Trial Moves Ahead for Broker That Failed to Explain Coordination of Stop-Loss Policy and Self-Insured PD

This controversy arises from Plaintiff Express Oil’s attempt to create a self-funded health benefits plan for its employees while eliminating any uninsured risk for itself by procuring stop-loss insurance. Express Oil employed and relied on Defendants ANB Insurance and Alan Wood to help it transition from a fully-insured to a self-funded health plan, design a suitable self-funded plan, and procure appropriate stop-loss insurance.

Express Oil purchased a self-funded plan from Defendant Blue Cross, and Blue Cross administered the plan, which became effective in 2003. Express Oil allegedly believed that the self-funded plan had a $1 million dollar comprehensive lifetime maximum for each covered member and thus procured stop-loss insurance covering any member’s claims that exceeded $75,000 up to the $1,000,000 dollar comprehensive lifetime maximum.

The genesis of this specific dispute is the birth of twins by one of Express Oil’s employees. One of the twins was born with very serious medical issues and quickly amassed costly medical bills under Express Oil’s self-funded plan. During the early years of the child’s life, Express Oil paid over $2.8 million dollars in claims on the child. During the 2007–2008 policy year, Express Oil exhausted its $1,000,000 lifetime maximum stop-loss reimbursement benefits. Under the self-funded plan’s definition of “lifetime maximum,” however, many of the claims incurred by the child were not subject to the self-funded plan’s lifetime maximum, and Express Oil remained liable for the claims that exceeded the $1 million ceiling of the stop-loss insurance policy. Express Oil was exposed to this liability as a result of the misinterpretation of the self-funded plan’s definition of “lifetime maximum” and its subsequent procurement of stop- loss insurance that did not fully cover it from the liabilities from which it had intended to protect itself. In the instant lawsuit, Express Oil seeks to hold at least one of the Defendants liable for this costly gap in coverage.

Court’s Ruling

BCBS plan administers prevailed based on:

  • State-law claims were preempted by ERISA
  • SPDs appropriately describe lifetime maximum
  • The broker and agent prevailed because the employer had not submitted evidence that the broker could have obtained stop-loss insurance with a lifetime maximum high enough to cover the liability.

The court did allow the employer’s fiduciary breach claims against the broker and agent to proceed to trial.

  • Express Oil has produced evidence that ANB and Wood breached their fiduciary duty by failing to adequately explain to Express Oil how the stop-loss coverage interfaced with Blue Cross’s unusual lifetime maximum in its self-funded plan and how Express Oil could cap its total liability with a comprehensive lifetime maximum offered by Blue Cross.
  • Express Oil has also presented evidence that ANB and Wood’s breach caused it the damages at issue in this action.
  • ANB and Wood do not raise any arguments regarding the breach, causation, or damages elements of the breach of fiduciary duty claim in their Motion for Partial Summary Judge or their Reply.
  • Express Oil has produced evidence sufficient to show a fiduciary relationship existed between ANB and Wood and Express Oil and resulting damages that were caused as a breach of that relationship.
  • Thus, the court will DENY ANB and Wood’s (defendant’s) motion for summary judgment on Count XII for breach of fiduciary duty.

It is important to make certain that stop-loss coverage adequately covers the self-insured health plan’s terms.  One approach is to propose catastrophic examples of varying dollar amounts to the broker or stop-loss source and request that calculated recovery amounts are demonstrated.

MyHealthGuide Source: Express Oil Change, LLC v. ANB Ins. Serv., Inc., 2013 WL 1245748 (N.D. Ala. 2013), Court’s Opinion

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