Opinion ID: 3013023
Heading Depth: 2
Heading Rank: 5

Heading: Duty of Disclosure Under ERISA

Text: We turn now to the issue at the core of the District Court’s summary judgment decision, the question whether ERISA required Keystone to disclose the details of its physician incentive structure under the facts of this case. In concluding that no such duty exists, the District Court relied primarily upon our decisions in Bixler v. Central Pa. Teamsters Health & Welfare Fund, 12 F.3d 1292 (3d Cir. 1993), Glaziers & Glassworkers Union Local No. 252 Annuity Fund v. Newbridge Sec., Inc., 93 F.3d 1171 (3d Cir. 1996), and Jordan v. Federal Express Corp., 116 F.3d 1005 (3d Cir. 1997), all of which address the extent to which the fiduciary duty requirements contained in ERISA § 404 may affect an ERISA fiduciary’s disclosure responsibilities. In Bixler, we recognized the existence of an individual cause of action for breach of fiduciary duty under ERISA. Lucinda Bixler, the widow of an ERISA plan beneficiary, sought recovery of her late husband’s medical expenses and death benefits. 12 F.3d at 1296. Specifically, she alleged that both her husband’s employer and the fund administering his plan made material misrepresentations that led her to elect not to renew her family’s healthcare coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act (COBRA), 29 U.S.C. §§ 1161-1168. Id. The District Court granted summary judgment to both defendants based on its belief that ERISA did not permit individuals to assert claims for breach of fiduciary duty. We reversed, holding that § 404(a), which details the duties of fiduciaries, must be read in conjunction with § 502(a)(3), which “authorizes the award of ‘appropriate equitable relief ’ directly to a participant or beneficiary to redress any act or practice which violates the provisions of ERISA.” 12 F.3d at 1299. We concluded that Lucinda Bixler’s requests for information, coupled with the fiduciary’s understanding of her status and situation, Ct. 1065, 134 L. Ed.2d 130 (1996). The Supreme Court’s opinion in that case dealt primarily with the issue of misrepresentation, and expressly declined to address “the question whether ERISA fiduciaries have any fiduciary duty to disclose truthful information on their own initiative, or in response to employee inquiries.” Id. at 506, 116 S. Ct. at 1075. 17 imposed a duty to accurately convey all information relevant to her circumstances. Id. at 1300 (citing Eddy v. Colonial Life Ins. Co., 919 F.2d 747 (D.C. Cir. 1990)). In Glaziers, we noted that a request for information by a beneficiary, such as the one that occurred in Bixler, is not a “condition precedent” to the imposition of a fiduciary duty to disclose under ERISA. 93 F.3d at 1181. Rather, we concluded that, in certain circumstances, the knowledge of the fiduciary may give rise to such a duty even in the absence of a specific request by the beneficiary because “absent such information, the beneficiary may have no reason to suspect that it should make inquiry into what may appear to be a routine matter.” Id. The defendant in Glaziers was a brokerage firm which failed to disclose to plaintiffs that the broker managing their funds resigned from the firm under questionable circumstances. Plaintiffs subsequently transferred their accounts to a new firm established by the departing broker, who later stole a substantial amount of money from them. Plaintiffs then sought recovery from the defendant brokerage firm on the basis of its failure to disclose the circumstances surrounding the broker’s departure. We held that a fiduciary has a legal duty to disclose to the beneficiary those material facts, known to the fiduciary but unknown to the beneficiary, which the beneficiary must know for its own protection. Id. at 1182. Finally, in Jordan, we applied the definition of materiality, utilized in our misrepresentation cases, to a claim for failure to disclose under § 404. We concluded that such a failure was material “if ‘there is a substantial likelihood that it would mislead a reasonable employee in making an adequately informed retirement decision.’ ” Jordan, 116 F.3d at 1015-16 (quoting In re Unisys Corp. Retiree Med. Benefit “ERISA” Litig., 57 F.3d 1255, 1264 n.18 (3d Cir. 1995)). In Jordan, the plaintiff claimed a breach of fiduciary duty based on his employer’s failure to disclose to plaintiff that his decision to designate his wife as joint annuitant on his retirement plan would become irrevocable once he retired. Although the plaintiff failed to inquire as to this issue, we held this failure excusable in light of the fact that plaintiff had previously been permitted 18 to change his retirement plan options freely and had received a letter discussing his retirement options which expressly stated that he would be permitted to revoke his pension plan election following retirement but failed to disclose his inability to similarly alter his annuity