Ever since the Supreme Court’s ruling in Varity Corp. v. Howe, 516 U.S. 489 (1996), courts have grappled with whether plaintiffs who file suit under the Employee Retirement Security Act of 1974 (“ERISA”) can plead simultaneous claims for benefits under § 502(a)(1)(B) along with claims for equitable relief under § 502(a)(3), and if so, under what circumstances.  The case law became even more unclear after the Supreme Court issued its landmark decision in CIGNA Corp. v. Amara, 563 U.S. 421 (2011), in which the Court further analyzed the ERISA remedial scheme, and specifically, the interplay between §§ 502(a)(1)(B) and (a)(3).

In a recent federal court ruling, Christine S. v. Blue Cross Blue Shield of N.M., No. 2:18-cv-00874, 2019 WL 6974772, 2019 U.S. Dist. LEXIS 220144, __ F. Supp. 3d __ (D. Utah Dec. 19, 2019), District Court Judge Jill N. Parrish, joined the increasing body of courts around the country finding that ERISA plaintiffs can plead simultaneous claims for benefits and equitable relief under §§ 502(a)(1)(B) and (a)(3).

The case was brought by the parents of a minor child who required residential treatment for multiple co-morbid mental health conditions after several suicide attempts and failed outpatient treatment.  The child was covered under his mother’s employer’s self-funded group healthcare plan, which was administered by Blue Cross Blue Shield of New Mexico, a division of Health Care Service Corporation (“BCBSNM”).  BCBSNM approved coverage for only a portion of the child’s stay at two different residential treatment facilities, but denied coverage for the majority of the treatment based on medical necessity grounds, forcing the family to incur more than $243,000.00 in medical expenses.  After the claim appeals were unsuccessful, the parents filed suit on behalf of their minor child against BCBSNM and the healthcare plan.  The parents filed two claims.  The first claim was for monetary relief under § 502(a)(1)(B) for the cost of the medical expenses incurred.  The second claim was for equitable relief under § 502(a)(3) based on violations of the Mental Health Parity and Addiction Equity Act of 2008 (“Parity Act”).  The plaintiffs specifically alleged the healthcare plan and BCBSNM violated the Parity Act by applying stricter coverage guidelines to their child’s mental health treatment claims than would have been applied to the analogous medical/surgical claim.

The defendants filed a motion to dismiss the § 502(a)(3) claim for parity violations and equitable relief under Fed. R. Civ. P. 12(b)(6), claiming the plaintiffs “cannot maintain a claim for equitable relief under Section [502](a)(3) when they are already seeking monetary relief under Section [502](a)(1)(B) for the same injury.”  Id. at *13.  The court disagreed.

In denying the defendant’s motion, the court first noted that although this precise issue has yet to be addressed by the Supreme Court, the Supreme Court stated, in Varity, that “we should expect where Congress elsewhere provided adequate relief for a beneficiary’s injury, there will likely be no need for further equitable relief, in which case such relief would not normally be appropriate.”  516 U.S. at 515 (emphasis added).  The court further explained that although courts are split on the implications of Varity, three circuit courts – the Second, Eighth, and Ninth Circuits – have all held post-Amara that §§ 502(a)(1)(B) and (a)(3) are not mutually exclusive and can be pursued simultaneously past the motion to dismiss stage.  See Moyle v. Liberty Mut. Ret. Benefit Plan, 823 F.3d 948 (9th Cir. 2016); N.Y. State Psychiatric Ass’n v. UnitedHealth Grp., 798 F.3d 125 (2d Cir. 2015); Silva v. Metro. Life Ins. Co., 762 F.3d 711 (8th Cir. 2014).

In deciding to follow the decisions rendered in Moyle, NYPSA, and Silva, the court in Christine S. rejected “a categorical rule to dismiss Section 502(a)(3) claims if the plaintiff also pleads a plausible Section 502(a)(1)(B) claim.”  2019 U.S. Dist. LEXIS 220144, at *34.  The court explained that Varity and Amara only prohibit a plaintiff from seeking additional equitable relief under § 502(a)(3) when the plaintiff can obtain adequate make whole relief under § 502(a)(1)(B) for the same injury.  “In other words, the proper inquiry is whether the plaintiff’s simultaneous ERISA claims are actually duplicative, meaning they seek to remedy the same injury with ‘repackaged’ causes of action.”  Id. at *35.

The court further explained that while “[s]ome courts have undertaken this analysis by distinguishing between ‘alternative – rather than duplicative – theories of liability.’  Other courts have asked whether the nature of the injury is distinct such that the plaintiff’s two causes of action seek to remedy two separate injuries.”  Id. at 37 (internal citations omitted).  The court found that “[h]ere, Plaintiffs’ ERISA claims are not duplicative under either formulation of this inquiry.  Plaintiffs pursue alternative causes of action that are not merely a repackaging of each other, and they seek to remedy two distinct injuries under ERISA.”  Id.

