A case from the U.S. District Court for the Eastern District of Michigan from earlier this week, The Regents of the University of Michigan v. Otis Spunkmeyer, Inc., case # 03-72985, illustrates the effect of ERISA’s reliance on the letter of the law. A hospital, as assignee, sued an ERISA plan to recover the medical expenses related to a premature baby’s medical treatment. The plan required that in order to obtain coverage for newborns, the infant had to be enrolled as a beneficiary of the plan within 31 days after birth. However, neither the hospital nor the baby’s parents got around to filling out and submitting the necessary paperwork during that time frame. The medical expenses were nearly $650,000.

The court made short work of the situation. The plan required enrollment within 31 days and that didn’t occur. Result: the plan is off the hook and the hospital has to either write off the bill or collect from the parents. There’s not much question about which route the hospital will end up taking.

Relying on the technical details of the language of ERISA plan documents to dispose of claims, even when the result seems to cause tremendous hardship, is very common. And it doesn’t always work to the detriment of the plan participants and beneficiaries or to the benefit of the insurer or plan sponsor. But it is an odd thing to see how ERISA, a statute filled with language about the need to utilize equitable principles involving fairness, flexibility, trust law and fashioning appropriate remedies to address the specific needs of the situation at hand, has been interpreted over time to be so unforgiving of deviation from the language of the plan documents. Those plan documents are invariably complex and filled with detailed requirements, stipulations, exceptions, conditions, limitations, exclusions, contingencies and provisos. They are almost always drafted by insurers and the businesses sponsoring the ERISA plan. As a result, the loss associated with failing to dot the i’s and cross the t’s seems to always fall hardest on the unsophisticated, unrepresented and unmonied.

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