Monday, July 8, 2019

Court Declines to Enforce Indemnification Provision Against Negligent Pharmacy Benefits Manager

This contractual dispute arose between Bon Secours Health System Inc. (BSHSI), a self-insured prescription plan, and its pharmacy benefits manager, Express Scripts, because the PBM failed to auto-enroll BSHSI in its program designed to combat pharmacy fraud and abuse. After BSHSI filed a claim with its insurer and was reimbursed for over $4.5 million of fraudulent prescription claims, it sued the allegedly negligent PBM for indemnification.

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.

Tyrone's Commentary:

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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