Ortiz v. Crown Cork Alleges Tobacco Surcharge Violated ERISA's Full-Reward Rule
Complaint Alleges Crown's Plan Retained Prior Deductions and Imposed Excessive Surcharges
A proposed class action filed Friday alleges that Crown Cork and Seal Company Inc. imposed a $100 monthly tobacco surcharge on health plan participants—along with additional surcharges of $200 per month if both the employee and spouse were tobacco users—without complying with ERISA's requirement that participants who complete a reasonable alternative standard receive the "same, full reward" as non-tobacco users. "Crown charges $100/month surcharge per tobacco user; $200 if both employee and spouse use tobacco," the complaint specifies (Compl. ¶35).
The complaint, brought by former Crown employee Charity A. Ortiz, contends that Crown's program instead only removed the surcharge prospectively, retaining all prior deductions. "The surcharge will be removed going forward. Refunds for past payroll deductions are not issued," the complaint quotes Crown's FAQ as stating (Compl. ¶39). "Crown does not do these things. Instead, it imposes a discriminatory $100 monthly tobacco surcharge while failing to make available a compliant reasonable alternative standard," the complaint asserts (Compl. ¶1).
ERISA's wellness program regulations require that "the same, full reward must be provided to that individual as is provided to individuals who meet the initial standard for that plan year," the complaint alleges (Compl. ¶5). Congress added the word "full" to modify "the reward" in 2010, underscoring the requirement that participants who complete an alternative standard must receive the same full benefit as those who meet the initial standard (Compl. ¶25). The complaint argues that Crown's failure to provide retroactive reimbursement violates this rule, creating two classes of participants: those who receive the full annual reward and those who pay the surcharge for intervening months. "Crown’s Plan is not a 'program[] of health promotion or disease prevention' as required by ERISA but instead an impermissible cost-shifting scheme," the complaint states (Compl. ¶12).
Ortiz paid the $100 monthly surcharge in 2025 to maintain her health insurance and was never informed of the right to a full reward, according to the complaint (Compl. ¶16). The complaint estimates that approximately 1,000 class members may have paid the surcharge (Compl. ¶19).
Plan Materials Omitted Required Disclosures, Plaintiff Says
The complaint alleges that Crown's plan materials failed to disclose critical information required by ERISA's wellness program regulations, including the availability of a reasonable alternative standard, contact information for obtaining it, and the right to a physician-directed accommodation. "Crown unlawfully imposes a $100 monthly tobacco surcharge without complying with statutory and regulatory requirements," the complaint asserts (Compl. ¶71). "Crown’s Plan fails to clearly establish a reasonable alternative standard, imposes a $100 monthly surcharge on all tobacco users, does not disclose a compliant mechanism," the complaint further alleges (Compl. ¶3).
ERISA and its implementing regulations require that plan materials disclose "the availability of any reasonable alternative standard" and that "recommendations of an individual's personal physician will be accommodated," the complaint alleges (Compl. ¶33, ¶83). Crown's materials allegedly omitted these disclosures, including the FAQ's statement that refunds for past deductions are not issued. "Defendant's notice, which cabins the accommodation to the pre-2013 medical-hardship subset, is not the notice ERISA requires today," the complaint alleges (Compl. ¶8). The complaint further asserts that Crown's notice failures prevent it from invoking ERISA's wellness program safe harbor (Compl. ¶10). The complaint quotes the required disclosure language that Crown omitted: "recommendations of an individual’s personal physician will be accommodated" (Compl. ¶83).
Crown defines a "tobacco user" as someone who has used tobacco or nicotine products at least four times per week in the past six months and requires annual recertification during open enrollment, according to the complaint. "All employees enrolled in the Medical Program must recertify their tobacco use status annually during open enrollment," the complaint quotes Crown's plan materials (Compl. ¶36). The FAQ lists three paths to avoid the surcharge: remaining tobacco-free for six months, completing a cessation program, or obtaining a medical waiver. However, the complaint alleges that none of these paths satisfy ERISA's "full reward" rule because they only remove the surcharge prospectively. The medical waiver path also only applies prospectively, with surcharges collected before the waiver retained by Crown. "Upon providing a certificate of completion, the surcharge will be removed for the remainder of the plan year," the complaint quotes, but notes that "refunds for past payroll deductions are not issued" (Compl. ¶40, ¶41, ¶44). The complaint reiterates this point, stating that "the surcharge will be removed going forward. Refunds for past payroll deductions are not issued" (Compl. ¶75).
