Marks v. Independence Blue Cross

• Decision Date: 29 September 1999
• Docket Number: Civil Action No. 98-3528.
• Citation: 71 F.Supp.2d 432
• Parties: Mitchell MARKS, et al. v. INDEPENDENCE BLUE CROSS.
• Court: U.S. District Court — Eastern District of Pennsylvania

71 F.Supp.2d 432

Mitchell MARKS, et al. v. INDEPENDENCE BLUE CROSS.

Civil Action No. 98-3528.

United States District Court, E.D. Pennsylvania.

September 29, 1999.

Ann Miller, Donovan Miller LLC, Philadelphia, PA, for Plaintiffs.

Tracy L. Zurzolo, Morgan, Lewis and Bockius, Philadelphia, PA, Marc J. Sonnenfeld, Paul J. Greco, Morgan, Lewis and Bockius, LLP, Philadelphia, PA, for Defendant.

MEMORANDUM

BARTLE, District Judge.

Plaintiffs allege that defendant Independence Blue Cross ("IBC") breached its fiduciary duty under the Employment Retirement Security Income Act ("ERISA"), 29 U.S.C. §§ 1104, 1109 and that IBC participated in a prohibited transaction under ERISA, 29 U.S.C. §§ 1106, 1108. Plaintiffs' second amended complaint also contains a claim under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968, as well as various pendant state law counts. Before the court is the motion of IBC for summary judgment on the two ERISA claims.

We may grant summary judgment only if there is no genuine issue of material fact and the moving party is entitled to summary judgment as a matter of law. See Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). We review all evidence in the light most favorable to the non-movant. See Wicker v. Consolidated Rail Corp., 142 F.3d 690, 696 (3d Cir.), cert. denied ___ U.S. ___, 119 S.Ct. 530, 142 L.Ed.2d 440 (1998).

Plaintiffs are trustees and participants in an employee welfare benefit plan, Paper Converters Local 286 Welfare Trust Fund (the "Fund"). Since 1992, the Fund and IBC, a health insurer, have entered into agreements annually under which IBC provided health insurance for the employees of the Fund's participating employers in exchange for monthly premiums.

Each year, before the contract was executed, IBC proposed a new premium structure based on the claims utilization of the previous year. Provider discounts as approved by the Pennsylvania Department of Insurance, entitled "hospital" or "planwide" discounts, were part of this proposed structure. After receiving "Rate Sheets" which outlined these proposals, representatives of the Fund would negotiate with IBC to set the actual premiums.

I.

Plaintiffs contend that IBC breached its fiduciary duty under ERISA by failing to mention substantial, extra discounts it received from medical providers when it calculated the premiums it proposed to charge the Fund for health insurance. In other words, plaintiffs contend that IBC, through misrepresentations, caused them to pay more than they otherwise would or should have paid.

IBC is not named as a fiduciary of the Fund. Yet it may still be liable for breach of a fiduciary duty, if it meets the definition of a fiduciary under ERISA:

[A] person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, ... or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.

29 U.S.C. § 1002(21)(A). Under this definition, "[d]iscretion is the benchmark for fiduciary status." Maniace v. Commerce Bank of Kansas City, 40 F.3d 264, 267 (8th Cir.1994); see Curcio v. John Hancock Mutual Life Insurance Co., 33 F.3d 226, 233 (3d Cir.1994). An ERISA fiduciary, however, has a duty only "to the extent" it exercises discretion. The supporting regulation reiterates this limitation:

A fiduciary ... who is not a named fiduciary is a fiduciary only to the extent that he or she performs one or more of the functions described in [section 1002(21)(A)]. The personal liability of a fiduciary who is not a named fiduciary is generally limited to the fiduciary functions, which he or she performs with respect to the plan.

29 C.F.R. § 2509.75-8, FR-16A; see Brandt v. Grounds, 687 F.2d 895, 897 (7th Cir.1982); see e.g., Kerns v. Benefit Trust Life Insurance Co., 992 F.2d 214, 216-17 (8th Cir.1993). In order to hold IBC liable for breach of a fiduciary duty, plaintiffs must establish that (1) IBC performed discretionary functions for the plan, and (2) those particular functions are related to the breach of duty claimed by plaintiffs. See e.g., Fechter v. Connecticut General Life Ins. Co., 800 F.Supp. 182, 197 (E.D.Pa.1992). In other words, there must be a nexus between the breach and the discretionary authority exercised. See AT & T v. Empire Blue Cross & Blue Shield, No. 93-1224, pp. 8-14 (D.N.J. filed July 19, 1994).

