A recent federal appeals court ruling narrows a key defense that health plan administrators and plan sponsors have long relied on to block lawsuits from out-of-network medical providers.
In August 11, the US Court of Appeals for the Ninth Circuit held in Healthcare Ally Management of California, LLC v. WSP USA, Inc. that the Employee Retirement Income Security Act of 1974 (ERISA) does not preempt a negligent misrepresentation claim arising from a benefits verification call. Plan administrators in the Ninth Circuit now face potential state tort liability over what they tell out-of-network providers before treatment, and ERISA's preemption defense will not automatically dispose of those claims.
The dispute arose when an out-of-network provider called the plan's administrator before surgery to confirm reimbursement rates. The administrator allegedly said the plan would pay at the usual, customary, and reasonable rate, a benchmark for what providers in a geographic area typically charge for comparable services. The provider performed the surgery and was then paid at the Medicare rate, which the provider alleged amounted to five percent of the charged amount.
The court drew a line between two types of claims. Claims that turn on interpreting plan terms are preempted by ERISA. Claims that turn on whether the plan administrator made an inaccurate representation are not. Because the provider's injury arose from the misrepresentation rather than from the denial of benefits, ERISA's preemption shield did not apply.
That distinction carries direct operational weight for plan sponsors and their third-party administrators (TPAs). Every benefits verification call involving an out-of-network provider in the Ninth Circuit is now a potential source of state tort liability if the rate represented does not match what the plan pays. The Ninth Circuit covers the nine-state western region including California, Washington, and Oregon.
The Ninth Circuit's ruling aligns it with the Fifth, Eighth, and Eleventh Circuits on negligent misrepresentation claims from verification calls. The circuit map, however, is not uniform. Just eight days later, the Sixth Circuit ruled the opposite way, holding ERISA preempted a nearly identical claim because it turned on the plan's terms.
Plan sponsors whose TPAs operate across multiple circuits face different legal exposure depending on which circuit governs. That geographic patchwork is a gap brokers advising multi-state employer clients are well-positioned to raise.
International law firm Mayer Brown's analysis of the ruling identifies three concrete steps worth taking for plan sponsors and their brokers. The first is a TPA audit focused on benefits verification calls. Mayer Brown recommends plan administrators review whether their TPAs record those calls. A recording that documents what the TPA said and what disclaimers it offered could be the most effective early defense against a misrepresentation claim. Sponsors who cannot answer whether their TPA records such calls should find out now.
The second is a review of what the TPA says during those calls. The court's opinion notes that plan administrators owe no fiduciary duty to out-of-network providers, but that a provider must still show it justifiably relied on what it was told. Mayer Brown advises that a TPA providing plan coverage terms in writing, with a clear disclaimer warning the provider to seek independent advice, reduces the risk that any oral statement creates liability. Sponsors should confirm their TPAs do this consistently.
The third, also flagged by Mayer Brown, is a reassessment of anti-assignment clauses in plan documents. These clauses block providers from suing under ERISA by preventing them from obtaining assigned rights from plan participants. The ruling makes clear they do not block state tort claims based on a misrepresentation. Anti-assignment clauses remain useful, but they are no longer a complete backstop where the claim is grounded in what the TPA said rather than what the plan pays.
Brokers advising self-funded employers and their TPAs in the Ninth Circuit states have a specific reason to start a compliance conversation now. That conversation does not require legal advice. It requires knowing which states fall under which circuit, confirming whether the client's TPA records verification calls, and checking whether those calls include written coverage disclosures and appropriate disclaimers. Those are the right questions to raise before a claim arrives.
