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November 28, 2022

Sovereign Immunity

Possibly the Strongest Defense in a State Health Plan Administrator’s Arsenal

By Charles Hill and Mitchell Hasenkampf

The defenses available to a health plan in a suit seeking plan benefits are often as nuanced as the plan itself, if not more so. Sometimes, the simplest and most powerful defense in a plan’s arsenal may be one that exists outside the plan. Sovereign immunity is one such defense. Although it is a simple concept, it is not a panacea. Each state’s public policy will determine whether sovereign immunity is a viable defense. Although this article is not an exhaustive survey of the different state plan sovereign immunity defenses, it seeks to highlight examples demonstrating to those representing state health plans the importance of knowing applicable state sovereign-immunity policies.

Managed care litigators are likely familiar with the unique defenses available when defending an administrator of the Federal Employees Health Benefits Act (FEHBA) or Medicare Advantage benefits, including sovereign immunity. Lesser known and litigated, however, is the advantage of asserting the sovereign immunity when defending a state government plan.

Immunity: Not the Same in Every State

“The Eleventh Amendment confirms the sovereign status of the States by shielding them from suits by individuals absent their consent." Although federal law permits suits for prospective injunctive relief against state officials, suits for retrospective relief such as money damages are barred if the state invokes its immunity. Each state has its own public policy defining the limits of its immunity waiver. These policies can affect a health benefits plan’s defense of claims for plan benefits. In some instances, a plan may be able to claim a sovereign or governmental immunity defense. The devil is in the details.

New Jersey

Consider the case of NJSR Surgical Center, LLC v. Horizon Blue Cross Blue Shield of New Jersey, Inc. Horizon was a third-party administrator of a fully insured state government plan sponsored by New Jersey Transit. A group of out-of-network providers alleged wrongful denials and underpayment of claims, including breach of contract. New Jersey Transit moved to dismiss for lack of jurisdiction, arguing that the New Jersey Contractual Liability Act (CLA) did not permit the State of New Jersey to be sued in federal court and that it was an arm of the state. The CLA grants courts of “the State of New Jersey” jurisdiction over all claims against the state for breach of contract. Thus, the CLA provides a limited waiver of sovereign immunity that does not extend to breach of contract suits in federal court. Accordingly, New Jersey Transit retained its sovereign immunity.


In Texas, sovereign immunity is preserved unless clearly and unambiguously waived by the legislature. Not only must the legislature “consent to suits against the State by statute or by resolution,” but that consent “must be expressed in ‘clear and unambiguous language.’”

The Texas Tort Claims Act provides an example of clear and unambiguous waiver of immunity, expressly waiving immunity for tort claims arising from specific acts. There is no similar statute in Texas that applies to administration of state employee health plans. That does not mean, however, that a plan administrator is immune in all instances.

Sovereign immunity in Texas does not prevent “any and all increases in public expenditures” but “guard[s] against the ‘unforeseen expenditures’ associated with the government’s defending lawsuits and paying judgments ‘that could hamper government functions’ by diverting funds from their allocated purposes.” In the managed care context, immunity extends to the administrator of a plan funded by a state agency but may not extend to an insurer contracted with a local governmental unit to provide health coverage to the unit’s employees.

An example of the power of the sovereign immunity of a Texas state plan is illustrated in Kirby v. Health Care Service Corp. The beneficiary in Kirby sought plan benefits under a Teacher Retirement System of Texas plan for surgery provided in Germany. The claim was initially denied based on a plan exclusion for planned medical procedures performed outside the country. The administrator moved to dismiss based on immunity from suit “under the Eleventh Amendment and principles of sovereign immunity.” The court agreed and dismissed the claims.


Alabama has a sovereign immunity policy similar to that of Texas. “Under Ala. Const. of 1901, § 14, the State of Alabama has absolute immunity from lawsuits. This absolute immunity extends to arms or agencies of the state …, but generally does not extend to counties or county agencies … , or to municipalities or municipal agencies … .” To determine whether a suit against a legislatively created entity is barred by immunity, Alabama courts consider 1) the character of power delegated to the entity, 2) the relation of the entity to the state, and 3) the nature of the function performed by the entity. “All factors in the relationship must be examined to determine whether the suit is against an arm of the state or merely against a franchisee licensed for some beneficial purpose.”

The State Employees’ Insurance Board (SEIB) meets these criteria. Created by the Alabama Legislature, the SEIB is protected by immunity and “empowered and authorized to establish a fully insured or self-insured health insurance plan for employees and retirees of the State of Alabama." Although the SEIB’s immunity does not extend to the SEIB’s health plan claims administrator, only one court has jurisdiction to review the administrator’s claims decisions: the Circuit Court of Montgomery County. Thus, the administrator is effectively immune in any other jurisdiction.

Other Considerations

Not all courts adjudicating claims against state plans ever reach sovereign immunity. For example, the New Jersey State Health Benefits Commission (SHBP) is a state-run and state-funded plan that provides health benefits to state employees. Claims against the SHBP are subject to statutory administrative remedies and can be dismissed for failure to exhaust those remedies.

Also, sovereign immunity may not protect administrators of state plans from all claims. For example, the Southern District of New York ruled that United Healthcare Corp.’s provision of health insurance benefits to approximately two million New York State and municipal employees was not sufficient to garner immunity. The court cited six factors to determine whether a private entity, such as United, is an “arm of the state”: “(1) how the entity is referred to in its documents of origin; (2) how the governing members of the entity are appointed; (3) how the entity is funded; (4) whether the entity’s function is traditionally one of local or state government; (5) whether the state has a veto power over the entity's actions; and (6) whether the entity’s financial obligations are binding upon the state.” The first five factors weighed heavily against United. And the speculative effect of United’s alleged wrongful acts on the sixth—and “most salient”—factor was not enough alone to extend sovereign immunity to United.

Practice Tips

Anyone representing a state plan or the administrator of a state plan should consider whether sovereign immunity is a viable defense. State plans are typically governed by state statute, and the plan administrator may be protected by state statute or common law. It is necessary to view the plaintiff’s claims through the lens of that state law to determine whether sovereign immunity is waived.

In any type of mass action, claims against state plans should be isolated at the outset, along with any claims involving FEHBA, Medicare Advantage, or other government plans. Given the power of a sovereign immunity defense, these claims can often be resolved with little or no settlement value at the pleading stage.

    Charles Hill

    Herman Law Firm, Dallas, TX

    Charles Hill practices in managed care litigation and provider contracting. Before rejoining Herman Law Firm in April 2022, Charles served as a staff attorney on the Court of Appeals for the Fifth District of Texas. He has also practiced in other areas of civil litigation and appeals, including property and casualty insurance and municipal defense. Before practicing law, Charles worked as a software engineer for IBM Watson Health. He can be reached at (214) 624-9805 and [email protected].

    Mitchell Hasenkampf

    Herman Law Firm, Boston, MA

    Mitchell Hasenkampf leads the Herman Law Firm’s compliance practice group, which advises clients on a wide range of matters involving provider disputes, member communications, and civil rights mandates. He can be reached at (214) 624-9805 and [email protected].

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