Pegram et al. v. Herdrich

Petitioners (collectively Carle) function as a health maintenance organization (HMO) owned by physicians providing prepaid medical services to participantswhose employers contract with Carle for coverage. Respondent Herdrich was covered by Carle through her husband’s employer, State Farm InsuranceCompany. After petitioner Pegram, a Carle physician, required Herdrich to wait eight days for an ultrasound of her inflamed abdomen, her appendix ruptured,causing peritonitis. She sued Carle in state court for, inter alia, fraud. Carle responded that the Employee Retirement Income Security Act of 1974 (ERISA)preempted the fraud counts and removed the case to federal court. The District Court granted Carle summary judgment on one fraud count, but grantedHerdrich leave to amend the other. Her amended count alleged that the provision of medical services under terms rewarding physician owners for limitingmedical care entailed an inherent or anticipatory breach of an ERISA fiduciary duty, since the terms created an incentive to make decisions in the physicians’self-interest, rather than the plan participants’ exclusive interests. The District Court granted Carle’s motion to dismiss on the ground that Carle was not actingas an ERISA fiduciary. The Seventh Circuit reversed the dismissal.

Held: Because mixed treatment and eligibility decisions by HMO physicians are not fiduciary decisions under ERISA, Herdrich does not state an ERISA claim.Pp. 5-25.