Doe v. Blue Cross Blue Shield of Md., Inc.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND

JOHN DOE, ET AL.

BLUE CROSS BLUE SHIELD,
OF MARYLAND, INC.

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: CIVIL NO. L-98-121
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MEMORANDUM

Plaintiffs are three participants in a group health plan purchased by their employers from

Defendant, Blue Cross Blue Shield, of Maryland, Inc.1 They do not contend that they have ever

been wrongfully denied benefits. They also do not contend that they are likely in the future to be

denied benefits due them under their policies. Instead, their class action complaint contends that the

market value of their policies has been diminished by the covert application of overly restrictive

coverage criteria, applied on behalf of Blue Cross by its utilization review agent, Green Spring Health

Services of Maryland.2

This case tests whether Plaintiffs have standing (i) under the general “cases or controversies”

principle established by Article III, Section 2 of the Constitution, or (ii) under the Employee

Retirement and Income Security Act (“ERISA”), 29 U.S.C. §§ 1001-1169. Because the Court

concludes that Plaintiffs lack standing under both grounds, the Court GRANTS Defendant’s Motion

to Dismiss and orders the case CLOSED.

1 For simplicity’s sake, Defendant will hereafter be referred to as “Blue Cross.”

2 Green Spring Health Services of Maryland will hereafter be referred to as “Green Spring.”

PROCEDURAL HISTORY

This controversy began in 1997 when plaintiffs’ attorneys filed a complaint on behalf of a

class consisting of individuals with Blue Cross coverage who had been denied mental health

treatment based on Green Spring’s allegedly overly restrictive utilization review criteria. That suit

was dismissed because the named plaintiff was not insured under an ERISA qualified plan. See Jane

Doe v. Blue Cross Blue Shield, of Maryland, Inc., Case No. 1:97cv00770.

On January 14, 1998, plaintiffs’ attorneys initiated the instant suit by filing a complaint

contesting the denial of mental health and substance abuse benefits, this time on behalf of two named

plaintiffs and a class of persons with similar claims. Following substantial discovery and an

amendment to the complaint, plaintiffs’ attorneys announced that they were abandoning all claims for

the denial of benefits and shifting to a “market value” theory of recovery. This theory argues that

Blue Cross, by applying a set of clandestine, restrictive review criteria, has eroded the market value

of the policies it has issued. As a remedy, plaintiffs seek to require Blue Cross to disgorge, for a

class of policyholders, the difference between the market value of the coverage Blue Cross should

have been providing and what it has actually been providing.

Defendant filed its Motion to Dismiss on January 16, 2001. The Motion was fully briefed by

both sides. The Court held a lengthy Motions Hearing on September 14th that centered on a list of

written questions generated by the Court. To further refine the issues, the Court submitted a second

set of written questions on September 20th, which counsel answered in a telephone conference held

on September 25th.

BACKGROUND

Blue Cross is a medical health insurance company. It issues policies to employers seeking

health insurance coverage for their employees. While under some plans employers pay all of the

expenses, the emerging norm is for employees to contribute to the cost of the coverage they receive.

For many employers, the cost of their plans is calculated with reference to the claims experience of

their employees in past years.

Each policy issued by Blue Cross is governed by a single, overarching Medical Necessity

Definition that outlines when Blue Cross will authorize and pay for medical treatment. Blue Cross

gives each subscriber literature explaining that under the “Blue Cross Medical Necessity Definition”

coverage will be provided (1) consistent with diagnosis, treatment and condition, (2) only when

required for other than convenience, (3) at the most “appropriate” level and (4) according to

“standards of good medical practice.” The definition also states that inpatient care is not covered

unless needed treatment can not be provided safely on an outpatient basis.

Green Spring is a utilization review agent. Under a contract with Blue Cross, Green Spring

makes coverage determinations. When an employee seeks treatment, a claim for benefits is

submitted to Blue Cross. Blue Cross then refers the claim to Green Spring. Green Spring is

supposed to evaluate these claims consistent with the Blue Cross Medical Necessity Definition.

