Order Code RS20868
Updated August 21, 2001
CRS Report for Congress
Received through the CRS Web
Employer Liability Provisions in Selected
Patient Protection Bills
Angie A. Welborn
Legislative Attorney
American Law Division
Summary
The liability of a self-insured employer in state court for group health plan related
actions is generally preempted by ERISA. However, an employer who acts as the
administrator of the health plan can be liable for breach of fiduciary duty under ERISA.1
Some federal courts have also found self-insured employers liable under theories of
vicarious liability and direct negligence.2 The extent to which employers can be found
liable in any of these situations varies depending on the employer’s level of participation
in the administration of the plan and the plan’s decision making process regarding claims
for benefits.
In the various patient protection bills introduced in the 106th (H.R. 5628, S.Amdt.
3694, H.R. 2990) and to date in the 107th (H.R. 526, H.R. 2315, H.R. 2563, S. 889, S.
1052), Congress has attempted to address the issue of employer liability by limiting
liability to certain persons or circumstances. This report provides an overview of the
employer liability provisions of selected bills from the 106th and 107th Congress.
In both the 106th and 107th Congress legislation has been introduced that would
amend the Employee Retirement Income Security Act of 1974 (ERISA) to allow state or
federal causes of action against group health plans for personal injury or wrongful death.
Currently, ERISA preempts “any and all State laws insofar as they may now or hereafter
relate to any employee benefit plan . . .”3 ERISA creates a civil enforcement scheme that
1 See Hamilton v. Allen-Bradley Company, 217 F.3d 1321 (11th Cir. 2000).
2 Damon Henderson Taylor, ERISA Preemption: Will the Elimination of the ERISA Preemption
Clause Help or Harm America’s Ability to Deal with Its Pending Health Care Crisis?, 14 J.L.
& Health 133, 160 (2000). See Cooney v. South Central Bell Telephone Company, 1992 WL
46381 (E.D. La.), Civ. A. No. 91-3870.
3 29 U.S.C. 1144. For a detailed discussion of ERISA preemption, see CRS Report 98-286,
ERISA’s Impact on Medical Malpractice and Negligence Claims Against Managed Care Plans,
(continued...)
Congressional Research Service ˜ The Library of Congress

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allows a participant or beneficiary of a plan to bring a civil action in federal court to
recover benefits due to him under the terms of the plan, to enforce his rights under the
plan, or to clarify his rights to future benefits under the plan.4 Should ERISA be amended
to allow state or federal causes of action for personal injury or wrongful death, managed
care organizations could be subject to liability for benefit determinations. In addition,
employers who self-administer group health plans could also be subject to liability. Several
of the bills that have been introduced include provisions that attempt to shield employers
from liability or limit employer liability under certain circumstances. Four approaches to
employer liability are discussed in this report.
Designated Decision Maker
In the 106th Congress, both H.R. 5628 and Senate Amendment No. 3694 included
provisions for the appointment of a “designated decision maker” for purposes of liability
in suits against a group health plan.5 The “designated decision maker” approach to liability
is also used in the Norwood Amendment to H.R. 2563, as passed by the House during the
107th Congress.6 Under these provisions, the “designated decision maker” would be “liable
to the participant or beneficiary for economic and noneconomic damages” in connection
with a breach of a duty of care or a failure to act which is the proximate cause of injury to,
or the wrongful death of, the participant or beneficiary.7
Presumably, these provisions were intended to designate a particular person or entity
that would be named in a suit brought against the plan and would be held liable for any
damages that may be awarded. Under the various provisions, the designated decision
maker was defined as a plan sponsor, a health insurance issuer, or any other person who
could carry out the responsibilities set forth in the plan, carry out the requirements of the
legislation, and meet other applicable requirements, including any financial obligation for
liability.8 If the employer simply provides health insurance coverage as a benefit of
employment and does not administer the plan, the plan’s designated decision maker would
have been held liable and the employer would have been shielded from liability. However,
if the employer self-insures and self-administers the health insurance plan provided for its
employees, the employer would have been responsible for appointing the designated
decision maker and the designated decision maker would likely have been an employee of
the employer-plan administrator.

In cases where the designated decision maker is an employee of the employer-plan
administrator, it appears that the employer may be liable for the damages resulting from
the designated decision maker’s breach or failure to act. In general, an employer can be
3 (...continued)
by Angie A. Welborn.
4 29 U.S.C. 1132(a)(1)(B).
5 H.R. 5628, 106th Cong., Sec. 201; Nickles Amendment No. 3694, 106th Cong., Sec. 231.
6 H.R. 2563, as passed, 107th Cong., Sec. 402. See also S. 889, 107th Cong., Sec. 141; H.R. 2315,
107th Cong., Sec. 141.
7 Supra n. 5 and 6.
8 Id.

