Fifth Circuit: SPD Was Enforceable Despite Referencing a Nonexistent Plan Document | Practical Law

Fifth Circuit: SPD Was Enforceable Despite Referencing a Nonexistent Plan Document | Practical Law

In litigation involving a health plan reimbursement claim, the Fifth Circuit ruled that a plan's summary plan description (SPD) could serve as the plan's "written instrument" under the Employee Retirement Income Security Act of 1974 (ERISA) (that is, the plan document) in the absence of a separate written instrument. The court concluded that the plan was entitled to reimbursement for payments made to a spouse who later settled her claim against a third party.

Fifth Circuit: SPD Was Enforceable Despite Referencing a Nonexistent Plan Document

Practical Law Legal Update w-008-4285 (Approx. 6 pages)

Fifth Circuit: SPD Was Enforceable Despite Referencing a Nonexistent Plan Document

by Practical Law Employee Benefits & Executive Compensation
Published on 02 Jun 2017 • USA (National/Federal)
In litigation involving a health plan reimbursement claim, the Fifth Circuit ruled that a plan's summary plan description (SPD) could serve as the plan's "written instrument" under the Employee Retirement Income Security Act of 1974 (ERISA) (that is, the plan document) in the absence of a separate written instrument. The court concluded that the plan was entitled to reimbursement for payments made to a spouse who later settled her claim against a third party.
The US Court of Appeals for the Fifth Circuit upheld a district court decision ruling that an ERISA health plan was entitled to reimbursement for payments it made for the spouse of a covered employee-participant after the spouse suffered injuries from medical malpractice (Rhea v. Alan Ritchey, Inc. Welfare Benefit Plan, (5th Cir. May 30, 2017)). The spouse argued that the plan was not entitled to reimbursement after she settled the medical malpractice claim because the plan lacked an ERISA-compliant written instrument (that is, a plan document). The Fifth Circuit held that, in the absence of a separate written instrument, the plan's SPD could serve as the plan's written instrument under ERISA.

Background

The plaintiff in this case, the spouse of a covered employee-participant, sustained injuries due to medical malpractice. The plan covered more than $71,500 of the spouse's medical expenses. After the spouse settled her medical malpractice claim against a third party, the plan sought reimbursement under the SPD's subrogation and reimbursement provision (see SPD Compliance Chart for ERISA Plans and Standard Clause, SPD Language, Subrogation and Reimbursement). Although the SPD referenced an "official Plan Document," which would control in the event of any discrepancy between the SPD and the plan document, that document did not in fact exist. When the spouse's attorneys asked to see the "official Plan Document," they were informed by an affidavit from the plan's benefit administrator that the SPD:
  • Contained all the plan provisions required under ERISA.
  • Operated as the plan's official plan document.
The spouse refused to reimburse the plan, asserting that the absence of a formal plan document meant that the plan was not entitled to reimbursement. The spouse also sought a declaratory judgment that she was not required to reimburse the plan. The plan administrator counterclaimed for equitable relief and damages under ERISA (see ERISA Litigation Toolkit and Practice Note, ERISA Litigation: Causes of Action Under ERISA Section 502).
The district court ruled in favor of the plan and the spouse appealed to the Fifth Circuit.

Outcome

Affirming the district court, the Fifth Circuit held that an equitable lien under ERISA's remedy rules was created when the spouse settled her malpractice claim, and the plan was therefore entitled to reimbursement under the SPD's reimbursement provision (see Practice Note, ERISA Litigation: Causes of Action Under ERISA Section 502 and Legal Update, Supreme Court Rejects Health Plan Reimbursement Claim).

SPD Could Serve as the Plan's Written Instrument

In rejecting the spouse's claim, the Fifth Circuit indicated that:
  • It was "nothing peculiar" for a health plan SPD to function as both the SPD and a written instrument under ERISA.
  • Employers commonly use a single document to satisfy ERISA's SPD and written instrument requirements, and the courts have permitted this practice.
As a result, the court concluded that the SPD in this case could serve as the plan's written instrument in the absence of a separate written instrument.
Citing a string of cases, the Fifth Circuit noted that other courts have "consistently rejected" a reading of the US Supreme Court's CIGNA Corp. v. Amara ruling under which a plan's SPD and written instrument must be separate documents (563 U.S. 421 (2011)). In Amara, the Supreme Court held that the SPD terms, which were more favorable to participants than the terms of the written instrument, could not be enforced as the terms of the plan itself (see Article, Expert Q&A on the Impact of CIGNA Corp. v. Amara). The Fifth Circuit reasoned that this case was factually distinguishable from Amara. Whereas Amara addressed a conflict between an SPD and a written instrument, this case involved whether an SPD could function as a written instrument in the absence of a separate written instrument.

SPD Complied with ERISA Requirements for Written Instruments

The Fifth Circuit also rejected the spouse's argument that the SPD did not comply with ERISA's requirements for written instruments (plan documents). Under ERISA, a plan's written instrument must include, among other things, procedures for amending the plan and addressing how the plan is funded (29 U.S.C. § 1102(b)).
The court held that the SPD's brief discussions of the plan's amendment and funding procedures satisfied ERISA's requirements, even though the SPD did not set out complex procedures.
The Fifth Circuit also rejected the spouse's claim that the SPD was never formally adopted as the plan's written instrument. According to the court, an SPD is assumed to be the written instrument when the SPD is the only plausible written instrument.

References to a Non-Existent Written Instrument

The court was not especially concerned regarding the SPD's:
  • Reference to a nonexistent plan document.
  • "Errant disclaimer" that the nonexistent plan would govern in the event of any discrepancies between the SPD and the plan document.
The court observed that although the SPD disclaimer was "sloppy," it did not render the plan's terms unenforceable. The court therefore rejected the spouse's ERISA fiduciary breach argument related to misrepresentations about the existence of a plan document. The court concluded that the spouse had failed to demonstrate key elements of a fiduciary breach claim (regarding these elements, see Article, ERISA Litigation: Life Insurance Conversions and ERISA Fiduciary Breach Claims).

Practical Impact

As the Fifth Circuit notes, it is fairly common – particularly in the health plan context – for a plan sponsor to use a single document to satisfy both ERISA's SPD and plan document requirements. This decision will therefore give comfort to plan sponsors that have taken the single document approach, especially regarding the court's relative ease in distinguishing Amara, which the court concluded did not bear on the facts at issue. In a footnote, the Fifth Circuit provided additional post-Amara cases that have rejected the notion that an SPD and the ERISA plan document must be separate documents.
If a plan sponsor intends for the SPD to also serve as the formal plan document, the SPD should not reference another formal plan document or state that the other plan document will control in the event of any discrepancies. Were a court to endorse the type of Amara argument advanced by the plaintiff in this case, it would likely follow that ERISA Section 502(c)(1) penalties could be imposed for a failure to timely provide a plan document in response to a proper request for the document (see Practice Note, ERISA Litigation: Penalties for Failing to Provide Documents).