Court Decision Highlights Importance of Complying with ERISA’s “Other Instruments Rule” for Document Disclosures

The U.S. District Court of Utah has confirmed, in M.S. v. Premera Blue Cross, that a plan administrator for a self-insured group health plan violated ERISA’s disclosure requirements in its response to a participant’s written request for “a copy of all documents under which the plan is operated.” In particular, the court concluded that the plan administrator failed to comply with ERISA’s “Other Instruments Rule” which governs the document disclosures required under ERISA.

Law. ERISA requires that a plan administrator must, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instrument under which the plan is established or operated (i.e., the “Other Instruments Rule”). ERISA provides that if the administrator fails to provide requested documents within 30 days, a court may hold the administrator personally liable to the affected participant or beneficiary for up to $110 per day for each violation.

These provisions were included in ERISA so that plan participants and beneficiaries would be in a position to make informed decisions about how best to protect their rights. 

Facts. The participant and his spouse and child brought claims against his employer as the plan administrator for the employer’s self-funded group health plan, the third party administrator (“TPA”), and the plan itself (collectively, the “Defendants”) for penalty amounts under ERISA. This was due to the Defendants’ failure to provide the participant with: (i) the criteria used under the plan to determine medical necessity with respect to both mental health and substance use disorder benefits and medical/surgical benefits; and (ii) the administrative services agreement (“ASA”) between the plan administrator, the employer and the TPA. The participant had previously requested this information in connection with an administrative appeal of a benefit denial decision, and pursuant to the Other Instruments Rule applicable to required document disclosures under ERISA. 

In response to the participant’s request, the Defendants provided the criteria used for determining medical necessity for mental health and substance use disorder benefits.  However, the Defendants produced neither the plan’s criteria for determining the medical necessity of medical/surgical benefits nor the ASA between the plan and the TPA, maintaining that neither of the requested documents was within the scope of ERISA’s disclosure provisions.   

District Court. Regarding the participant’s first claim, the court found that the Defendants did not comply with ERISA’s Other Instruments Rule when they provided the participant only the criteria related to mental health and substance use disorder benefits and also failed to provide the criteria related to medical/surgical benefits. The court noted that the regulations under the Mental Health Parity and Addiction Equity Act (“MHPAEA”) make clear that ERISA’s Other Instruments Rule encompasses both categories of criteria.

With respect to the second claim, the court found that “based on the plain language of ERISA and the plan itself, the facts of the case demonstrate that the ASA falls within the scope of the ERISA disclosure provision.” In particular, the court observed the ASA was required to be disclosed to the participant because it evidenced the divided administration of the plan between the plan administrator and the TPA, and that organizational structure affected the participant’s rights under the plan. 

In addition, the court concluded that the Defendants’ failure to produce the ASA and the criteria for determining medical necessity for medical/surgical benefits prejudiced the participant by interfering with his ability to understand and protect his rights under ERISA, and needlessly prolonged litigation. The court noted that this type of prejudice “is the kind of harm the discretionary imposition of penalties is meant to punish and deter.”

Ultimately, the court concluded that the Defendants failed to satisfy their disclosure obligations and in so doing interfered with the participant’s ability to understand and protect his rights under ERISA. Consequently, the court imposed a total statutory penalty of $123,100 on the Defendants for these failures.

Employer Takeaway. Plan sponsors should not overlook the requirements of the MHPAEA when responding to document requests under ERISA’s Other Instruments Rule. Plan sponsors should also consider incorporating certain details of plan administration, such as the delegation of claims administration and decision-making duties, into their governing plan document and summary plan description (“SPD”). Thus, participants would be informed of their rights via the plan document and SPD, rather than the ASA.   

M.S. v. Premera Blue Cross is available for review at: https://benefitslink.com/src/ctop/ms-v-premera-dutah-08102021.pdf