The court went on to explain how the plaintiffs were pursuing alternative, rather than duplicative, claims because “[a]s a separate substantive provision of ERISA, Plaintiffs may enforce their Parity Act rights only through Section 502(a)(3) and have no ability to duplicate these claims under a Section 502(a)(1)(B) cause of action.”  Id. at *42.  The court further discussed how “the Federal Rules of Civil Procedure offer a generous framework for plaintiffs to plead alternative causes of action” and that “ERISA plaintiffs are subject to these same rules.”  Id. at *39 (citing Fed. R. Civ. P. 8(a)(3), 8(d)(2) & 18).  The court also explained how the plaintiffs’ claims were based on two distinct injuries – one for “the wrongful denial of benefits based on the terms of the Plan that resulted in over $243,000 of medical expenses” and one for “depriv[ation] of their statutory entitlement to an insurance plan that complies with the Parity Act.”  Id. at *43 & *48.

The court last determined that in light of Varity’s bar on duplicative recoveries, it was premature to decide the issue at the motion to dismiss stage because “having district courts decide solely on the pleadings whether Section 502(a)(1)(B) may provide adequate recovery if a plaintiff prevails on her ERISA claims is an impossible task.”  Id. at *52.  The court reiterated, though, that although the plaintiffs could plead simultaneous claims for benefits and equitable relief, “if Plaintiffs ‘succeed[] on both claims [under Section 502(a)(1)(B) and Section 502(a)(3)]’ the court’s ‘remedy is limited to such equitable relief as is considered appropriate’ in light of the adequacy of the Section 502(a)(1)(B) relief.”  Id. at *55-56 (quoting NYSPA, 798 F.3d at 134).

In sum, while this issue will likely remain unsettled until heard by the Supreme Court, the ruling in Christine S. provides a good example of courts’ growing reluctance to adopt a categorical rule that prohibits plaintiffs from pleading simultaneous ERISA §§ 502(a)(1)(B) and (a)(3) claims.  The ruling is of particular significance for the increasing number of claims being brought under the Parity Act, which, as this court cautioned, may not be redressable under § 502(a)(1)(B) or any other remedial provision of ERISA.  As the court in Christine S. stressed in closing, “the Varity Court primarily observed that ‘ERISA’s basic purposes favor a reading…that provides the plaintiffs with a remedy.’  516 U.S. at 513.  Adopting Defendants’ proposed rule would violate these ‘basic purposes’ by leaving Plaintiffs with no remedy to enforce their rights under the Parity Act because they also plausibly alleged that Defendants violated their Plan.”  2019 U.S. Dist. LEXIS 220144, at *55.  Therefore, although ERISA participants and beneficiaries may not be entitled to duplicative recoveries, courts are correctly refusing to interpret the statute in a way the prevents them from enforcing their statutory rights.

Increasing awareness of federal requirements for equal health insurance coverage of mental and physical conditions has led to a spate of litigation relating to health insurance denials.  In Christine S v. Blue Cross Blue Shield of New Mexico, 2019 WL 6974772 (D. Utah December 19, 2019), the issue was whether the plaintiff pled a valid claim for violation of the Mental Health Parity and Addiction Equity Act of 2008 in addition to a claim for wrongful denial of benefits.  The case involved T.A., a minor child of an employee of Los Alamos National Laboratory, who was denied health insurance coverage by Blue Cross Blue Shield of New Mexico (BCBSNM), the group insurer for Los Alamos employees.

T.A., who was diagnosed on the autism spectrum, had a history of severe behavioral health problems starting at a young age, which included suicide attempts and other self-harming behavior. Outpatient treatment was ineffective, and in November 2015, T.A. was admitted to a residential treatment program that specialized in treating individuals on the autism spectrum.  After completing that program in April 2016, T.A. was transferred to a therapeutic boarding school, but continued to display self-harming behavior.

Although BCBSNM paid for some of T.A.’s treatment, it denied coverage for the bulk of T.A.’s care, resulting in nearly $250,000 of unpaid expenses.  BCBSNM maintained that additional treatment did not meet its care guidelines, claiming T.A. was “not a danger to [himself] or others,” “not noted to be psychotic or manic,” was “medically stable,” was “compliant with [his] medication regime,” and was “not violent or aggressive.” Appeals from that determination were unsuccessful, resulting in T.A.’s parents filing a lawsuit alleging a violation of ERISA § 502(a)(1)(B) for wrongful denial of benefits and a second claim under ERISA § 502(a)(3) seeing a declaration that BCBSNM failed to comply with the Parity Act and seeking reformation of the plan to meet Parity requirements and an equitable make-whole remedy to cover the unpaid expenses.  The insurer answered the 502(a)(1)(B) claim but moved to dismiss the 502(a)(3) claim for failure to state a claim, arguing the claim was duplicative of the wrongful denial claim.  The court denied that motion.

