Sixth Circuit Upholds Plan Reimbursement Rights

On May 23, 2022, in Zahuranec v. Cigna Healthcare, Inc., et al., the Sixth Circuit Court of Appeals affirmed a district court decision that upheld a self-funded plan’s subrogation and reimbursement rights.

The plaintiff-appellant, Lisa Zahuranec, was a plan participant who suffered serious complications after undergoing bariatric surgery. The plan approved and paid for the surgery, although it did not meet medical necessity criteria. Zahuranec received a settlement from a medical malpractice suit brought against the physicians who performed the surgery. She then brought ERISA claims against Cigna in an effort to avoid reimbursing the plan from her settlement proceeds. (Cigna, the claims administrator, had sought to enforce the plan’s subrogation and reimbursement provisions.)

In Zahuranec’s first ERISA claim, she sought enforcement of the plan terms. She asserted that the surgery was not a “benefit” under the plan because it did not meet medical necessity criteria. Therefore, the procedure was not subject to the plan’s subrogation and reimbursement provisions. Next, in her ERISA breach of fiduciary duty claims, she argued that Cigna made a material representation that the procedure was medically necessary by approving the surgery. Finally, she brought an equitable estoppel claim, seeking to estop Cigna from seeking subrogation.

The Sixth Circuit rejected all these arguments and affirmed the district court’s decision to dismiss all claims. In the court’s view, the plan had the right to seek subrogation and reimbursement because Zahuranec had received payment for a covered expense (as defined by the plan terms) that had been paid as a plan benefit. Additionally, Cigna did not breach a fiduciary duty by deciding the plan would pay for the surgery; this determination was a coverage decision that the plan language made clear was neither a recommendation nor guideline for treatment. Finally, Zahuranec’s equitable estoppel claim failed. Here, the court noted that she had not demonstrated the element of detrimental reliance on Cigna’s promise that the surgery was medically necessary since the surgery was paid for by the plan.

The case reinforces a plan’s right to pursue subrogation and reimbursement rights, as specified in the plan language, for benefits paid by the plan. It also serves as a reminder that plans should pay attention to what benefits are payable under plan terms.

Zahuranec v. Cigna Healthcare, Inc., et al. »