The opinion of the court was delivered by: 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.
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.
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
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).
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 ...