While the Blue Cross Medical Necessity Definition provides general guidelines, it lacks the

specificity necessary to determine whether particular cases of illness and injury will be covered. In

order to determine which claims will be paid and which will not, Green Spring has developed a more

detailed Medical Necessity Definition. Greens Springs’ Medical Necessity Definition inserts terms

not present in the Blue Cross Definition. For recurring injuries and illnesses, Green Spring has also

developed specific sets of criteria governing what coverage and treatment modalities will be

approved. Hereinafter, these condition-specific criteria are referred to as the “Green Spring

Criteria.”3 The broad Blue Cross Medical Necessity Definition is published. The Green Spring

Medical Necessity Definition and Criteria are not published, but are available upon request.

Plaintiffs do not take issue with the Blue Cross Medical Necessity Definition. The heart of

Plaintiffs’ Complaint is instead that Green Spring, in making the actual coverage determinations,

failed to live up to Blue Cross’ broad promises of coverage. Specifically, Plaintiffs allege that the

Green Spring Medical Necessity Definition inserted restrictions not present in the Blue Cross

definition, such as “efficient,” “cost effective,” and lowest “intensity of care. ” Second, and more

importantly, Plaintiffs contend that the Green Spring Criteria authorizes mental health and substance

abuse benefits levels below the “standards of good medical practice” promised by the Blue Cross

Definition.

Blue Cross denies that there is any inconsistency between the broad language of its published

medical necessity definition and either the unpublished Green Spring Definition or Criteria. If this

case were to proceed to trial, Blue Cross would argue that the care it provides under the Green

Spring Definition and Criteria lives up to the promise of “good medical practice.”

When a participant in an ERISA qualified plan is denied benefits, he must first exhaust the

3 Because the combined Green Spring Criteria are voluminous they are not furnished to each participant. The
criteria are, however, available upon request. Each participant is given a summary plan description (“SPD”) which describes his
or her individual plan, how claims are made and decided, and outlines the participants rights to appeal a denial of benefits.

plan’s internal review procedures. If he remains unsatisfied, he can bring suit in Federal court against

the insurer. Ultimately, the inquiry in such a suit is whether the participant has received benefits in

conformity with his plan. Not only does ERISA provide a forum for a participant who has been

denied benefits, ERISA also provides for attorneys’ fees and costs to be awarded to a successful

litigant. See §502(g), 88 Stat. 892, as amended, 29 U.S.C. § 1132(g)(1).

Medical health insurance is a highly regulated field. In addition to complying with Federal

mandates,4 Blue Cross and Green Spring must comply with Maryland law. Under Maryland law,

Green Spring is required to obtain certification from the Maryland Insurance Commissioner as a

utilization review agent. In that regard, Green Spring is required to file with the Insurance

Commissioner the medical necessity criteria it utilizes in making benefits determinations and the

Insurance Commissioner must approve the criteria. Blue Cross must also file with the Insurance

Commissioner the rates it charges for its insurance plans and have them approved. If a subscriber

contends that he has improperly been denied benefits, he may apply to the Insurance Commissioner

for relief, after exhausting an internal grievance process. The Maryland Insurance Commissioner

may hold hearings, issue cease and desist orders, and assess penalties for misconduct such as that

alleged by Plaintiffs.5 Under this framework, the plaintiffs in this case (or an employer believing it

has been overcharged) could file a complaint with the Insurance Commissioner.

4 The highly reticulated ERISA statute and its attendant administrative regulations provide a comprehensive
framework governing disclosure, the processing of benefits, internal appeals, and the right to sue. In the statute, as Defendant
points out, healthcare is a subject of intense Congressional scrutiny and Congress is even now considering legislation that would
require additional disclosure of coverage criteria.

5 The Insurance Commissioner’s authority is laid out in a variety of sections in the Maryland Code including §27-
303, §27-304, §27-305, §1-301 and §27-103.

Because of ERISA preemption, it is unclear if any of the remedies provided under Maryland

law are available. Nonetheless, Plaintiffs do not allege that they have filed a complaint with, or that

their employers have filed a complaint with, the Maryland Insurance Commissioner seeking redress

of the abuses alleged in this suit.

In its current version, Plaintiffs’ Complaint consists of four Counts. The Counts revolve

around the contention that Blue Cross represented one criteria as governing coverage and then

applied, or had Green Spring apply on its behalf, a second, more restrictive definition and criteria that

resulted in diminished coverage for plan participants.

