King v. Cmty. Ins. Co., 2020 WL 5870513 (9th Cir. 2020)
Multiple participants in an employer-sponsored group health plan received treatment from the same out-of-network hospital. Although the participants had assigned their benefits to the hospital, the plan administrator paid benefits directly to the participants. The participants retained the payments, and the hospital sought benefits from the plan. The plan administrator declined to pay the hospital, citing the plan’s anti-assignment clause. The hospital sued, claiming that the anti-assignment clause was not part of the plan because it was set forth in a separate benefit booklet and that, in any event, it did not prohibit these particular assignments. The trial court ruled in favor of the hospital, and the employer and plan administrator appealed.
The plan’s summary plan description (SPD), which the parties agreed was a plan document, incorporated by reference “certificates of coverage,” defined in the SPD as plan booklets describing benefits and the terms and conditions for receiving those benefits. According to the court, to satisfy the requirements for creating an ERISA plan, it was appropriate to incorporate portions of the benefit booklet; nothing required incorporation of the entire booklet. Because the anti-assignment clause was neither a benefit nor a term or condition of receiving benefits, it was excluded. The court also concluded that even if the anti-assignment clause were part of the plan, it would not prohibit the assignments at issue here. The relevant language stated that participants authorized the plan to pay providers directly, and that they could not assign the right to receive payment for benefits to “anyone else.” Parsing the language, the court rejected the contention that “anyone else” meant anyone other than the participant. Instead, it concluded that “anyone else” meant anyone other than the listed entities—that is, assignments to those entities (including providers such as the hospital) were allowed. Moreover, the court explained, even if “anyone else” is treated as an ambiguous term, ambiguities are construed against the drafter (here, both the employer and plan administrator), so it should be interpreted to allow these assignments. The Ninth Circuit upheld the trial court’s award of damages to the hospital.
EBIA Comment: This case demonstrates the importance of careful drafting, as the court closely examined both the anti-assignment clause and the plan’s incorporation-by-reference language. A dissenting judge disagreed with both elements of the ruling, concluding that the anti-assignment clause was part of the plan and the majority’s interpretation of the clause was implausible. Nevertheless, the bottom line is that the plan must pay the hospital for benefits already paid to participants—and either absorb the cost or seek reimbursement from those participants, if plan language so allows. For more information, see EBIA’s ERISA Compliance manual at Sections VIII.D (“What Must the ERISA Plan Document Look Like?”) and XI.E (“Assignment of Benefits”). See also EBIA’s Self-Insured Health Plans manual at Section IX (“Written Plan Document”). You may also be interested in our webinar, “Wrap Documents and Bundled Plans: Pros, Cons & Logistics” (recorded 8/19/20).
Contributing Editors: EBIA Staff.