|Figure 1: Fiduciary PBM Contract Language|
BSHSI argued that, under the indemnification provisions in their agreement, the PBM was obligated to reimburse it for every cost resulting from the PBM’s negligence. The PBM asked the court to dismiss the claim, contending that it was obligated to, at most, defend the plan sponsor from claims brought against it by third parties, which did not apply here since no third party had brought a claim.
- Punctuation counts. This case underscores the importance of demanding clear and unambiguous language in plan agreements.
- A plan sponsor should negotiate the broadest provision possible (to reduce its exposure to liability arising from the negligence of the third-party administrator), while third-party administrators will prefer the narrowest provision possible (to limit reimbursement obligations).
- Any gaps resulting in financial exposure will generally remain the responsibility of the employer or plan unless the plan enters into an agreement with a fiduciary-model PBM (see figure 1 above).
Long story short, the court agreed with the PBM and dismissed the claim. After reviewing the specific contractual language and applying the applicable state contract construction laws required by the agreement, even viewing the situation in the light most favorable to the plan sponsor, the court held that the PBM’s interpretation was objectively plausible, as compared to the overly broad reading argued by the plan sponsor.
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