Count I contends that Blue Cross violated ERISA’s disclosure requirements by (a) failing to

disclose the Green Spring Medical Necessity Definition and (b) failing to disclose the Green

Spring Criteria.6

Count II alleges that Blue Cross breached its fiduciary duties under ERISA by announcing a

liberal coverage definition, and then having Green Spring apply on its behalf a secret, more

restrictive definition and criteria.7

Count III characterizes coverage itself as a benefit and contends that Defendant, by using the

overly restrictive Green Spring Criteria, has violated ERISA by denying due benefits

promised under the announced plan.

6 Plaintiffs argue that these disclosure obligations arise under 29 U.S.C. §§ 1021, 1022, and 1024(b).

7 The fiduciary duties in question are established by section 404(a) of ERISA. Section 404(a) obligates fiduciaries to
discharge their duties in accordance with the documents and instruments governing the plan, to operate the plan solely in the
interest of the plan participants and beneficiaries, and to exercise the care of an ordinarily prudent person in managing the plan.
Plaintiffs also contend that Blue Cross had a fiduciary duty to (1) disclose material information about plan benefits to plan
participants, and (2) disclose the Green Spring Criteria as required by Section 104.

Count IV contends that Blue Cross failed to inform Plaintiffs of the specific reasons for the

denials of their claims, as well as the procedures for appealing these denials. Plaintiffs argue

that this failure deprived them of a full and fair review of their claims in violation of Section

503(2) of ERISA.

Counts I and III seek “appropriate equitable relief” under Section 502(a)(3) of ERISA.

Count III also seeks relief under Section 502(a)(1). Count II asserts a right to benefits due under

Section 502(a)(1)(B). Plaintiffs’ Complaint does not specify what section Count IV seeks relief

under.

STANDARD OF REVIEW

Ordinarily, a Complaint should not be dismissed for failure to state a claim under Federal

Rule of Civil Procedure 12(b)(6) unless it appears beyond all doubt that the plaintiff can prove no set

of facts in support of its claim which entitle it to relief. See Conley v. Gibson, 355 U.S. 41, 45-46

(1957); Labram v. Havel, 43 F.3d 918, 920 (4th Cir. 1995). The liberal pleading requirements of

Rule 8(a) demand only a “short and plain” statement of the claim. In evaluating such a claim, the

Court must accept as true all well-pleaded allegations of fact and view them in the light most

favorable to the plaintiff. See Jenkins v. McKeithen, 395 U.S. 411, 421-22 (1969). In essence, the

legal theory articulated, or even suggested, by the non-moving party must be one that could not be

the basis for a ruling in that party’s favor. ANALYSIS

The overarching question presented by this case is whether Plaintiffs have standing (i) under

the general “cases or controversies” principle established by Article III, Section 2 of the Constitution,

or (ii) under ERISA. Because the Court concludes that Plaintiffs lack standing under both grounds,

the Court GRANTS Defendants’ Motion to Dismiss and orders the case CLOSED.

PLAINTIFFS DO NOT HAVE STANDING UNDER ARTICLE III

Under Article III, Section 2 of the Constitution, federal jurisdiction extends only to “cases or

controversies.” Plaintiffs bear the burden of alleging: (1) a concrete and actual or imminent “injury in

fact;” (2) causation between the plaintiff’s injury and the defendant’s conduct; and (3) a likelihood

that the requested relief will redress the alleged injury. See Lujan v. Defenders of Wildlife, 504 U.S.

550, 560 (1992). “Pleadings must be something more than an ingenious academic exercise in the

conceivable.” United States v. Students Challenging Regulatory Agency Procedures, et al. , 412

U.S. 669, 688 (1973). Plaintiffs must allege that they have been harmed in fact, not that they “can

imagine circumstances in which [they] could be affected.” Id. The Court finds that Plaintiffs have not

alleged a concrete and actual or imminent “injury in fact.” See Lujan, 504 U.S. at 560 (1992).8

Accordingly, their claim fails for lack of standing under Article III.

