District court must rethink fiduciary status of ERISA plan manager, Fifth Circuit rules

A federal district court erred in finding that the manager of an employee welfare benefit plan was an ERISA fiduciary with statutory standing to recover third-party settlement funds paid to a plan participant who was injured in an automobile accident, the U.S. Court of Appeals for the Fifth Circuit ruled. Contrary to the district court’s conclusion, the “plan management agreement” at issue did not give the manager independent power to investigate and prosecute claims. Thus, the agreement failed to show that the manager had discretion over the plan or its assets. Accordingly, the district court’s decision was reversed and the matter was remanded for further consideration, beginning with a reexamination of the manager’s standing. The case is Humana Health Plan, Inc. v. Nguyen (No. 14-20358).

Background. Patrick Nguyen was a participant in the API Enterprises Employee Benefits Plan (the Plan), an ERISA-governed employee welfare plan established by API Enterprises, Inc. (API). API entered into a Plan Management Agreement (PMA) with Humana Health Plan, Inc. (Humana), through which Humana agreed to serve as Plan Manager and to provide various administrative services to the Plan.

The PMA provided that API or the Plan’s administrator would make all discretionary decisions about the Plan’s administration and management, and Humana would “act as an agent of [API] authorized to perform specific actions or conduct specified transactions only as provided in this Agreement.” The PMA also stated that Humana would provide “‘Subrogation/Recovery’ services … [for] identifying and obtaining recovery of claims payments from all appropriate parties through operation of the subrogation or recovery provisions of the Plan.”

The PMA defined subrogation and recovery services to include:
(1) Investigation of claims and obtaining additional information to determine if a person or entity may be the appropriate party for payment;
(2) Presentation of appropriate claims and demands for payment to parties determined to be liable;
(3) Notification to Participants that recovery or subrogation rights will be exercised with respect to a claim; and
(4) Filing and prosecution of legal proceedings against any appropriate party for determination of liability and collection of any payments for which such appropriate party may be liable.

In April 2012, Nguyen was injured in an automobile accident. The Plan paid $274,607.84 to cover his medical expenses, and Nguyen also recovered $255,000 from a third-party settlement. The parties did not dispute that the settlement funds were paid by Nguyen’s own insurance provider. The Plan notified Humana that it did not intend to seek reimbursement from Nguyen because the Plan’s governing documents did not allow recovery from a beneficiary’s uninsured motorist policy payout. Deciding that it was free to disregard the Plan’s instruction, Humana filed suit against Nguyen, seeking: (1) an injunction prohibiting Nguyen from disposing of the insurance payout, and (2) an “equitable lien to enforce ERISA and the terms of the Plan.” The district court ruled in favor of Humana.

ERISA fiduciary status. The district court held that Humana was an ERISA fiduciary as a matter of law because the broad language of the PMA’s subrogation and recovery clause gave Humana independent power to investigate and prosecute claims, even over the Plan’s objections. However, the relevant language merely defined the range of potential disputes covered by the contract; it said nothing about who had the right to finally decide whether to investigate or pursue a claim. Accordingly, even considered in isolation, the subrogation and recovery clause did not show that Humana had discretion over the Plan or its assets. In addition, the district court failed to explain how the PMA’s provisions describing Humana as the Plan’s agent, operating under the Plan’s policies and procedures, informed its interpretation of the subrogation and recovery clause.

Even if the PMA were interpreted to grant Humana broad power, the district court failed to explain why Humana was not a ministerial agent. Humana’s various duties outlined in the subrogation and recovery clause described the tasks performed by many law firms and collections agencies. Furthermore, the mere fact that Humana served as the Plan’s legal or collections agent was not sufficient to show that Humana was the Plan’s fiduciary, unless specific facts demonstrated that Humana exercised discretion as described in ERISA Sec. 1002(21)(A)(i) and (iii).

In the appellate court’s view, the PMA’s subrogation and recovery clause did not establish that Humana was an ERISA fiduciary. Therefore, the district court erred in determining that Humana was a fiduciary on that basis. Because the district court based its decision on its interpretation of the subrogation and recovery clause, the appellate court did not consider other evidence that might show whether Humana exercised actual, decision-making authority over the Plan or its assets. Accordingly, the appeals court reversed and remanded on statutory grounds and did not decide whether the district court erred on the merits.

Dissent. According to a dissent, the record evidence compelled affirmance of the district court’s holdings that: (1) Humana was a fiduciary with statutory standing to bring an action under ERISA on behalf of the Plan, and (2) Humana lawfully exercised its discretion, as authorized by the Plan, to recover the funds that Nguyen had received by virtue of underinsured motorist insurance.

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