ERISA Plans Drafted To Exclude Coverage - For Anything?
When the Supreme Court issued its opinion in U.S. Airways v. McCutchen, 133 S. Ct. 1537 (2013), holding that the plan language controls such that, “[t]he agreement itself becomes the measure of the parties' equities…”, the alarm bell rang loudly. If an ERISA plan can exclude any equitable defenses—such as the common fund doctrine and the make-whole rule—even if it means staking claim to the entire recovery, what limits remain?
While we tend to focus on lien recovery efforts, personal injury lawyers also need to be on alert for ERISA plans that deny coverage for care based strictly on plan language.
In California, we saw an example in the unpublished Ninth Circuit opinion John Noecker v. Southern California Lumber Industry Welfare Fund, 2013 U.S. App. LEXIS 6841 (April 4, 2013), where the denial of coverage was upheld based on a questionnaire answer. The plan member checked “Yes” in response to a question from the claims administrator asking whether he “intended” to file a claim or lawsuit against a third party. At the time, the member had not yet made a claim or hired an attorney—he only sought legal counsel after receiving collection notices from providers for unpaid medical bills. But the plan language was clear:
“This plan does not provide benefits where the care required is for injuries or illness to you or your eligible dependents caused through the act or omission of another person, known as third party, and where you are pursuing, or you intend to pursue a claim or lawsuit for damages against the third party.”
The member’s stated intent was enough to justify the plan’s denial of benefits.
Here’s another mind bender: Caldwell v. UNUM (10th Cir., Sept. 19, 2019). UNUM issued accidental death coverage under an ERISA-governed plan. The insured died in a single-vehicle accident on a dirt road, traveling 20 mph over the speed limit. UNUM denied the claim, asserting that speeding constituted a “crime” and was therefore excluded under the plan language, which denied benefits for “accidental losses caused by, contributed to by, or resulting from . . . an attempt to commit or commission of a crime.” This was despite the fact that speeding is considered a misdemeanor under Wyoming law, the UNUM claims manual expressly stated that the exclusion was not intended to apply to traffic violations, and the U.S. Supreme Court has held that the term “crime” is inherently ambiguous (United States v. Stitt, 139 S. Ct.).
The court nonetheless upheld the denial. It reasoned that because the claims manual was not part of the plan documents (SPD/MPD), was not available to the insured, and was not subject to production under 29 U.S.C. § 1024(b)(4), it was immaterial. The court applied the standard from Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), which holds that an ERISA plan administrator’s decision “survives arbitrary and capricious review so long as the interpretation is reasonable.” The court found that UNUM’s interpretation of “crime” fell “somewhere on the continuum of reasonableness,” and therefore was sufficient to deny coverage.
The implications of this reasoning for personal injury practice are significant. If a client is injured in an auto accident and wasn’t wearing a seatbelt—potentially violating California Vehicle Code § 27315—could their ERISA plan deny medical coverage on the basis that the conduct constituted a “crime”? Under the broad discretion granted to ERISA plans, the answer appears to be yes, so long as the plan’s interpretation is deemed reasonable. An expansive reading of the crime exclusion could allow ERISA plans to deny coverage based on nearly any comparative fault by the insured.
Is there a silver lining? Perhaps. With more plaintiffs now seeking treatment on direct contractual liens—particularly in California, following the Court of Appeal’s decision in Pebley v. Santa Clara Organics, LLC, (2018) 22 Cal.App.5th 1266—denial of ERISA coverage may, in some cases, make it easier for plaintiffs to obtain care through lien-based providers. When the insurer refuses to pay for care, plaintiffs are freer to pursue high-quality treatment with out-of-network providers, which may also help support the valuation of damages in the litigation.
Practice Pointer: At the time of intake, identify all existing health coverage and immediately issue document production demands for all relevant plan documents. Don’t just analyze health plan language for lien recovery provisions—look carefully for coverage exclusions that may limit or deny care. Evaluate whether Pebley applies, and help ensure your client has access to appropriate and effective medical treatment. Good outcomes require good planning. Stay ahead of the issues and help your client avoid surprise denials of care.
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