Maio v. Aetna, Inc., 221 F.3d 472 (3d Cir. 2000), and In re Managed Care Litigation, 150

F.Supp. 2d 1330 (S.D.Fla. 2001), provide competing models for evaluating the standing issues

present in this case. In both cases, the plaintiffs alleged that their insurers had induced them to enroll

in health care plans by misrepresenting the extent of the coverage that would be provided. Both sets

of plaintiffs argued that their injury was the diminishment in market value their plans suffered as a

8 It is also questionable whether the second and third elements of the Lujan test, causation and redressability, are
satisfied. As discussed below, Plaintiffs do not allege reliance or prejudice as required by established ERISA case law. Also,
because it was Plaintiffs’ employers who negotiated the insurance policies in question, it is unclear whether a cash award to
Plaintiffs would redress the alleged injury.

result of covert, overly restrictive coverage criteria. Although these cases involved the stringent

standing requirements of the Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C.

§1961, the Court finds that their analysis is instructive as regards Plaintiffs’ standing under ERISA.9

In Pegram v. Hedrich, 120 S. Ct. 2143 (2000), the Supreme Court warns that the Courts

are ill-equipped to entertain wholesale attacks on the structure and cost-containment practices of

Health Maintenance Organizations. Maio analyzes Pegram in a context nearly identical to the

complaint filed in the instant case. Based on Pegram, the Maio Court upheld the dismissal of a

“market value” class action complaint because the plaintiffs lacked standing.

In a closely reasoned twenty eight page opinion, authored by Circuit Judge Morton I.

Greenberg, the Maio Court concluded that claims for coverage revolve around discrete medical facts

that must be analyzed individually. Wholesale challenges to an HMO’s coverage criteria, untethered

from a discrete set of facts, are best undertaken by the legislative branch, which has broad fact

finding powers and policy making capabilities. Moreover, the Maio Court found that the plaintiffs’

injury rested solely on “factual speculation” as to whether their contracts would have been breached

had they requested benefits, and therefore presented daunting analytical problems and an

unworkable proof structure.10

9 In order to establish standing, RICO plaintiffs must allege injury to their business or property. See Maio 221 F.3d
at 473. As a result, RICO plaintiffs face a more stringent burden than ERISA plaintiffs, who are free to claim a wider range of
actionable injuries. Maio’s reasoning is still applicable, however. Plaintiffs’ theory argues that their injury is the diminished
value of their insurance. Maio’s holding revolved around the notion that insurance is a contract and, therefore, injuries resulting
from the failure to abide by the insurance contract are governed by contract law. Id. at 489; See also Md. Ins. Code Ann. §1-
101(t)(insurance is a “contract to indemnify or to pay a specified or determinable amount of benefit on the occurrence of a
determinable contingency”).

10 The Court noted that it would be unlikely to have access to the information necessary to evaluate the plaintiffs’
claim and that, even if it did have such access, the medical and economic analysis required would be outside of judicial expertise.

Apart from the practical reasons why standing should be denied, the Third Circuit pointed

out a technical distinction between contractual rights and property rights, finding that insurance is not

a tangible property interest subject to diminishment like “a plot of land or a diamond necklace.” 221

F.3d at 488. Accordingly, the Maio Court dismissed the complaint because it failed to allege that the

insurers had breached the insurance contracts by refusing to provide promised benefits. Id. As the

Maio Court noted, of course, individuals still have the option of filing individual claims under ERISA.

A case from the Southern District of Florida reached the opposite conclusion. In contrast to

Maio’s contract-based approach, In re Managed Care Litigation characterized the plaintiffs’ injury

as being more akin to a tort. 150 F.Supp. 2d at 1339. That Court found that the plaintiffs were

“fraudulently induced to purchase insurance coverage with explicit rights to coverage which the

Defendants never intended to honor, and therefore suffered a tortuous injury at the time they enrolled

in the Defendants’ plans.” Id. District Court Judge Moreno’s decision did not address the

workability of the proof structure presented by the plaintiffs’ case.

This Court finds the reasoning of the Third Circuit persuasive for the following reasons:

1. There Is No Reported Case In Which ERISA Plaintiffs Have Been Granted Standing
Under A “Diminished Market Value Theory”11

Plaintiffs can point to no ERISA case in which standing was granted based on the “market

value” injury that they allege. To the contrary, ERISA case law has consistently tied the issue of

standing to the denial of specific benefits. For example, in Stephenson v. Holland , 102 F. Supp. 2d

11 In re Managed Care Litigation held that standing existed for a RICO complaint alleging a similar fact pattern to the
one before the Court in the instant case. Admittedly, however, Judge Moreno’s reasoning would likely result in Plaintiffs being
granted.

