U.S. Supreme Court Holds That State Tort Claims Arising from a Denial of Plan Coverage Are Preempted by ERISA

On June 21, 2004, the U.S. Supreme Court unanimously ruled in Aetna Health, Inc. v. Davila that ERISA completely preempts state law tort claims brought against two ERISA plan administrators who denied certain coverage under the terms of ERISA plans. Even though the conduct complained of involved the exercise of "medical judgment," the Supreme Court nevertheless found that a state tort cause of action would be inconsistent with ERISA’s exclusive civil enforcement mechanism. The Aetna Health decision confirms that most ERISA plan administrators may make plan coverage decisions based, for example, on medical necessity or the experimental nature of the requested treatment, without being subject to state tort claims. State tort law may continue to apply, however, to a subset of ERISA plan administrators who make both the treatment and the plan coverage decisions.

Aetna Health involved two consolidated cases. In the first case, Juan Davila sued Aetna Health, Inc. after Aetna denied coverage of the prescription drug Vioxx. Although Davila’s physician had prescribed Vioxx for arthritis pain, Aetna required Davila to try two less expensive medications. Davila suffered complications that he attributed to his use of the less expensive medications. In the second of the two cases, Ruby Calad sued CIGNA after CIGNA denied coverage for an extended hospital stay that was recommended by her treating physician. Calad suffered complications that she attributed to her early release from the hospital.

Although Davila and Calad initially filed their suits in Texas state courts, Aetna and CIGNA removed the cases to federal court on the basis of ERISA’s complete preemption of the claims. The two federal district courts refused to remand the cases to the state courts, but the Fifth Circuit Court of Appeals reversed those decisions and directed remands. The Fifth Circuit held that the tort claims were not preempted by ERISA because the coverage decisions involved mixed questions of eligibility and treatment and because the plaintiffs were not suing in state court to collect ERISA plan benefits.

The Supreme Court reversed the Fifth Circuit and held that Davila’s and Calad’s claims were indeed completely preempted by ERISA. The Supreme Court began its analysis with the observation that "if an individual, at some point in time, could have brought a claim under ERISA § 502(a)(1)(B) [ERISA’s claim for benefits provision], and where there is no other independent legal duty that is implicated by a defendant’s actions, then the individual’s cause of action is completely pre-empted by ERISA § 502(a)(1)(B)." The Court proceeded to conclude that (1) Davila and Calad could in fact have brought suits under ERISA when their claims were initially denied; and (2) Aetna’s and CIGNA’s actions implicated no independent legal duties because their potential liabilities derived entirely from the rights and obligations set forth in the ERISA plans. According to the Court, Davila and Calad were each simply seeking to rectify a wrongful denial of benefits allegedly promised under ERISA plans, and thus their state claims were completely preempted by ERISA and properly removable to federal court.

The fact that Aetna and CIGNA had to make medical judgments in deciding the plan coverage questions did not change the preemption result. The Court viewed the medical judgments as being "pure eligibility decisions" as opposed to mixed questions of treatment and eligibility. The Supreme Court’s discussion of its prior decision in Pegram v. Herdrich suggests that the preemption issue might have been decided differently if Aetna or CIGNA had employed the treating physicians and the denials of coverage represented the decisions of the treating physicians as well as the plan administrators. The Court explained that in Pegram, it held that a physician-owned and -operated HMO could not be sued as an ERISA fiduciary based upon a mixed eligibility and treatment decision. Pegram implied, however, that such an HMO would remain vulnerable to state malpractice liability.

The Supreme Court in Aetna Health identified both Aetna and CIGNA as HMOs. But in their briefs to the Court, Aetna and CIGNA sought to distinguish themselves from the HMO structure at issue in Pegram. Aetna argued that it contracted with a network of participating physicians who agreed to provide services to HMO members according to established fee schedules. The participating physicians were not employed by Aetna, and thus the physicians’ treatment decisions were independent of Aetna’s coverage decisions. CIGNA argued that its coverage decision was made by an agent of the HMO whose sole responsibility was to decide coverage questions, and not by the physician who recommended the treatment in question.

The Supreme Court appears to have recognized the significance of these distinctions, because it specifically acknowledged that Aetna and CIGNA were neither the treating physicians nor the employers of those physicians. Now that the Supreme Court has spoken in Aetna Health, it would appear that state tort claims resulting from plan coverage decisions will only be permitted when the individual or entity serving as the ERISA plan administrator also serves as, or employs, the individual or entity providing the medical treatment, such that the decisions are, in fact, mixed questions of treatment and eligibility.

Finally it is interesting to note that Justices Ginsburg and Breyer wrote a separate concurring opinion in Aetna Health for the purpose of joining "the rising judicial chorus urging that Congress and [this] Court revisit what is an unjust and increasingly tangled ERISA scheme." The concurring opinion also references the amicus brief of the United States, in which the Solicitor General suggested that some form of "make whole" relief is likely available against a breaching fiduciary under ERISA, notwithstanding the Court’s earlier pronouncements that restrict the scope of remedies available under ERISA. The concurrence thus provides fuel for renewed legislative efforts to amend ERISA and a suggested roadmap for similarly circumstanced future litigants.