Plaintiffs brought claims under ERISA for breach of fiduciary duty and improper denial of benefits, based on a theory that United Behavioral Health improperly developed and relied on internal guidelines that were inconsistent with the terms of the class members’ plans and with state-mandated criteria. The parties stipulated to a sample class, from which they submitted a sample of health insurance plans. Plaintiffs alleged that the plans provided coverage for treatment consistent with Generally Accepted Standards of Care or were governed by state laws specifying certain criteria for making coverage or medical necessity determinations. Plaintiffs alleged that UBH’s Level of Care Guidelines and Coverage Determination Guidelines were more restrictive than GASC and were also more restrictive than state-mandated criteria.  The District Court certified three classes, conducted a bench trial, and entered judgment in plaintiffs’ favor, concluding that UBH breached its fiduciary duties and wrongfully denied benefits because UBH’s Guidelines impermissibly deviated from GASC and state-mandated criteria. The District Court issued declaratory and injunctive relief, directed the implementation of court-determined claims processing guidelines, ordered reprocessing of all class members’ claims in accordance with the new guidelines, and appointed a special master to oversee compliance for ten years.

The Ninth Circuit affirmed, in part, and reversed, in part.

The Court of Appeal held that plaintiffs had Article III standing to bring their claims. “ERISA’s core function is to protect contractually defined benefits, and UBH’s alleged fiduciary violation presents a material risk of harm to Plaintiffs’ interest in their contractual benefits. Under the fiduciary duties section of ERISA, a fiduciary has a duty to administer plans solely in the interest of the participants and beneficiaries with care, skill, prudence, and diligence, and in accordance with the documents and instruments governing the plan. Plaintiffs alleged that UBH administered their Plans in UBH’s financial self-interest and in conflict with Plan terms. This presents a material risk of harm to Plaintiffs’ ERISA-defined right to have their contractual benefits interpreted and administered in their best interest and in accordance with their Plan terms. Their alleged harm further includes the risk that their claims will be administered under a set of Guidelines that impermissibly narrows the scope of their benefits and also includes the present harm of not knowing the scope of the coverage their Plans provide. The latter implicates Plaintiffs’ ability to make informed decisions about the need to purchase alternative coverage and the ability to know whether they are paying for unnecessary coverage.”  Further: “Plaintiffs’ alleged injuries are particularized because the Guidelines are applied to the contractual benefits afforded to each individual class member. The fact that Plaintiffs did not ask the court to determine whether they were individually entitled to benefits does not change the fact that the Guidelines materially affected each Plaintiff.”

However, the panel reversed the part of the District Court’s class certification order certifying plaintiffs’ denial of benefits claims, concluding that the “reprocessing” theory – seeking reprocessing of their benefits claims under proper guidelines – was a use of the class action procedure to expand or modify substantive rights provided by ERISA, in violation of Rule 23 and the Rules Enabling Act. “Simply put, reprocessing is not truly the remedy that Plaintiffs seek, it is the means to the remedy that they seek. But Plaintiffs expressly disclaimed the actual remedy available to them and narrowed their theory of liability under §1132(a)(1)(B) in an attempt to satisfy Rule 23’s commonality requirement. Yet here, the district court found that ‘reprocessing’ itself was an appropriate class-wide remedy for Plaintiffs’ denial of benefits claim under §1132(a)(1)(B). The district court abused its discretion in accepting the erroneous legal view that reprocessing is itself a remedy under §1132(a)(1)(B) independent from the express statutory remedies that Congress created, justifying class treatment. Doing so improperly allowed Plaintiffs to use Rule 23 as a vehicle for enlarging or modifying their substantive rights where ERISA does not provide reprocessing as a standalone remedy.”

 

Wit v. United Behavioral Health, 58 F.4th 1080 (9^th Cir. 2023).