686 (S.D.W.V. 2000), the plaintiff alleged that the plan’s trustees had violated their statutory ERISA

obligations by refusing his request for additional information concerning the denial of his benefits

claim. Under a market value theory, Stephenson should have been granted standing if his allegations

were true, because the market value of his policy would have been diminished by the trustees’ failure

to meet their statutory obligations. The Court, however, declined to grant standing because he was

not appealing the actual denial of his benefits. Id. (“Only judicial analysis of the facts of Stephenson’s

case and the merits of the denial will uncover the standards the Fund applied and determine whether

Stephenson’s benefit denial was wrongful”). In the instant case, therefore, Plaintiffs are asking this

Court to recognize a new form of ERISA injury, unprecedented in ERISA case law.

2. There Is A Consistent Reluctance To Recognize New Causes Of Action Under ERISA

ERISA is a “comprehensive and reticulated statute,” enforced by a series of interlocking and

interdependent remedies. Nachman Corp. v. Pension Benefit Guaranty Corporation, 446 U.S. 359,

361 (1980). The existing ERISA enforcement scheme is the result of “an enormously complex and

detailed statute that resolved innumerable disputes between powerful competing interests–not all in

favor of potential plaintiffs.” Mertens v. Hewitt Associates, 508 U.S. 248, 262 (1993).12 As a

result, the courts have “repeatedly declined invitations by plan participants and beneficiaries to extend

benefits and remedies not specifically authorized by the statutory text.” Varity Corp. v. Howe, 516

U.S. 489, 517 (1996). In a similar vein, the Supreme Court has warned that it is the province of the

12 It is noteworthy that Congress is currently considering legislation that would expand the disclosure obligations of
insurers and thereby address many of the complaints alleged by Plaintiffs.

legislative branch, and not the Courts, to delve into the means by which insurers balance the

competing goals of providing medical care and, at the same time, minimizing costs. See e.g. , Pegram

v. Herdrich, 528 U.S. 211, 234 (2000)( allowing “wholesale attacks on existing HMOs solely

because of their structure, untethered to claims of concrete harm” would be contrary to

Congressional policy).

3. The Existing ERISA Enforcement Scheme Already Provides Remedies For The Injuries
Alleged by Plaintiffs

At base, the value of any insurance policy lies in receiving benefits for covered claims. This

case, therefore, calls into question whether a class action lawsuit is required to preserve for Blue

Cross subscribers the market value of their policies. The answer is that a class action lawsuit is not

required.

Under ERISA, participants have a right to an internal appeals process to contest the denial of

specific claims. If they remain unsatisfied, participants may file suit in federal court.13 By permitting

the Court to award attorney’s fees to a successful claimant, ERISA has created a strong incentive for

attorneys to handle these cases. The attorneys’ fee provision also undercuts one of the prime

reasons for permitting a class action (with all of a class action’s attendant complexities), mainly that

individuals with claims too small to justify individual lawsuits must be allowed to aggregate their

claims. See Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 147 (1985) (“Finally, in

answer to a possible concern that attorney’s fees might present a barrier to maintenance of suits for

13 They also may have had the opportunity to petition the Maryland Insurance Commissioner for relief.

small claims, thereby risking underenforcement of beneficiaries’ statutory rights, it should be noted

that ERISA authorizes the award of attorney’s fees.”).

4. The Proof Structure Proposed By Plaintiffs Is Unworkable

Plaintiffs contend that Blue Cross and Green Spring have used overly restrictive criteria to

deny claims that should have been granted. This raises the question why plaintiffs are not pursuing a

class action on behalf of individuals whose claims have been improperly denied. The answer is that

individual coverage disputes are so grounded in their particular facts that class action treatment is

impractical.

In deciding whether the case can practically be maintained as a class action, the Court must

look at the proof the plaintiffs would present at trial and ask whether the proof is sufficiently

concrete to decide the issues. One possibility would be for the plaintiffs to present the case histories

of a group of claimants whose claims were denied. This would prove little, because the defendant

would present the case histories of a group of claimants whose claims were approved. The case

would degenerate into a medical battle over the proper handling of these discrete cases and would

prove little, if anything, about the overriding class issues.

