawyers who focus their practice on ERISA and employee benefits matters and effectively draft plans and negotiate service agreements to mitigate the risk of litigation and defray litigation costs.

¹ Employee Retirement Income Security Act of 1974, as amended (ERISA).

² Prior to the surgical procedures, the surgical centers obtain an assignment of benefits from the participants and authorization to appeal Aetna's benefit determination as the participant's designated representative. Our experience, from talking with our clients about these claims, is that the plan participants often were not aware that a lawsuit could be filed against their employers for unpaid benefits.

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