Court Finds Breach of Fiduciary Duty Against Broker for Failure to Explain Interaction of Stop-Loss and Self-Funded Health Plan Coverage

In Express Oil Change, LLC v. ANB Insurance Services, Inc., the sponsor of an employee health plan (the “Employer”) decided to convert its funding for the plan from a fully-insured to a self-funded basis. In preparation for the conversion, the Employer sought the advice and expertise of ANB Insurance Services, Inc. (the “Broker”) with implementation of the self-funded plan (the “Plan”) and procurement of the associated stop-loss insurance coverage. Apart from providing benefit consulting services to the Employer, the Broker had a long-standing and close relationship with the Employer as its agent for various other types of insurance coverage. The terms of the newly self-funded Plan provided for a $1 million lifetime maximum per participant on out-of-network benefits, but no such limit on in-network benefits. The Employer erroneously thought that the lifetime maximum applied to both in-network and out-of-network benefits and purchased a stop-loss policy with a deductible of $75,000 and a maximum pay-out on all benefits of $1 million per participant. When an employee’s child incurred medical claims under the Plan exceeding $2.8 million, the stop-loss policy paid only the amount exceeding the deductible and up to the $1 million limit, leaving the Employer responsible for the remainder. The Employer sued the Broker for breach of fiduciary duty under Alabama state law, asserting that the Broker’s failure to adequately explain the Plan’s lifetime maximum had caused the Employer’s unexpected liability. A federal district court in Alabama held that (i) the Broker was a fiduciary of the Employer based on the long-standing, close advisory relationship between the two parties; and (ii) the Broker breached its fiduciary duty by failing to adequately explain to the Employer how the stop-loss coverage interfaced with the Plan’s lifetime maximum and the means by which the Employer could cap its total liability. Express Oil Change, LLC v. ANB Insurance Services, Inc., No. CV-10-BE-0263-KOB. (N.D. Ala. Mar. 27, 2013).

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