Recognizing this, plaintiffs’ counsel, in response to a written question from the Court, stated

that he could prove his case without resort to individual case histories. Counsel enumerated the

categories of proof that the plaintiffs would offer, including (i) testimony that inpatient drug treatment

programs have shut down for lack of paying clients, (ii) a decrease in the number of in-patient

treatment days authorized by Greenspring, and (iii) an analysis of the Greenspring Criteria by health

experts, who would testify that, as written, they do not live up the Blue Cross’s promise of

“standards of good medical practice.” Greenspring would undoubtedly respond with its own experts

and such a trial would degenerate into a battle of semantics.

The Court blanches at the speculative nature of this type of proof, which would result in a

long and contentious trial that would yield little concrete information from which the jury could decide

the case. The plaintiff’s complaint is that Greenspring has denied claims that it should have

approved. The only way to test this assertion is to look at the individual claims themselves; this

cannot be done practically in a class action format.

5. Plaintiffs’ Alleged Injury Sounds More Appropriately In Contract Law, Which Requires
A Breach To Be Actionable

Under the common law of contracts, plaintiffs do not have standing if they do not allege a

breach of contract. See Maio, 221 F.3d at 494. Contract law will not recognize a cause of action

based simply on Plaintiffs’ “diminished market value theory”. Id. This same principle has been

applied in analogous case law considering similar class action claims. See e.g. , Carlson v. General

Motors Corp., 883 F.2d 287 (4th Cir, 1989)(rejecting argument that diminished resale value due to

fraudulent non-disclosure of inherent product defect stated actionable damages appropriate for class

action lawsuit).

The diminution in market value alleged by Plaintiffs arises solely from the prospect that Blue

Cross might not have met its contractual obligations. It is established law that “[w]hen the injury is

only the economic loss to the subject of the contract itself, the action sounds in contract alone.”

Interstate Contracting Corp., v. Mine Service, Inc., 2000 WL 1281198 (N.D. Tex. 2000).

Additionally, it seems clear that the purpose of an insurance contract is to guarantee benefits, not to

retain market value. Thus, Plaintiffs’ injury is best assessed under the standard articulated in Maio.

Finally, although Plaintiffs’ claim does contain an element of fraud, fraud is a broad field and

the conduct alleged by Plaintiff is best described as fraudulent inducement to contract. Fraudulent

inducement to contract is an area governed in part by traditional contract principles.

“Until the promisor actually breaches the contract, the promisee does not suffer the

injury necessary to establish a fraud claim based on fraudulent inducement to contract,

because the injury to the promisee in such a fraud claim stems from the failure of the

plaintiff to fulfill the contract.” Daily Variety, LTD., v. Term Leasing, Inc., 1989 WL

58029 (S.D.N.Y. 1989).

Plaintiffs do not allege that their insurance contracts were breached. Plaintiffs instead contend that their

insurance contracts would have been breached, had performance been required. Accordingly, their

claim fails for lack of standing because they do not allege a concrete and actual or imminent “injury in

fact.” See Lujan v. Defenders of Wildlife, 504 U.S. 550, 560 (1992).14

PLAINTIFFS DO NOT HAVE STANDING UNDER ERISA

14 It is also questionable whether the second and third elements of the Lujan test, causation and redressability, are
satisfied. As discussed above, Plaintiffs do not allege reliance or prejudice as required by established ERISA case law. Also,
because it was Plaintiffs’ employers who negotiated the insurance policies in question, it is unclear whether a cash award to
Plaintiffs would redress the alleged injury.

The second question presented by this case is whether Plaintiffs have alleged a cause of action

under ERISA. It is certainly possible to conceptualize ERISA as protecting a plan’s market value. The

existing ERISA enforcement scheme, however, revolves around the notion that benefits have been

applied for and improperly denied. This structure has the practical effect of allowing plaintiffs to protect

the market value of their plans by enforcing their insurer’s obligations. It also forces plaintiffs to comply

with traditional notions of legal causation and injury.

