By: HUB’s EB Compliance Team

Last year, the Lewandowski v. Johnson & Johnson (“J&J”) fiduciary duties lawsuit underscored the critical importance of fiduciary responsibilities for health and welfare benefit plans. Following this, a similar lawsuit was filed against Wells Fargo, hinting at a possible growing trend. However, after extensive legal battles, the court recently dismissed two of the three remaining complaints against J&J. While this is a victory for J&J, it does not mean fiduciary lawsuits are a thing of the past.

Case Background

The lawsuit principally alleged the mismanagement of J&J’s prescription drug plan and thus a breach of the fiduciary duties owed to plan participants. The complaint contained many allegations, but in brief:

  • The plan paid much higher rates for certain medications as compared to the cash prices available to those without insurance.
  • The plan used a traditional Pharmacy Benefits Manager (“PBM”) compensation arrangement rather than a “pass through” PBM arrangement.
  • The plan’s contract with the PBM allowed the PBM to steer those needing specialty prescriptions to the PBM’s own pharmacy.

Per the complaint, these and other allegations resulted in “higher payments for prescription drugs, higher premiums, higher deductibles, higher coinsurance, higher copays and lower wages or limited wage growth.” These effects, the complaint alleged, were a breach of J&J’s fiduciary duties as plan administrator.

The Dismissed Claims

The court concluded that Lewandowski did not have the legal right to file these claims (in legal terms, Lewandowski lacked standing). To have standing, the plaintiff must demonstrate that they had (or are very likely to shortly have) a concrete injury from the alleged conduct. The alleged injury cannot be hypothetical or remote. Without standing to file a particular claim, the claim cannot proceed.

As noted above, Lewandowski’s argument revolved around injuries in the form of having to pay overall higher amounts for medical coverage, including premiums, deductibles, and copays. The court deemed these injuries to be "at best, … speculative and hypothetical," noting that there was no clear and direct link between the alleged conduct and the injuries.

Additionally, the court found it could not provide an appropriate remedy for the plaintiff’s claim regarding higher medical expenses due to the alleged breach. Because Lewandowski had reached the plan’s out-of-pocket maximum based on medical claims alone, the plan allegedly paying higher expenses for prescription drugs would not have reduced what Lewandowski paid.

The Surviving Claim

The only surviving claim is for statutory penalties for failure to provide certain plan documents within 30 days as required under ERISA §104. While this surviving claim is relatively minor as compared to the dismissed claims, it nonetheless serves as an important reminder of the importance of providing these documents on a timely basis when requested.

Conclusion

While this outcome is certainly positive for J&J, it is likely not the end of similar potential lawsuits. Attorneys who represent plaintiffs in such cases will likely continue to pursue these claims in hopes of overcoming the standing issue Lewandowski faced. As a result, plan fiduciaries should use this as an opportunity to review their applicable fiduciary duties:

  1. To act solely in the interests of plan participants and beneficiaries. (This is sometimes called the “duty of undivided loyalty.”)
  2. To act for the exclusive purpose of providing them benefits and paying reasonable plan expenses. (This is sometimes called the “exclusive benefit rule.”)
  3. To act with the care, skill, prudence, and diligence under the circumstances that a prudent person acting in that capacity, and familiar with such matters, would. (This is sometimes called the “prudent expert” rule.) Note, this is the duty alleged to have been breached in the Johnson and Johnson case.
  4. To follow the terms of the plan documents and other instruments governing the plan, as long as they are consistent with the law.

Finally, employers should also see this as a reminder to take requests for plan documents under ERISA §104 seriously. These requests can come from plan participants as well as medical providers whom plan participants have assigned their rights to under the plan. Failure to comply with these requests can lead to substantial penalties (up to $110/day).

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER 

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.