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held vicariously liable for the tortious act of an employee under the theory of respondeat
superior if, at the time of the tortious act, the employee was acting within the scope of
employment.9 In addition, the employer may be responsible for paying damages incurred
as a result of the employee’s tortious act.10 These principles would likely apply in the case
of a health plan that is self-insured and is being self-administered by the employer who
appoints a designated decision maker. The designated decision maker, acting within the
scope of employment as an employee of the employer-plan administrator, would be held
liable for personal injury or wrongful death resulting from the breach or failure to act, but
the employer-plan administrator could apparently be held vicariously liable, and thus could
be required to pay damages.
Direct Participation
H.R. 526, introduced in the 107th Congress, does not authorize a cause of action
against “an employer or other plan sponsor maintaining the plan (or against an employee
of such an employer or sponsor acting within the scope of employment)” unless the
employer or other plan sponsor directly participated in the decision of the plan upon
consideration of a claim for benefits or upon review of a denial of a claim for benefits, or
directly participated in the failure to “exercise ordinary care in the performance of a duty
under the terms and conditions of the plan.”11 “Direct participation” is defined as “the
actual making of such decision or the actual exercise of control in making such decision
or in the conduct constituting the failure.”12
“Direct participation” is to be construed so as to exclude “any form of
decisionmaking or other conduct that is merely collateral or precedent” to the decision or
failure.13 Specifically, the bill excludes from “direct participation” any participation in the
selection of the group health plan or health insurance coverage involved; any engagement
by the employer or other plan sponsor in any cost-benefit analysis undertaken in
connection with the selection of, or continued maintenance of, the plan or coverage
involved; any participation in the process of creating, continuing, modifying, or terminating
the plan or any benefit under the plan, if such process was not substantially focused solely
on the particular situation that is the subject of the cause of action; and any participation
in the design of any benefit under the plan, including the amount of copayment and limits
connected with such benefit.14
Under H.R. 526, an employer would be shielded from liability unless it directly
participated in the decision or failure as defined above. An employer who simply provides
insurance as a benefit to its employees would likely not be involved in such decisions. In
a case in which an employer self-insures and self-administers the health plan, the extent to
which the employer participates in the decision making process is likely to vary according
9 27 Am. Jur. 2d Employment Relationship § 459 (1999).
10 27 Am. Jur. 2d Employment Relationship § 492 (1999).
11 H.R. 526, 107th Cong., Sec. 302.
12 Id.
13 Id.
14 Id.

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to the size of the plan and how the employer chooses to administer the plan. If the
employer is directly involved in the decision making process regarding the denial or failure
that is the subject of the cause of action, the employer would be subject to liability for that
decision. If the employer is not directly involved and decisions are made by a benefits
administrator, the employer would likely be shielded from liability unless the employer has
exercised control in the decisionmaking process. However, if the benefits administrator is
an employee of the employer-plan administrator, the principles of vicarious liability, as
discussed above, would likely apply and the employer could be required to pay damages.
Discretionary Authority
H.R. 2990, passed by the House in the 106th Congress, did not authorize a cause of
action against “a group health plan or an employer or other plan sponsor maintaining the
plan (or against an employee or such a plan, employer, or sponsor acting within the scope
of employment)” unless the action was based upon “the exercise by the plan, employer, or
sponsor of discretionary authority to make a decision on a claim for benefits covered under
the plan or health insurance coverage in the case at issue,” and the exercise of such
authority resulted in personal injury or wrongful death.15 Discretionary authority was not
defined in the legislation. However, certain activities were not to be construed as an
exercise of discretionary authority. The exercise of discretionary would not have included
“the decision to include or exclude from the plan any specific benefit; any decision to
provide extra-contractual benefits; or any decision not to consider the provision of a
benefit while internal or external review is being conducted.”16
Under H.R. 2990, an employer would have been shielded from liability unless it
exercised discretionary authority with regard to a decision on a claim for benefits covered
under the plan or health insurance coverage in the case at issue. An employer who simply
provides insurance as a benefit to its employees would not likely be involved in such
decisions. However, an employer who self-administers a benefit plan may exercise
discretionary authority. If such discretionary authority was exercised and resulted in
personal injury or wrongful death, the employer would be subject to liability.
Hybrid Approach
S. 1052, as passed by the Senate, uses a hybrid of the “direct participation” and
“designated decision maker” approaches to provide employers with greater protection
against liability in both federal and state causes of action. Additionally, group health plans
that are self-insured and self-administered by an employer, as well as multiemployer plans
that are self-insured and self-administered, cannot be held liable under the federal cause
of action for the performance of, or the failure to perform, any nonmedically reviewable
duty under the plan.17
As introduced, S. 1052 included the direct participation language similar to that in
H.R. 526. This language was retained in S. 1052, as passed, and added by an amendment
15 H.R. 2990, 106th Cong., Sec. 1302(a).
16 Id.
17 S. 1052, as passed, Sec. 402.

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introduced by Senator Snowe (S.Amdt. 834) were “designated decision maker” provisions
similar to those in the Norwood Amendment to H.R. 2563, as passed by the House during
the 107th Congress.
Under S. 1052, as passed, and H.R. 2563, as introduced, a cause of action could not
arise against an employer or plan sponsor unless there was direct participation by the
employer or plan sponsor in the decision of the plan upon consideration of a claim for
benefits or upon review of a denial of a claim for benefits.18 Notwithstanding the direct
participation of an employer or plan sponsor, in any case in which there is deemed to be
a designated decision maker, all liability of the employer or plan sponsor would be
transferred to, and assumed by, the designated decision maker. Thus, the employer or plan
sponsor could completely shield itself from liability, even if it had directly participated in
the decision making process, by naming a designated decision maker.
The Snowe Amendment to S. 1052 also added language shielding plans that are self-
insured and self-administered by an employer and multiemployer plans that are self-insured
and self-administered from liability under the federal cause of action. H.R. 2563, as
introduced, included this provision as well.
18 Id. Direct participation is defined as it is in H.R. 526.

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