Health Administration Responsibility Project
Fiduciary responsibility under ERISA
June 12, 2000
The U.S. Supreme Court has essentially abolished the federal claim of breach of
ERISA fiduciary responsibility against a physician or HMO which denies or delays
needed medical care for reasons of increasing its own profit.
Pegram v. Herdrich or its
The cause of action may still be available in state court, and for non-ERISA cases.
see: Moore v. Regents of Calif., 51 Cal.3d 120, 128 (1990)
29 USC 1001 - Policy
- "It is...the policy of this chapter to
protect... the interests of participants in EBPs and
- "continued well-being & security of...employees"
- "...improving the equitable character...of such plans"
- "...desirable to increase the liklihood that
full benefits will be paid"
29 USC 1104 - Duty of fiduciary
- " to use a Prudent Man standard of care "solely in the interest of
29 USC 1109 - Civil penalties for Breach of fiduciary resp.
29 USC 1106 - Prohibited transactions & self-dealing
- Shea v. Esensten 8th Circuit.
It is a Breach of Fiduciary Responsibility under ERISA
not to reveal physician incentives to withold referral, and
fiduciaries are liable under ERISA.
In a 2d look at this case, the 8th Circuit
held that Mrs. Shea's State law suits against the Doctors for not
revealing their financial incentives were not preempted by ERISA,
and could proceed as well!
- Herdrich v. Pegram 7th Circ.
Doctors who were responsible both for denying medical care and
voting themselves bonuses could be sued for fiduciary breach.
This case was reversed by the Supreme Court. See
Pegram v. Hedrich or its
An excellent article on the significance of Pegram, by Stephen Rosenfeld..
- IT Corp. v. General American 9th Circ.
An ERISA plan administrator can qualify as a Fiduciary
subject to suit by participants, if its authority over
denial of benefits is more than 'purely ministerial'.
- One advantage for plaintiffs: The attorney-client privilege
and the work-product doctrine may not protect attorney-client
communications on plan fiduciary matters from discovery in
litigation brought by plan participants or beneficiaries.
In re Long Island Lighting Co. 129 F.3d 268 (2d Cir, 1997)
- DROLET v. HEALTHSOURCE is a class action suit which was
before the federal district court of New Hampshire. It has recently
been settled, with Healthsource agreeing to disclosure.
It alleged breach of fiduciary duty under ERISA, based on
witholding of information from members about physician incentives.
Read the Complaint
Read the Memo which successfully
opposed defendant's motion for summary dismissal.
Read the Order denying
defendant's motion to dismiss for lack of standing and failure
to state a cause of action.