There is a myriad of factors to consider when making changes to health benefit plan documents, many of which span well over one hundred pages and involve thousands of provisions. However, there is arguably no more important element to examine than that of exclusions — and how subsequent changes to such plan terms will manifest themselves going forward. To that end, it is worth considering the recent court case of Foote v. Beverly Hills Hotel & Bungalows Employee Benefit Employee Welfare Plan, 2022 WL 3134120 (C.D. Cal. 2022) which stemmed from a participant involved in a costly accident and later revolved around whether the participant’s revised health benefits plan, one that removed its illegal acts exclusion and was in effect at the time of the eventual benefit denial, would take precedence over the original plan that was effective when the accident occurred.

The legal development leading to this case being decided at the United States District Court for the Central District of California went as follows: A person who was severely injured in a motor scooter accident incurred over $4 million in medical expenses. However, said individual’s claims for benefits under his employer’s self-insured health plan were denied because the plan, as of 2019, had an “illegal acts” exclusion and at the time of the accident in late 2019, the employee’s driver’s license did not include the credential required for operating a scooter. Also of note, subsequent communication between the employer and its then-TPA about the participant’s medical expenses occurred in late 2019, during which time the employer’s health plan had the “illegal acts” exclusion. From the employer’s perspective, the employee had been injured in the midst of committing an illegal act, which, as the plan had stated at the time, meant no benefits were payable.

After failing to achieve desired results in the plan’s claim and appeals process, the participant filed a lawsuit. As the participant argued to the court, his claim for benefits was denied in 2020, when the new plan, one that did not have an “illegal acts” exclusion, was in effect. As the participant further reasoned, the new plan, the one effective January 1, 2020, should be applicable to his situation. Consequently, the court ruled in favor of the participant, citing Ninth Circuit precedent establishing that an ERISA cause of action (grounds for bringing a lawsuit) surfaces when benefits are denied. As such, once the 2019 plan — and its illegal acts exclusion — was no longer in effect, neither the plaintiff nor the defendant could abide by its terms. Sans the illegal acts exclusion, logistical matters regarding the driver’s license endorsement were now irrelevant, and it was decided that the proper remedy was payment of benefits due under the new health plan’s terms.

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