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MARKS v. INDEPENDENCE BLUE CROSS

September 29, 1999

MITCHELL MARKS, ET AL.
v.
INDEPENDENCE BLUE CROSS.



The opinion of the court was delivered by: Bartle, District Judge.

MEMORANDUM

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 self-funded 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 ...


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