Hospital’s ERISA Claims Can Go Before Jury

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

An Iowa hospital that allegedly lost millions of dollars at the hands of an inexperienced benefits plan administrator can bring its fiduciary breach claims before a jury ( Keokuk Area Hosp., Inc. v. Two Rivers Ins. Co. , 2017 BL 4312, S.D. Iowa, No. 3:16-CV-00066-SMR-SBJ, 1/7/17 ).

A federal judge on Jan. 7 found that the hospital’s claim for fiduciary breach under Section 502(a)(2) of the Employee Retirement Income Security Act could go before a jury because the hospital was “merely attempting to recover overpayments” that it was forced to make due to the administrator’s alleged breach. Because those losses were “unconnected to distribution of benefits,” the judge found the claim legal in nature and thus suitable for a jury trial.

Jury trials in ERISA cases are rare, with most courts holding that the law prohibits jury trials for lawsuits seeking plan benefits or certain equitable remedies—the vast majority of claims brought under the statute. In this case, the Iowa-based federal judge said that courts are split on whether jury trials are available in cases brought under ERISA Section 502(a)(2), which seek restoration of losses tied to a fiduciary breach.

The judge noted that the U.S. Court of Appeals for the Eighth Circuit—the binding authority over federal judges in Iowa—has “expressly held” that there’s no right to a jury trial in the most common types of ERISA cases, which are those brought under sections 502(a)(1)(B) and 502(a)(3). Although these Eighth Circuit decisions used “broad language” suggesting that jury trials are prohibited in any claim brought under Section 502, the judge nevertheless allowed a jury trial in this case, explaining that the Eighth Circuit never expressly disallowed them.

The dispute stems from an arrangement between Keokuk Area Hospital Inc. and the administrator of its employee welfare plans, Employee Benefit Systems Inc. The hospital accused EBS of mismanagement that caused the hospital’s welfare plan to go from a $1.2 million surplus to a $1.8 million deficit in less than four years.

EBS failed to do proper actuarial studies and didn’t negotiate discounts with providers, causing the hospital to significantly overpay for its employees’ medical care, according to the hospital. EBS had it paying 90 percent of the costs of medical care, when similarly situated employers pay only 50 percent to 60 percent, the hospital claimed.

Although the judge allowed the hospital to try its fiduciary breach claim against EBS before a jury, she nevertheless dismissed the hospital’s negligence claim as preempted by ERISA.

Judge Stephanie M. Rose of the U.S. District Court for the Southern District of Iowa wrote the decision.

McDonald Law Office and Fee Smith Sharp & Vitullo LLP represented the hospital. Pappas O’Connor PC and Clausen Miller PC represented EBS.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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