09-3865 Smith v. Medical Benefit Administrators Group, Inc.

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Employment
ERISA; equitable relief

Where an ERISA plan authorized surgery and then denied the claim for benefits after the surgery took place, the insured may be entitled to equitable relief.

“[S]ection 502(a)(3) does authorize an award of declaratory and injunctive relief. The complaint’s prayer for relief sought both types of relief, R. 1 at 12-13, and in his memorandum opposing Auxiant’s motion to dismiss, Smith reiterated that he indeed intended to pursue these types of relief, R. 8 at 22-23, 24. The district court acknowledged as much, but concluded that the injunctive relief Smith was seeking was but another form of extracontractual relief that ERISA did not authorize. In particular, Smith suggested that it might be appropriate for the court to enjoin Auxiant from invoking coverage exclusions or other defenses when it has preauthorized medical services without noting such exclusions or defenses or when it has failed to comply with the regulations governing insurance claims handling. R. 8 at 22. The district court construed this as a request for extracontractual relief to the extent that such an injunction would effectively modify the terms of the plan. 665 F. Supp. 2d at 994. It may well be right. But even if ERISA would not permit that particular form of injunctive relief, there are other forms of meaningful declaratory and injunctive relief that might be wholly consistent with ERISA. To cite an obvious example (one that Smith himself noted below), the court could declare that Auxiant’s method of handling requests for preauthorization either do not comply with the governing regulations (because, for example, Auxiant takes too long to respond) or amounts to a breach of fiduciary duty (because Auxiant misleads the insured into believing that preauthorization constitutes a determination that the claim will be paid). Consistent with such a declaration, the court might require Auxiant to modify its preauthorization practices so as to bring them into conformity with the governing regulations as well as its broader fiduciary obligations to plan participants. These might be entirely appropriate forms of relief if, as Smith’s complaint alleges, what happened to him was not an isolated occurrence but was consistent with Auxiant’s routine preauthorization practices; declaratory and injunctive relief would serve to define the parties’ respective rights and obligations and to prevent the types of fiduciary breaches Smith has alleged from recurring.”

Affirmed in part, and Reversed in part.

09-3865 Smith v. Medical Benefit Administrators Group, Inc.

Appeal from the United States District Court for the Eastern District of Wisconsin, Randa, J., Rovner, J.

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