election. Id. at 1017. In applying these decisions to the case at bar, the District Court concluded that Horvath failed to create any issues of material fact with respect to her claim because (1) she failed to request the information Keystone offered to make available regarding its methods of physician compensation, see Bixler; (2) there was no set of circumstances pursuant to which Keystone should have known that such information was necessary to prevent Horvath from making a harmful decision regarding her healthcare coverage, see Glaziers; and (3) she failed to explain how the information at issue was material in light of the fact that her employer offers no other options for healthcare coverage, see Jordan. We agree with this analysis. Further, we note, as the District Court did, that Horvath’s claim is indistinguishable from the one rejected by the Fifth Circuit Court of Appeals in Ehlmann v. Kaiser Found. Health Plan of Tex., 198 F.3d 552 (5th Cir.), cert. dismissed, 530 U.S. 1291 (2000), where it declined to add physicians’ reimbursement plans to the list of specific disclosure requirements already included in ERISA by Congress.9 Moreover, to the extent that our 9. We note that several district courts have employed similar logic in dispensing with the type of claim asserted here. See, e.g., In re Managed Care Litig., 150 F. Supp.2d 1330, 1356 & n.22 (S.D. Fla. 2001) (finding no duty to disclose financial incentives because applicable case law does not require such disclosure “absent a request for information or special circumstances”); Weiss v. Cigna Healthcare, Inc., 972 F. Supp. 748, 754 (S.D.N.Y. 1997) (“Had Congress seen fit to require the affirmative disclosure of physician compensation arrangements, it could certainly have done so in ERISA §§ 101-111. The general fiduciary obligations set forth in ERISA § 404 do not refer to the disclosure of information to Plan participants, and it would be inappropriate to infer an unlimited disclosure obligation on the basis of general provisions that say nothing about such duties.”) (internal citations and quotations omitted); see also Peterson v. Connecticut Gen. Life Ins. Co., No. CIV. A. 00-CV-605, 2000 WL 1708787, at  & n.5 (E.D. Pa. Nov. 15, 2000) (discussing Shea and Ehlmann, and refusing to impose a blanket duty to disclose physician incentives in the absence of clear direction from this Court). 19 conclusion is inconsistent with the position taken by the Eighth Circuit Court of Appeals in Shea v. Esensten, 107 F.3d 625 (8th Cir. 1997), we are not bound by Shea.10 In conclusion, therefore, we hold that ERISA imposes no duty on Keystone to disclose information regarding its physician incentives absent a request for such information by Horvath, absent circumstances which put Keystone on notice that Horvath needed such information to prevent her from making a harmful decision with respect to her healthcare coverage, and absent any evidence that Horvath was harmed as a result of not having such information disclosed to her.11 Horvath’s claim therefore fails as a matter of law. 10. In Shea, the plaintiff was the widow of Patrick Shea, an ERISA plan beneficiary who previously had been hospitalized with severe chest pains. Id. at 626-27. He later visited his HMO physician after again experiencing indications of heart trouble. Id. at 626. Even after Shea disclosed his family’s history of heart disease and offered to personally pay for a visit to a cardiologist, the HMO physician sent him home without referring him to a specialist, and without disclosing the existence of a physician incentive structure that discouraged such referrals. Shea died shortly thereafter as a result of heart failure. Id. Citing our requirement that a fiduciary must speak if it “knows that silence might be harmful,” Bixler, 12 F.3d at 1300, the court held that a duty to disclose the existence of the physician incentives was triggered under the circumstances of that case. 107 F.3d at 629. But see footnote 11 infra. 11. Horvath’s primary concern — that the existence of financial incentives might harm plan members by causing some physicians to place their own self-interest above their professional obligation to provide competent healthcare — does not mandate disclosure here. We note, however, that our ruling in no way leaves plan members, who have suffered harm, without a remedy. The Supreme Court’s decision in Pegram would in no way preclude a claim by an HMO patient that the existence of financial incentives caused inadequate medical care to be provided, resulting in injury to the patient. “Treatment” or “quality of care” decisions are not preempted by ERISA and therefore could be brought as a state court medical malpractice action. See Pryzbowski v. U.S. Healthcare, Inc., 245 F.3d 266, 273 (3d Cir. 2001); Lazorko v. Pennsylvania Hosp., 237 F.3d 242, 249-51 (3d Cir. 2000), cert. denied, 533 U.S. 930, 121 S. Ct. 2552, 150 L. Ed.2d 719. 20