N.J. Spine & Orthopedics, LLC v. Schwan Cosmetics USA, Inc., 2018 WL 3492147 (D.N.J. 2018)
In a case applying the Third Circuit’s recent decision that welfare plan anti-assignment clauses are generally enforceable (see our Checkpoint article), a federal trial court has dismissed a health care provider’s lawsuit for benefits under an ERISA plan. The provider sued for underpayment after having completed the plan’s internal claim and appeals process pursuant to an assignment from a plan participant. Pointing out that the plan contained an anti-assignment clause, the plan administrator argued that the provider lacked standing—i.e., was not entitled to bring the lawsuit. (In general, ERISA permits only participants and beneficiaries to sue for benefits; anti-assignment clauses prohibit assigning rights to other parties.) The provider countered that, by directly paying and otherwise engaging with the provider during the internal claims process despite the anti-assignment clause, the plan waived its right to rely on the clause.
Unpersuaded by the provider’s assertions that waiver resulted from the plan’s “direct and purposeful” dealings with it, the court pointed to several cases rejecting the argument that direct payment to a provider (where allowed by the plan) amounts to waiver of an anti-assignment provision. The court explained that the provider had given no reason to depart from this established precedent. The provider’s argument that anti-assignment clauses violate the intent behind ERISA was similarly unsuccessful, with the court concluding that no argument was presented that would justify a departure from the Third Circuit’s recent decision.
EBIA Comment: This case reinforces that anti-assignment clauses are generally enforceable, and that a plan likely does not waive its right to enforce the clause merely by engaging with assignees (such as health care providers) during the claims process—although other courts could find waiver based on similar actions by a plan. While there seem to be valid public policy arguments in favor of allowing providers to seek payment on behalf of participants (including via legal action, if necessary), the supremacy of the ERISA plan’s terms is an important counterweight. Including an anti-assignment clause in the plan document may help reduce a plan’s exposure to litigation from third parties. For more information, see EBIA’s ERISA Compliance manual at Sections XI.E (“Assignment of Benefits”) and XXXVI.G (“Who Can File ERISA Benefits Litigation?”). See also EBIA’s Self-Insured Health Plans manual at Section IX.E (“Recommended Plan Provisions”).
Contributing Editors: EBIA Staff.