On Jan. 26, 2023, a 9th U.S. Circuit Court of Appeals panel issued an opinion in Wit v. United Behavioral Health, rejecting the plaintiffs’ attempt to meet Rule 23 commonality requirements by seeking reprocessing of claims as a classwide remedy in an ERISA denial-of-benefits case.
In this case, three classes of plaintiffs who were denied coverage for various mental health services under their ERISA health benefit plans brought suit against claims administrator United Behavioral Health (UBH). They alleged, among other things, that UBH had improperly denied benefits in violation of ERISA, 29 U.S.C. § 1132(a)(1)(B), and asserted a claim for equitable relief under ERISA, 29 U.S.C. § 1132(a)(3).
The plaintiffs alleged that internal guidelines UBH used in making coverage determinations were inconsistent with plan terms because they failed to ensure coverage for all treatment consistent with generally accepted standards of care (GASC). According to the plaintiffs’ interpretation of plan terms, this narrowed the scope of coverage under their plans. UBH disagreed. While the exact language of the roughly 3,000 ERISA plans at issue varied, UBH, acting with discretion to interpret plan terms in administering claims, read the plan provisions as requiring as a precondition of coverage that treatment be consistent with GASC.
The district court certified three classes with respect to the ERISA denial-of-benefits claim without requiring the plaintiffs to show that putative class members would be entitled to benefits had UBH not used its internal coverage guidelines in making their benefits determinations. To satisfy the Rule 23 commonality requirements, class members in an ERISA denial-of-benefits action generally challenge the same plan term and show their benefits were denied for the same reason. But in Wit v. United Behavioral Health, the plaintiffs sought to bypass these requirements and certify a much broader class by pursuing classwide reprocessing of claims, as opposed to recovery of benefits, as a remedy. The district court approved this approach and ultimately found for the plaintiffs on the merits, resulting in an order for UBH to reprocess roughly 65,000 benefits determinations.
UBH appealed to the 9th Circuit, arguing in relevant part that class certification for the denial-of-benefits claim was improper to the extent it relied on a classwide reprocessing remedy that is unavailable under the relevant section of ERISA, 29 U.S.C. § 1132(a)(1)(B), and that the district court had misapplied ERISA’s arbitrary and capricious standard in ruling on the merits of the claim. The 9th Circuit panel agreed.
Reviewing the district court’s decision for abuse of discretion, the 9th Circuit panel explained that, by accepting the “erroneous legal view that reprocessing is itself a remedy under 1132(a)(1)(B),” the district court “improperly allowed Plaintiffs to use Rule 23 as a vehicle for enlarging or modifying their substantive rights where ERISA does not provide reprocessing as a stand-alone remedy.” The panel reasoned that ERISA provides certain express remedies under § 1132(a)(1)(B) — recovery of benefits and clarification of rights under the plan — so an order requiring reprocessing of all claims is only a “means” to the remedy — recovery of benefits — the plaintiffs actually sought.
To recover benefits under ERISA, a plaintiff must show that he or she is entitled to a positive benefits determination should outstanding factual determinations be resolved in his or her favor — a showing the district court had allowed the plaintiffs to sidestep here by seeking a classwide reprocessing remedy. As a result, the panel found that the plaintiffs “framed their denial-of-benefits claims as seeking a procedural remedy only … in an attempt to satisfy Rule 23’s commonality requirement.” Because under the Rules Enabling Act, Rule 23 may not be used to “abridge, enlarge or modify any substantive right,” the panel ruled that class certification is improper where it is based on application for a remedy that is unavailable under ERISA.
The 9th Circuit panel likewise rejected the district court’s finding that the reprocessing remedy could alternatively fall under the § 1132(a)(3) equitable relief provision. The panel characterized this section of ERISA as a “catchall” provision to offer equitable relief “for injuries that § 1132 does not otherwise remedy.” Because § 1132(a)(1)(B) provides adequate relief for improper denial of benefits, reasoned the panel, use of § 1132(a)(3) to seek an alternative remedy is inappropriate.
The 9th Circuit panel also agreed with UBH that the district court had misapplied ERISA’s arbitrary and capricious standard by substituting its own interpretation of plan terms for that of UBH, which is owed discretion when acting in a fiduciary capacity.
The 9th Circuit’s rejection of the plaintiffs’ novel reprocessing approach should encourage strong objections to attempts to circumvent individualized determination of benefit claims at the class certification stage.