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Following an en banc review, the U.S. Court of Appeals for the Fifth Circuit Oct. 5 reinstated a 2011 decision in which it held that the Employee Retirement Income Security Act does not preempt a third-party medical provider's state law claim for reimbursement against an insurance company that allegedly negligently misrepresented that it would reimburse medical devices bought for plan participants (Access MediQuip LLC v. UnitedHealthCare Insurance Co., 5th Cir., No. 10-20868, 10/5/12).
The court's per curiam decision overruled three of its prior rulings on ERISA preemption of state law misrepresentation claims to the extent those decisions were inconsistent with the court's reasoning in Access MediQuip: Hermann Hosp. v. MEBA Medical & Benefits Plan, 845 F.2d 1286, 9 EBC 2473 (5th Cir. 1988) (Hermann I); Hermann Hosp. v. MEBA Medical & Benefits Plan, 959 F.2d 569, 15 EBC 1241 (5th Cir. 1992) (Hermann II); and Cypress Fairbanks Medical Center v. Pan-American Life Insurance Co., 110 F.3d 280, 20 EBC 2834 (5th Cir. 1997).
The Fifth Circuit agreed to rehear its decision upon UnitedHealthcare's petition for review, in which it argued that the court's decision ignored the holdings of Hermann I and Hermann II--which ruled that ERISA preempted a hospital's state law misrepresentation claims--and those cases' stated public policy concerns that non-ERISA parties, such as health care providers, should not be awarded remedies that are not available to ERISA plan participants (177 PBD, 9/13/12; 39 BPR 1783, 9/18/12).
The court's decision to limit the scope of ERISA preemption in this way has the potential to allow parties pursuing state law misrepresentation claims against ERISA entities to seek a wider array of remedies, because they will not be limited by the statutory remedies provided by ERISA. Depending on the state, parties could seek punitive damages and statutory penalties such as treble damages, which are not provided for in ERISA.
Access MediQuip procured medical devices for thousands of participants in UnitedHealthcare's ERISA-governed plan. Before procuring these devices, Access contacted the plan to determine whether it covered the device, the participant, and the procedure. Agents for UnitedHealthcare confirmed the participants' coverage and gave Access authorization codes to use for reimbursement. However, Access never received reimbursement because the plan denied all claims for surgically implanted devices billed by providers that were not surgical facilities.
When Access filed a lawsuit against UnitedHealthcare for reimbursement under Texas insurance law, it also brought claims of negligent misrepresentation. Access alleged that it provided services in reliance on UnitedHealthcare's representations that it would pay reasonable rates for Access's services. The U.S. District Court for the Southern District of Texas granted summary judgment for UnitedHealthcare, finding that, because the patient claims at issue were covered by an ERISA plan, the dispositive inquiry was whether Access's causes of action were “dependent on, and derived from the rights of the plan beneficiaries to recover benefits under the terms of the plan.” Because the district court found that UnitedHealthcare's alleged statements concerned the extent of coverage, rather than the existence of coverage, it held that Access's claim of misrepresentation was preempted by ERISA.
The Fifth Circuit reversed, rejecting the distinction the district court drew between representations regarding the existence of coverage and representations regarding the extent of coverage. Because the substance of Access's state law claim derived not from participants' rights to recover benefits under an ERISA plan, but rather from the contractual relationship between the plan and a third-party non-ERISA entity, the Fifth Circuit concluded that ERISA did not preempt Access's claim of misrepresentation (217 PBD, 11/9/11; 38 BPR 2108, 11/15/11; 52 EBC 1837).
In its petition to the Fifth Circuit for rehearing, UnitedHealthcare argued that the court's opinion ignored its prior decisions in Hermann I and Hermann II. In Hermann I, the Fifth Circuit held that ERISA preempted a hospital's state law misrepresentation claim because it determined that permitting these claims would allow entities that lacked standing to sue under ERISA to circumvent ERISA's requirements by asserting claims under state law, giving them an advantage over ERISA-governed parties.
In Hermann II, the Fifth Circuit again concluded that ERISA preempted the hospital's state law misrepresentation claims, finding that the claims had a nexus with the ERISA plan because they were based on the plan's failure to pay benefits to which the hospital was entitled. Five years later, the Fifth Circuit limited the Hermann rulings in Cypress Fairbanks, holding that ERISA did not preempt a provider's state law misrepresentation claim because the beneficiary under the ERISA plan was not covered at all by the terms of the health care policy.
In its three-page decision following en banc review, the Fifth Circuit upheld its decision that ERISA did not preempt Access's misrepresentation claims, writing, “Having reconsidered this case en banc, we reinstate the panel opinion and overrule, to the extent inconsistent with its reasoning, the court's opinions in Cypress Fairbanks, Hermann I and Hermann II.”
Chief Judge Carl E. Stewart and Judges Thomas M. Reavley, E. Grady Jolly, W. Eugene Davis, Edith H. Jones, Jerry E. Smith, James L. Dennis, Edith B. Clement, Edward C. Prado, Priscilla Owen, Jennifer W. Elrod, Leslie H. Southwick, Catharina Haynes, James E. Graves Jr., and Stephen A. Higginson participated in the decision.
Jolly and Reavley agreed to reinstate the panel opinion and concurred in the judgment. Jolly wrote a specially concurring opinion, saying that, if the court were starting from a “clean slate,” he would change the overarching test for ERISA preemption to be whether the state law claim addresses areas of exclusive federal concern or directly affects the relationship among traditional ERISA entities, rather than whether the claim addresses areas of exclusive federal concern and directly affects the relationship among traditional ERISA entities.
Access MediQuip was represented by D. Brian Hufford of Pomerantz Grossman Hufford Dahlstrom & Gross, New York. UnitedHealthcare was represented by JoAnn Dalrymple, Paula B. Denney, and Scott M. McElhaney of Jackson Walker, Austin, Texas, Houston, and Dallas; and Jonathan D. Hacker and Joanna L. Nairn of O'Melveny & Myers, Washington.
The full text of the opinion is at http://op.bna.com/pen.nsf/r?Open=jwie-8ysnr4.
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