The court explained ERISA’s remedial provisions and then turned to the Parity Act, explaining:

The Mental Health Parity and Addiction Equity Act of 2008 (“Parity Act”), codified at 29 U.S.C. § 1185a, is an amendment to ERISA. Among other things, the Parity Act requires that insurance plans providing for “both medical and surgical benefits and mental health or substance use disorder benefits” must not impose more coverage restrictions on the latter than it imposes on the former. 29 U.S.C. § 1185a(a)(3)(A). This parity requirement takes two forms: (1) plan administrators may not apply treatment limitations to mental health benefits that are more restrictive than “the predominant treatment limitations applied to substantially all medical and surgical benefits” and (2) plan administrators may not apply “separate treatment limitations” only to mental health benefits. 29 U.S.C. § 1185a(a)(3)(A)(ii).

The court added that the Parity Act’s implementing regulations prohibit “treatment limitations” which include “both quantitative treatment limitations, which are expressed numerically (such as 50 outpatient visits per year), and nonquantitative treatment limitations, which otherwise limit the scope or duration of benefits for treatment under a plan or coverage.” 29 C.F.R. § 2590.712(a). Nonquantitative treatment limitations on mental health benefits include “[m]edical management standards limiting or excluding benefits based on medical necessity or medical appropriateness” and “[r]efusal to pay for higher-cost therapies until it can be shown that a lower-cost therapy is not effective (also known as fail-first policies or step therapy protocols).” 29 C.F.R. § 2590.712(c)(4)(ii). The Parity Act regulations further specify that all “processes, strategies, evidentiary standards, or other factors used in applying” non-quantitative treatment limitations are subject to the statute’s parity requirements. 29 C.F.R. § 2590.712(c)(4)(i).

While the court acknowledged that Supreme Court precedent promotes a “general remedy preference for awarding adequate monetary relief under Section 502(a)(1)(B) rather than equitable relief pursuant to Section 502(a)(3),” (emphasis in original), it does not bar a plaintiff from pleading two different simultaneous causes of action so long as a double recovery is not sought.

The court determined that the duplicative pleading issue was resolved because Plaintiffs can only bring their Parity Act cause of action under Section 502(a)(3).” Since the statutory violation is separate from relief available under the terms of the plan (502(a)(1)(B)), there is no duplication.  The court emphasized, “Plaintiffs cannot be said to have ‘repackage[d]’ or ‘dress[ed] … up’ their Parity Act claims to avoid the strictures of Section 502(a)(1)(B) ‘arbitrary and capricious’ review because it is impossible to enforce the Parity Act under Section 502(a)(1)(B).”

The court further explained why it was necessary to permit the plaintiff to plead both causes of action:

Here, for example, the court could rule on the merits that Defendants correctly denied benefits to Plaintiffs under the terms of the Plan, which would require denying recovery under Section 502(a)(1)(B). But consistent with that ruling, the court could still find that the terms of the Plan on their face or as-applied by the insurer violate the Parity Act by imposing unequal criteria or standards to mental health treatment, which would require granting equitable relief to the Plaintiffs under Section 502(a)(3). The inverse is also true: the court could find that Defendants wrongfully denied Plaintiffs’ benefits based on the terms of the Plan, but deny the Parity Act claim by finding that Defendants do not apply unequal criteria to mental health benefits. The court could also find that Defendants violated Plaintiffs’ rights under both theories, or under neither.

Accordingly, the court permitted the pleading to stand and refused to dismiss the § 502(a)(3) claim.

This ruling stands out because of its clear explanation as to how the ERISA law and the Parity law work together to protect claimants seeking benefits involving mental health issues.

Related Articles

Air Ambulance Ruling Severely Undermines No Surprises Act

Air Ambulance Ruling Severely Undermines No Surprises Act

Acting in response to consumer complaints about surprise medical bills, Congress enacted a law known as the No Surprises Act,[1] which went into effect on Jan. 1, 2022.[2] The law’s intent was to prevent surprise billing by requiring nonnetwork health providers to provide patients with an advanced explanation of benefits containing a good faith estimate of anticipated charges. […]

Understanding Government and Church Plan Exceptions to ERISA

Understanding Government and Church Plan Exceptions to ERISA

The Employee Retirement Income Security Act (ERISA) is a landmark piece of legislation enacted in 1974 to safeguard the interests of employees who participate in retirement and health benefit plans offered by their employers. ERISA sets standards for these plans, ensuring transparency, fiduciary responsibility, and fairness in their administration. […]