Plaintiffs offer a litany of activities which, they claim, IBC performed with discretionary authority and responsibility, including: (1) the amount of money paid to the medical providers; (2) the amount of money kept in the Fund's reserve accounts; (3) record-keeping; (4) notification of participants of the amount owed and the amount spent; and (5) the processing of insurance claims. These various activities can be divided into those that concern IBC's control over plan assets and those that relate to IBC's administration or management of the plan.

In evaluating plaintiffs' position that IBC controlled plan assets, it must be emphasized that the Fund is a fully insured employee welfare plan, not a selffunded plan. Under the latter, it would be the Fund that retains the risk of providing and paying for health benefits for its participants. In contrast, in a fully-insured arrangement with a health insurance company such as IBC, the risk is passed from the Fund to the insurer. In this case, the Fund paid IBC premiums for which IBC agreed to provide health benefits under an insurance policy. Through this exchange, the Fund shifted the risk from itself to IBC. Consequently, the money IBC used to pay the medical providers was the money IBC received in consideration for insuring the Fund's participants. IBC was exercising control over its own assets, not those of the Fund.

Plaintiffs also argue that IBC exercised control over the plan assets because IBC's decisions affected the amount of money the Fund maintained in a reserve account. Carlo Simone, Sr., the Fund's office manager responsible for the day-to-day running of the Fund, explained that the collective bargaining agreement between Local 286 and the participating employers required a reserve "equal to three times the sum of the monthly cost of all benefits provided." (Simone Decl. ¶ 5). Plaintiffs maintain that an increase in premiums paid to IBC required a corresponding increase in the Fund's reserves. IBC, however, has no direct control over the level of reserves required. As noted above, that ratio is determined exclusively by the collective bargaining agreement. The latter also dictates how the reserve funds are spent. IBC has no authority over the money in the reserve account.

IBC simply had no control or authority over any of the Fund's assets. It managed and controlled only its own money. We reject the plaintiffs' contention that IBC was an ERISA fiduciary because it "exercise[d] authority or control respecting the management or disposition of [the plan's] assets." 29 U.S.C. § 1002(21)(A)(i).

Plaintiffs next argue that IBC was a fiduciary to the Plan because it exercised the requisite discretion and control over the Plan's administration. 29 U.S.C. § 1002(21)(A)(iii). In this respect, plaintiffs assert that IBC provided notifications to the Fund and its participants, kept records, and processed claims.

There is no evidence before us that IBC's notification functions involved discretion or control sufficient to render IBC a plan fiduciary. The Department of Labor regulations state that "a person who performs purely ministerial functions ... is not a fiduciary because such a person does not have discretionary authority or control." 29 C.F.R. § 2509.75-8, D-2. "Ministerial functions" include "[p]reparation of employee communications material; ... [][p]reparation of reports required by government agencies; ... [and][p]reparation of reports concerning participants' benefits." Id. The record establishes that IBC creates and provides notifications to Plan beneficiaries only if the Plan asks for them. (Park Dep. 105:20-106:17). In short, IBC performed this notification function "within a framework of policies, interpretations, rules, practices and procedures made by other persons." 29 C.F.R. § 2509.75-8, D-2A. Thus, IBC cannot be a fiduciary for notifying participants of their benefits or the amount paid to providers.

We turn to other aspects of plan administration. The Summary Plan Description for the Fund states, "The Trustees shall have the sole and absolute discretion to determine eligibility for benefits under the Plan and to construe and interpret the plan of benefits... Any construction, interpretation or application of the Plan by the Trustees shall be final, conclusive and binding ... on any person claiming benefits." The Summary Plan Description however, must be read in conjunction with the program descriptions and the parties' contracts. Those documents appear to give IBC control over the claims appeal procedure. Specifically, IBC notifies participants if their claims have been denied. IBC provides participants with a "fuller explanation of the rejection" of claim denials by means of a 1-800 telephone number. Finally, IBC determines the outcome of a claims appeal. The record also contains evidence that IBC performed record-keeping as part of its claims processing. Record-keeping that involves "administering the day-to-day aspects of ... claims review procedures" can establish fiduciary status. Sixty-Five Security Plan v. Blue Cross and Blue Shield of Greater New York, 583 F.Supp. 380, 387-88 (S.D.N.Y. 1984).

Even assuming that IBC exercised discretion over certain of the plan's administrative functions, it does not become liable as an ERISA fiduciary unless there is a nexus between the alleged breach and the...