Count III – Denial of Coverage-Benefits Due Under Terms of Blue Cross Policies

Section 502(a)(1)(B) claims typically arise when benefits are requested and formally denied.

See e.g. , Rodriguez v. MEBA Pension Trust, 872 F.2d 69, 72 (4th Cir. 1989). A noticeable exception

is Cotter v. Eastern Conference of Teamsters Retirement Plan, 898 F.2d 424, 426, 429 (4th Cir.

1990). In Cotter, the plaintiff was led to believe that his benefits had been deferred. In that case, the

claim was held to have arose when he was alerted to the fact that he had not received benefits to which

he was entitled.

In both Rodriguez and Cotter, the cause of action arose when there was an immediate claim to

particular benefits and it was made clear that the benefits in question would not be provided. Tying the

plaintiffs’ claim to the refusal or failure of the insurer to provide entitled benefits avoids “burden[ing] the

judicial system with multiple and premature actions.” Rodriguez, 872 F.2d at 72.

There is no precedent for a cause of action under Section 502(a)(1)(B) that does not allege the

actual denial of benefits. Expanding Section 502(a)(1)(B) to accommodate Plaintiffs’ theory would

invite premature actions and force the Court to speculate as to whether Plaintiffs would have been

provided with benefits neither requested, nor due.15 Accordingly, Count III fails.

Counts VI and I – Failure to Provide ERISA-Required Claims Procedures and Failure to
Disclose

Count VI alleges that Blue Cross violated ERISA-required procedures by failing to provide

Plaintiffs with “specific reasons for the denial of their claims” and failing to notify Plaintiffs of their ability

to appeal coverage decisions. Plaintiffs argue that these failures resulted in their being denied full and

fair review of their claims. It is unclear how Plaintiffs wish the Court to assess the specificity of Blue

Cross’ reasons for denying coverage when their claim is detached from specific allegations of coverage

being denied. Plaintiffs do not defend Count IV in their Opposition brief, but presumably the Court

would have to identify individuals who did have their claims denied, determine from these examples if

Blue Cross’ procedures were lacking across the board, and assess the market value of Plaintiffs’

coverage given the lack of procedure that would have been provided to them, had they actually applied

for benefits.

Count I argues that Blue Cross failed in its statutory disclosure obligations. Blue Cross most

likely did not have an obligation to disclose the nuts and bolts of its coverage criteria, absent a request

by Plaintiffs. Plaintiffs contend, however, that Blue Cross published misleading materials. Thus, Blue

Cross may have had an obligation to repair the damage done by its alleged misrepresentations.

It is established law that Plaintiffs must allege reliance or prejudice in order to recover for an

employer’s failure to comply with ERISA’s statutory requirements. See Ellis v. Metropolitan Life Ins.

15 For obvious reasons, determining whether an individual has “coverage” requires determining what benefits the
individual would have been provided, had they requested them.

Co., 126 F.3d 228, 238 (4th Cir.1997) (requiring proof of causal connection between defects in

procedures and denial of claim); Pierce v. Security Trust Life Ins. Co., 979 F2d 23, 30 (4th Cir,

1992). Plaintiffs do not allege prejudice or reliance because they do not allege that they submitted

claims for benefits and had them denied. In Pierce, the plaintiff claimed that he had been misled by an

employer’s failure to disclose a provision reserving the right to unilaterally terminate or alter the

plaintiff’s insurance plan. See 979 F2d at 30. It could have easily been argued that the provision

decreased the market value of the plaintiff’s policy. The 4th Circuit found that reliance and prejudice

could not be proven unless the provision was actually applied to the plaintiff’s detriment. Accordingly,

it was held that the plaintiff had provided “no factual basis” for finding prejudice or reliance because the

defendant had not made any changes to the policy during the period that the provision was not

disclosed. Id.

Plaintiffs’ do not allege that they applied for benefits and had the GS criteria applied to their

detriment.16 Therefore, they do not allege reliance or prejudice. Accordingly Counts I and IV must

fail.

