Plan in Effect at Time of Benefit Denial Controls Over Earlier Version

An individual who was severely injured in an accident while riding a motor scooter incurred over $4 million in medical expenses. His claims for benefits under his employer’s self-insured health plan were denied based on the plan’s exclusion for “illegal acts” because at the time of the accident, his driver’s license did not include the endorsement required for operating a scooter. While there were various complicating factors, ultimately the outcome hinged on which version of the plan controlled—the version in effect at the time of the accident or at the time of the benefit denial. The court determined that the latter controlled.

The accident occurred in late 2019, and the employer adopted a new plan document (administered by a new TPA) as of January 1, 2020. During 2019, there was some communication between the then-TPA and the employer about the participant’s medical expenses, but no benefit denial was issued until mid-2020. After unsuccessfully pursuing the plan’s claim and appeals process, the participant filed a lawsuit. Initially, the court determined that the plan administrator had abused its discretion in failing to consider additional driver’s license information provided by the participant, and sent the claim back for reconsideration. The claim was again denied and the case then returned to the court with a new wrinkle. Previously, both the participant and the plan administrator had been under the impression that the new plan had not taken effect until 2021. Given the 2020 effective date, the participant asserted that the new plan—which did not have an illegal acts exclusion—was in effect at the time of the original benefit denial and thus should apply to his situation. The court agreed, citing Ninth Circuit precedent establishing that an ERISA cause of action (reason to bring a lawsuit) arises at the time benefits are denied, and benefits do not vest “unless and until the employer says they do” (see our Checkpoint article). In general, benefits are not vested if the employer has reserved the right to amend the plan, which this employer had. According to the court, once the earlier plan was no longer in effect, neither party could rely on its terms and the new plan applied. Absent the illegal acts exclusion, factual considerations regarding the driver’s license endorsement were no longer relevant, and the appropriate remedy was payment of benefits due under the plan.

EBIA Comment: Tricky situations can arise when changing plan documents. Plan administrators deciding benefit claims should ensure that the appropriate plan terms are applied. Importantly, for self-insured plans, a stop-loss carrier may not recognize claims paid in contravention of plan terms. For more information, see EBIA’s ERISA Compliance manual at Sections XII.E.2 (“Entitlement and Vested Benefits Under Medical Plans”) and XXXIV.N (“How to Protect Claim Denials From Being Reversed in Court”). See also EBIA’s Self-Insured Health Plans manual at Sections XIII.E (“Coverage Limitations and Exclusions”) and XVII.C (“Coordinating Stop-Loss Insurance Coverage and Plan Coverage”).

Contributing Editors: EBIA Staff.