Order Code RS20868
Updated January 28, 2003
CRS Report for Congress
Received through the CRS Web
Employer Liability Provisions in Selected
Patient Protection Bills
Angie A. Welborn
American Law Division
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 and 107th, Congress
attempted to address the issue of employer liability by limiting liability to certain
persons or circumstances. While both the House and Senate passed patient protection
legislation in the 107th Congress, no agreement was reached with regard to the liability
provisions in the bills and neither was sent to the President. This report provides an
overview of the employer liability provisions of selected bills from both the 106th and
107th Congress, and will be updated as events warrant in the 108th Congress.
In both the 106th and 107th Congress legislation seeking to 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 was introduced.
Currently, ERISA preempts “any and all State laws insofar as they may now or hereafter
See Hamilton v. Allen-Bradley Company, 217 F.3d 1321 (11th Cir. 2000).
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.
Congressional Research Service ˜ The Library of Congress
relate to any employee benefit plan . . .”3 ERISA creates a civil enforcement scheme that
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 were introduced included provisions that attempted 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 was 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 have been “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 was 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 have been named in a suit brought against the plan and would have been held
liable for any damages that were 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 provided health insurance
coverage as a benefit of employment and did 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-insured and self-administered
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 likely would have been an employee of the employer-plan administrator.
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,
by Angie A. Welborn.
29 U.S.C. 1132(a)(1)(B).
H.R. 5628, 106th Cong., Sec. 201; Nickles Amendment No. 3694, 106th Cong., Sec. 231.
H.R. 2563, as passed, 107th Cong., Sec. 402. See also S. 889, 107th Cong., Sec. 141; H.R. 2315,
107th Cong., Sec. 141.
Supra n. 5 and 6.
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
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.
H.R. 526, introduced in the 107th Congress, did 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” was 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” was 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 excluded 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 have been shielded from liability unless it
directly participated in the decision or failure as defined above. An employer who simply
27 Am. Jur. 2d Employment Relationship § 459 (1999).
27 Am. Jur. 2d Employment Relationship § 492 (1999).
H.R. 526, 107th Cong., Sec. 302.
provided insurance as a benefit to its employees likely would not have been involved in
such decisions. In a case in which an employer self-insured and self-administered the
health plan, the extent to which the employer participated in the decision making process
would likely vary according to the size of the plan and how the employer chose to
administer the plan. If the employer was directly involved in the decision making process
regarding the denial or failure that is the subject of the cause of action, the employer
would have been subject to liability for that decision. If the employer was not directly
involved and decisions were made by a benefits administrator, the employer likely would
have been shielded from liability unless the employer had exercised control in the
decisionmaking process. However, if the benefits administrator was an employee of the
employer-plan administrator, the principles of vicarious liability, as discussed above,
would likely apply and the employer could have been required to pay damages.
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.
S. 1052, as passed by the Senate in the 107th Congress, used 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, would not have been held
H.R. 2990, 106th Cong., Sec. 1302(a).
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
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 would not
have arisen 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 was deemed to
be a designated decision maker, all liability of the employer or plan sponsor would have
been transferred to, and assumed by, the designated decision maker. Thus, the employer
or plan sponsor could have completely shielded 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 selfinsured and self-administered by an employer and multiemployer plans that are selfinsured and self-administered from liability under the federal cause of action. H.R. 2563,
as introduced, included this provision as well.
S. 1052, as passed, Sec. 402.
Id. Direct participation is defined as it is in H.R. 526.