ERISA Update, by Russell G. Petti

Case: Aetna Health Inc. v. Davila, 542 U.S. _____ (June 21, 2004).


ERISA’s most fundamental flaw is that judicial relief for a denial of benefits is limited to the benefits themselves. In cases where an HMO refused to provide treatment, and death or serious injury resulted, a Court judgment that the HMO provide the treatment (now that the patient is dead) is obviously insufficient.

This decision by the Supreme Court, which held that suits against an HMO for erroneous benefits decisions are preempted by ERISA, conclusively ends the brief hope that erroneous decisions by HMOs could be challenged by state malpractice, negligence, or specially created state remedies. Instead, it is now completely clear that any claims against an HMO for damages caused by an erroneous benefit decision will be entirely governed by ERISA. However, reading the Court’s opinion and the concurrence together, it appears that the Court left a door open for "make-whole" relief (i.e. consequential damages) under ERISA.

Facts and Procedure:

Davila involved two consolidated cases, which involved allegations that an HMO refused to pay for needed treatment or drugs, and that damage to the patients resulted.

Texas has enacted a law, the Texas Health Care Liability Act (THCLA), which permits a cause of action for damages against an HMO whose "refusal to cover the requested services" violates their "duty to exercise ordinary care when making health care treatment decisions". The statute allows consequential damages, something which has always been denied under ERISA.

The defendants in both cases removed the cases to federal court, on the grounds of ERISA preemption. The District Court ruled that the cases would be governed by ERISA and the Fifth Circuit, after consolidating the cases, reversed. The Fifth Circuit held that ERISA’s exclusive enforcement mechanism did not apply to the state law remedies, because they (the state law claims) were outside the scope of the available ERISA remedies.

In conducting this analysis, the Fifth Circuit found only two claims, a breach of fiduciary duty claim under ERISA Section 502(a)(2) [i.e. 29 U.S.C. § 1132(a)(2)] and a denial of benefits claim under ERISA Section 502(a)(1)(B) were even potentially available. The Fifth Circuit held that the fiduciary duty claim was not applicable because [relying on Pegram v. Herdrich, 530 U.S. 211 (2000)] the benefits decisions were mixed eligibility and treatment decisions, which (it held) were not fiduciary in nature. And the Court held that the benefits claim was not applicable because THCLA (1) was based on a failure to use ordinary care rather than the terms of the plan, and (2) was not an attempt to duplicate the federal remedy.


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