Federal Judge Rules Against Insurance Administrator For Underpayment of Medical Benefits

January 6, 2026

In the case of Everett v. UMR, Inc., a federal district court judge recently ruled in favor of an out-of-network doctor who sued an insurance administrator for failing to pay out insurance benefits owed to him under the Employee Retirement Income Security Act (ERISA). As part of its decision, the court rejected the argument that the doctor had an obligation to hold the patient responsible for unpaid portions of the disputed medical expenses.

This case highlights the importance of tools like Independent Dispute Resolution (IDR) in avoiding these sorts of disputes, while also recognizing the importance of holding insurance companies accountable for failing to pay out what they rightly owe.

The Facts of the Case

In January 2021, the plaintiff in this case performed breast reduction surgery on a patient, which both sides agree was a procedure covered under her insurance plan. However, the plaintiff was out-of-network for the patient, meaning he was only entitled to have the costs of the surgery covered to the extent required under the plan’s Out-of-Network provisions. When the plaintiff submitted a claim to the defendant, a third-party plan administrator, the defendant refused to pay most of the claim, only covering $1,492.72 of the $120,000 sought by the plaintiff.

What Each Side Claimed

The primary dispute in the case is over the exact language of the Out-of-Network provisions and how they apply to ERISA. The plaintiff claimed he was entitled to a “Reasonable and Customary” amount under ERISA, which should have been much higher than what he was paid. The defendant, meanwhile, claimed that they only owed 70% of the CMS Physician Fee Schedule, or $1,492.72 (70% of $2,132.54).

After an attempt to negotiate a deal failed, the plaintiff filed a suit against the defendant, seeking compensation. Both sides subsequently filed motions for summary judgment, seeking to have the case decided in their favor.

The Legal Issues At Stake

The primary legal issue in question deals with whether the defendant was correct to reimburse the plaintiff at the much lower rate. The plaintiff argued that the defendant failed to reimburse him at the “Reasonable and Customary” rate required by ERISA, which should have been based on “‘geographical adjustments’ based on ‘market conditions’ surrounding ‘comparable services.’” (p.18) The defendant, meanwhile, argued that the proper method for determining the appropriate reimbursement rate was the CMS Physician Fee Schedule, which required a much lower rate of compensation.

Additionally, the defendant argued that the plaintiff should have been forced to pay 30% of the covered expenses, as required under the Out-of-Network plan. By failing to seek this mandatory out-of-pocket expenses from the patient, they argued, the plaintiff waived any claim under the insurance plan.

What the Court Decided

In its decision, the court found in favor of the plaintiff, granting their motion for summary judgment, and denying the defendant’s motion in turn. The court determined that it could only overturn the reimbursement decision if it found that the plan administrator had acted in an “arbitrary and capricious” way. However, it also determined that the defendant had, in fact, acted in an arbitrary and capricious way by basing its reimbursement rate on the CMS Physician Fee Schedule, instead of using the “reasonable and customary” standard required by ERISA. Moreover, the CMS Physician Fee schedule was not mentioned in the insurance plan, meaning it could not be the standard which a “reasonable person” would have used.

It also found that the plaintiff had no requirement to pay out the 30% of owed expenses, as the amount owed had not been determined. Even if it had, however, the payment of co-pays and the deductible should have satisfied that requirement. As a result, the plaintiff was granted summary judgment, and the case was remanded to the plan administrator for reconsideration, based on the prevailing market rates in the region where the procedure was performed.

Why This Matters

It should come as little surprise that insurance companies do not like to pay out any more than they need to, but it can still be difficult for patients and doctors alike to fight for the benefits they are owed. Cases like these help to reinforce the fact that an insurance plan is an obligation on the part of the insurer, and they cannot simply choose how much they want to pay based on their own arbitrary standards.

Fortunately, if you are a doctor, there are tools for helping you to obtain the benefits you are owed, such as seeking IDR under the No Surprises Act. However, you will need to speak to lawyers and accountants with experience handling IDR claims to have the best possible chance of success.