Facts Of The Case
The International Union of Bricklayers and Allied Craftworkers Local Union No. 5 administered a group health plan on the verge of insolvency. As a result, the Local 5 Fund merged into the Union Trowel Trades Benefit Fund of Central Pennsylvania effective June 1, 2000. That fund´s trustees delegated plan administration to D.H. Evans Associates, Inc.
Two months later, plan participant Richard Santasania submitted medical bills to the Union Trowel Fund that were denied. Therefore, Santasania had to pay his medical bills out-of-pocket. On Oct. 4, 2000, D.H. Evans terminated Santasania´s health coverage because he was deemed ineligible for benefits (for an unspecified reason). Santasania then elected COBRA coverage.
Santasania later sued the fund for ERISA violations, alleging that because his coverage termination was unjustified, the fund should reimburse his COBRA premiums. (Presumably, Santasania would have argued that he was entitled to the refund because he should be retroactively reinstated to coverage under the plan; however, the court´s opinion was not specific on this point.) The court concluded that Santasania had no statutory basis under ERISA §502(a)(1)(B) and §502(a)(3) to seek such a reimbursement.
Specifically, the court noted that ERISA §502(a)(1)(B) permits plan participants to sue to recover plan benefits, enforce their rights or clarify their rights to future benefits under the plan terms. Here, the key issue was the statutory language limiting recovery to benefits due "under the terms of the plan." To that end, the court noted that no evidence existed that the plan documents give plan participants the right to collect for expenses incurred as a consequence of a denial of benefits. Accordingly, the court determined that Santasania was seeking extracontractual damages that are not available under §502(a)(1)(B).
In analyzing §502(a)(3) - ERISA´s "catch-all" remedial provision - the court noted that section authorizes a civil action by a plan participant to obtain other appropriate equitable relief to remedy violations, or enforce provisions, of the plan terms. Here, the key issue was what is considered equitable relief. The court noted that the distinction between equitable relief and legal relief was made by the U.S. Supreme Court in Great West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002). In Knudson, the Court held that relief under §502(a)(3) is available only in cases are purely equitable in nature, explaining:
almost invariably ... suits seeking ... to compel the defendant to pay a sum of money to the plaintiff are suits for "money damages," ... since they seek no more than compensation for loss resulting from the defendant´s breach of legal duty.The Knudson Court distinguished between claims that seek: (1) to prevent future losses, which are permissible under ERISA; and (2) past due sums, which are not permissible under ERISA.
The Santasania court admitted that an action for "equitable restitution" might be sustained under §502(a)(3) if money or property that belongs to a plaintiff clearly can be traced to particular funds or property in the defendant´s possession. But this standard was not met in this case, the court noted, because Santasania did not request equitable restitution and did not allege that his COBRA premiums were traceable to particular funds in the fund´s possession. Accordingly, the court ruled in the fund´s favor.
Implications
This case involves a very technical legal issue primarily relating to the nature of ERISA damages in litigation. (See 1916 of the Guide.)
However, looking at the "bottom line" result, it is not clear that the same answer always would apply to similar cases. For example, suppose an employer had improperly terminated an individual´s coverage and offered COBRA coverage. The individual pays for COBRA coverage to keep health insurance, and then sues for coverage to be reinstated under the plan, something clearly allowed by ERISA. If the individual prevails, it is hard to believe that, as a part of the remedy, a judge would not require the employer to retroactively refund the individual´s COBRA premiums. Otherwise, the employer would benefit from an economic windfall even though it acted improperly.
This article is excerpted from the April 2003 supplement to Mandated Health Benefits--The COBRA Guide, published by Thompson Publishing Group, Inc. More information about Mandated Health Benefits--The COBRA Guide is available at:
Thompson Libraries.