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Federal court assumes ERISA claims jurisdiction.

The United States Court of Appeals for the Seventh Circuit recently held that the federal courts have jurisdiction, under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Section 1001 et seq. (1990), to review the claim of a provider of medical services who is an assignee of the insured for payment from the insurer under the terms of an insured's group insurance contract. The court further held that, under the terms of the insurance contract, the provider's waiver of the collection of copayments from the insured terminated the liability of the insurer.

In Kennedy v. Connecticut General Life Insurance Co., (to be reported at) 924 F.2d 698 (7th Cir. February 7, 1991), an insured was covered under a group health insurance policy obtained by his employer for Connecticut General Life Insurance Co. (CIGNA). Under the terms of the policy, the insured was obligated to pay 20 percent of the cost of services received and CIGNA was obligated to pay the remaining 80 percent. The insurance contract further provided that the insurer would not be obligated to pay benefits under circumstances where the insured was not legally obligated to pay for the services in the first instance.

A chiropractor from whom the insured obtained services entered into an agreement with the insured to waive collection of the copayments. The agreement further purported to assign to the practitioner the insured's right to receive reimbursement. Upon CIGNA's refusal to make payment, the practitioner sued in state court for recovery. CIGNA had the case removed to federal court, under the provisions of ERISA, and the district court held in favor of CIGNA's refusal to pay.

The appeals court first examined the issue of whether the federal court had jurisdiction under ERISA to hear the claim. CIGNA asserted that the case should be dismissed because an assignee has no standing to sue insurers. CIGNA asserted that Section 1132(a)(1)(B) of ERISA provides that only a "participant" in a plan or a "beneficiary" is entitled to file suit to collect benefits. While such benefits may be transferred, CIGNA argued, the transfer may only occur within the terms of the contract. In this case, the transfer could only be made with CIGNA's consent.

The court noted that three courts have examined the right of an assignee to sue an insurer. The Third Circuit held that the statutory list of parties is exclusive and assignees may not sue under Section 1132(a)(1)(B). That court went on to hold, however, that a suit to enforce ERISA substantive rights could nevertheless be maintained under a theory of federal common law and thus could be brought under the federal jurisdiction established under 28 U.S.C. Section 1331 (1990).

The Fifth and Ninth Circuits treated the issue as one of standing--an assignee "stands in the shoes" of the beneficiary and has a personal stake in the outcome. Assuming that the assignee is an authorized stakeholder under ERISA and the contact, the assignee could bring suit.

The Kennedy court rejected these theories. The court reasoned that ERISA defines a "beneficiary" as a "person designated by a participant...who is or may become entitled to a benefit" under the plan. The insured was clearly a "participant" and she designated the practitioner as the person to receive her benefits, making the practitioner a "beneficiary." Accordingly, the federal court has jurisdiction under Section 1132(a)(1)(B) of ERISA to hear the claim.

The court went on to consider the substantive right of the practitioner to collect from CIGNA. Section 12 of the CIGNA insurance contract stated that "[N]o payment will be made for expenses incurred...for charges which the Employee or Dependent is not legally required to pay." The district court concluded that the contract between the practitioner and the insured did not make the insured secondarily liable but, rather, excused her from paying anything. Accordingly, the district court held that the insurer was similarly excused under the terms of its insurance contract.

The appellate court noted that copayments were a method by which insurers allocated to insureds a financial incentive to moderate their demands for medical services and hold down the overall cost of medical care. Allowing the practitioner to waive those copayments adversely affects the contract between the insurer and the group. Accordingly, the court affirmed the decision of the lower court and held that, as the insured's obligation to pay the practitioner was terminated by the agreement of the practitioner not to collect the copayment, the obligation of the insurer was similarly terminated.

Robert D. Reif is a member of the firm of Epstein Becker & Green, P.C., and is located in the firm's Washington, D.C., offices.
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Title Annotation:Employee Retirement Income Security Act of 1974
Author:Reif, Robert D.
Publication:Physician Executive
Article Type:column
Date:May 1, 1991
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