Count III – Violation of Fiduciary Duties

Count III contends that Blue Cross breached its fiduciary duties by failing to disclose material

information, misrepresenting its insurance plan, and improperly restricting Plaintiffs’ coverage. The

remedies requested under Count III rest on two sections of ERISA, 502(a)(1) and 502(a)(3). As is

16 Although Blue Cross may not have distributed the GS criteria, there is no denial that is was available to Plaintiffs
upon request.

the case with Count I, it is unlikely that Blue Cross had an affirmative duty to disclose the information in

question. Plaintiffs’ allegations of misrepresentation, however, raise a question as to whether Blue

Cross had a duty to correct its misleading plan descriptions. Unlike Counts I and IV, Plaintiffs’ theory

of unjust enrichment does not require an allegation of reliance or prejudice. Thus, this may be Plaintiffs’

strongest claim. Regardless, Count III fails because it does not state a claim for which relief can be

granted under Sections 502(a)(1) and 502(a)(3).17

Section 502(a)(1) has been conclusively held to provide relief to the plan as a whole, as

opposed to individual beneficiaries. See Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134,

146 (1985); Coyne & Delany Co. v. Blue Cross and Blue Shield , 102 F.3d 712, 714 (4th Cir. 1996).

Plaintiffs’ Complaint is clearly premised on a theory of individual recovery, inappropriate under this

section of ERISA. Plaintiffs attempt to correct this problem by arguing that Blue Cross should be

required to fund a “constructive trust” as compensation for the failure to provide the coverage promised

in its materials. This theory of relief is unprecedented. The contours of the trust are undefined and it is

unclear how such a trust would remedy the loss in market value alleged by Plaintiffs. If Plaintiffs’ legal

theory is accepted, the appropriate remedy is owed to the individuals harmed by Blue Cross’ actions.

This remedy should take the form of compensation for the promised coverage Blue Cross did not

provide and a guarantee that such coverage will be provided in the future. Section 502(a)(1) does not

provide for such a remedy.

17 Count III is analyzed in isolation because of the distinctiveness of Plaintiffs’ unjust enrichment theory. To the
extent that Plaintiffs fail to assert an actionable claim under Sections 502(a)(1) and 502(a)(3) in Count III, however, they also fail
to assert actionable claims under these sections in Counts I and IV.

Section 502(a)(3) is a “catchall” provision that provides for “appropriate equitable relief.” See

Varity Corp. v. Howe, 516 U.S. 489 (1996). The modifier “appropriate” has been held to limit the

remedies available under Section 502(a)(3) to “injuries caused by violations that §502 does not

elsewhere remedy.” Id.; See also Coyne & Delaney Co., 103 F.3d at 716. Plaintiffs argue that

equitable relief includes restitution for unjust enrichment. In the case of In re Blue Cross of W. Pa.

Litig., 942 F. Supp 1061, 1066 (W.D. Pa 1996), the defendant was required to pay restitution for

savings it incurred in violation of the plan’s terms. There is no ERISA precedent, however, for

requiring restitution for the diminution of market value unattached from specific and tangible allegations

of unjust enrichment.

Plaintiffs’ arguments for the expansion of Section 502(a)(3) are unpersuasive. First, there are

clearly remedies elsewhere available to Plaintiffs in Section 502. The most obvious is the ability of

Plaintiffs to enforce the market value of their plans by asserting their rights to coverage benefits under

Section 502(a)(1)(B).

Additionally, equity requires that restitution be calibrated to the amount of unjust enrichment.

See Restatement of Law Third, Restitution and Unjust Enrichment, Discussion Draft, §2, Comment D.

Such an analysis is exceedingly difficult given the proof structure proposed by Plaintiffs. This is not a

case where the quantity of coverage denied can be easily quantified, nor is it a case where the unjust

enrichment can be easily calculated by the payments made to Blue Cross by the Plaintiffs. Plaintiffs’

plans were negotiated by their employers. Plaintiffs’ contributions to the plan took the form of both

cash payments and the labor they provided to their employers. It is unclear how this affects the market

value analysis requested by Plaintiffs. For example, it is common for employers to negotiate premiums

based on the claims experience of past years. Thus, the market value of the coverage promised, but

not provided, would have to be discounted by the negotiating power it afforded employers in

subsequent years. ERISA case law consistently warns against engaging in abstract calculations of this

nature. Count III is therefore dismissed.

It is so ORDERED this 28th_ day of September, 2001.

____/s/_____________
Benson Everett Legg
United States District Judge