Court: ERISA Does Not Completely Preempt Plan Sponsor's Contract Breach Claims

August 4, 2003 ( - ERISA does not completely preempt a plan sponsor's breach of contract claims against a health maintenance organization (HMO).

>The US 4th Circuit Court of Appeals found that since the plan sponsor was not acting in the capacity of a plan beneficiary, participant, or fiduciary under ERISA’s civil enforcement provision, ERISA preemption does not apply.   “Where . . . a plan sponsor’s claims in a lawsuit relate solely to its own injuries, and not to its fiduciary responsibilities to the plan or to the plan’s participants and beneficiaries, it is not acting as an ERISA fiduciary,” said Chief Circuit Judge Robert King in the appeals court’s reversal of a lower court’s decision, according to Washington-based legal publisher BNA.

>The appeals court found the plan sponsor was not a fiduciary in this case, because it did not exercise discretionary authority over the management or administration of a plan. Thus, while the plan sponsor may perform some functions as a fiduciary to the plan, and others on its own behalf, it only has standing to pursue an ERISA claim for actions related to its fiduciary duties, the court added.

With the ruling, the appellate court determined the lower district court erred in denying the plan sponsor’s motion to remand the case to the state court.   The case was remanded back to the district court for further proceedings.

HMO Cancellation

>Sonoco Products Co. sponsored an ERISA-governed health care plan for its employees. In September 1999, the company entered into a two-year contract with HMO Physicians Health Plan Inc. (PHP), under which PHP was to provide insurance benefits for Sonoco employees and limit any premium increases for 2001 to not more than 9%.

>However, in August 2000, the HMO notifyied Sonoco it was cancelling the contract as of the end of December 2000 and would be offering new contract terms for 2001 that would allow insurance premiums to increase by as much as 85%. Sonoco declined PHP’s offer and alleged it was compelled to buy alternative insurance at a substantially higher rate.

>Sonoco sued PHP in state court for breach of contract, seeking to recover damages for the difference between the premiums agreed upon in the contract and the sum Sonoco paid for the comparable insurance coverage when PHP repudiated its contractual obligations.

>PHP removed the action to the district court, which found that Sonoco’s claim was preempted by ERISA. Sonoco brought this action on interlocutory appeal to resolve the issue of whether the district court had jurisdiction to hear the case.

The case is Sonoco Products Co. v. Physicians Health Plan Inc., 4th Cir., No. 02-2137, 7/31/03.