Eric and Denise Kinsinger sued Eric’s employer, SmartCore, LLC, because its health plan failed to cover Denise’s hysterectomy despite preauthorization from the plan’s TPA. In addition to suing the corporation, the Kinsingers named plan administrators Steven Matthew Good and William H. Winn, Jr., personally as defendants for their roles as fiduciaries.
On August 26, 2019, Frank D. Whitney, Chief District Judge in the United States District Court, W.D. North Carolina, Charlotte Division, entered a judgment in favor of the plaintiffs in the case of Kinsinger v. SmartCore, LLC.
The court found that SmartCore had misappropriated plan participant contributions and used those funds for corporate purposes, resulting in the plan’s inability to pay medical claims. Additionally, SmartCore failed for over two years to supply plan documents requested by the plaintiffs.
SmartCore paid the balance on the medical claim the day before trial, but the court found that any payments made more than three years later do not constitute full compensation. The judgment stated, “All Defendants are jointly and severally liable to Plaintiffs for prejudgment interest on this claim at a rate of eight percent…”
The court also awarded statutory penalties for failure to provide documents at a rate of $55 per day for 748 days – resulting in a total penalty of $41,140 – specifying that, “Defendants Good and Winn, as plan administrators at the time of Plaintiffs’ request, are jointly and severally liable to Plaintiffs for this amount.”
In addition, because of the defendants’ “extreme bad faith” demonstrated by the misappropriation of the funds, the court also allowed the Kinsingers to recover attorney’s fees and costs related to the suit from all of the defendants, jointly and severally.
This case should serve as a cautionary tale for anyone who acts as a fiduciary to an ERISA benefit plan. As the ERISAPros website tells us: a fiduciary is anyone who exercises discretionary control or authority over plan management or plan assets, or who has discretionary authority or responsibility for the administration of a plan. The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses.
Fiduciaries who do not follow these principles of conduct may be personally liable to restore any losses to the plan or to restore any profits made through improper use of plan assets. Courts may take whatever action is appropriate against fiduciaries who breach their duties under ERISA including their removal.
If you serve as an ERISA plan fiduciary, you should not take your role lightly. Penalties resulting from failure to properly discharge your duties can be stiff, and you could be held personally responsible for their payment.