The complaint alleges that Crown's program violates five regulatory criteria for compliant outcome-based wellness programs: frequency of the opportunity to qualify, size of the reward, reasonable design, uniform availability, and notice (Compl. ¶28). "These rules set forth criteria for an affirmative defense that can be used by plans and issuers in response to a claim that the plan or issuer discriminated," the complaint explains, noting that the burden shifts to Crown to prove compliance once deficiencies are alleged (Compl. ¶26, ¶13). The complaint asserts that "the burden of persuasion as to certain elements of a plaintiff’s claim may be shifted to defendants, when such elements can fairly be characterized as affirmative defenses or exemptions" (Compl. ¶13).
Surcharge Funds Used to Offset Crown's Contributions, Complaint Alleges
The complaint alleges that Crown breached its fiduciary duties under ERISA by using tobacco surcharge proceeds to offset its own funding obligations rather than depositing them into the plan's trust. "Every dollar of surcharge collected reduced the company's contribution dollar-for-dollar," the complaint alleges (Compl. ¶55). Crown's summary plan description confirms a dual-funding structure, stating that "Crown shares in the cost of coverage and participants pay the rest," according to the complaint (Compl. ¶91). The complaint details that Crown treated the tobacco surcharge as a plan contribution, withholding it alongside premiums (Compl. ¶52).
ERISA requires that plan assets be held in trust and administered solely in the interest of participants and beneficiaries, the complaint notes. The complaint alleges that Crown's use of surcharge funds to reduce its own contributions constitutes self-dealing and a prohibited transaction under 29 U.S.C. § 1106. "This diversion of funds is self-dealing, violates the duty of loyalty, and constitutes a prohibited transaction under 29 U.S.C. §§ 1104 and 1106," the complaint alleges (Compl. ¶58). The complaint describes Crown's actions as a violation of the "highest known to the law" fiduciary duties of loyalty and prudence, which require fiduciaries to act with "an eye single to the interests of the participants and beneficiaries" (Compl. ¶88).
The complaint further alleges that the surcharge did not increase resources available to the plan but merely shifted costs from Crown to participants. "The surcharge did not increase resources available to the Plan; it simply shifted costs away from Crown and onto participants," the complaint states (Compl. ¶59). The complaint asserts that Crown converted employee contributions into corporate savings, violating ERISA's duty of loyalty. "Defendant converted employee contributions (i.e., Plan assets) into a source of corporate savings, in violation of 29 U.S.C. § 1104(a)(1)(A)," the complaint asserts (Compl. ¶95). The complaint also alleges that Crown engaged in prohibited transactions by using plan assets for its own benefit, including retaining float earnings from the surcharge funds. "Defendant caused the Plan to engage in transactions constituting a direct or indirect transfer of Plan assets for the benefit of a party-in-interest—namely, itself," the complaint alleges (Compl. ¶96). Crown is liable to "restore to such plan any profits of such fiduciary which have been made through use of assets of the plan," the complaint asserts, quoting ERISA (Compl. ¶98).
The complaint alleges that Crown's actions deprived the plan of full funding and constituted a breach of fiduciary duty. "Crown’s use of surcharge funds to offset its own funding obligations deprived the plan of full funding and constituted self-dealing," the complaint states (Compl. ¶57). The complaint further alleges that Crown omitted material information in participant-facing materials, violating ERISA disclosure requirements (Compl. ¶92). "Crown administered a non-compliant Plan, violating anti-discrimination requirements and failing to provide required notices," the complaint asserts (Compl. ¶94).
Plaintiff Seeks Class Certification, Restitution, and Injunctive Relief
The complaint seeks certification of a class under Federal Rule of Civil Procedure 23(b)(1) and requests declaratory judgment that Crown's tobacco surcharges violate ERISA. Ortiz seeks reimbursement of all unlawful surcharge payments for herself and the class, as well as plan-wide equitable relief, including restitution, disgorgement of profits, and an accounting of all prior surcharge payments. "Appropriate equitable relief, including restitution, disgorgement, surcharge, an accounting, declaratory and injunctive relief, and such other relief as the Court deems just and proper," is requested for Counts I and II (Compl. ¶¶78, 86).
The complaint also requests injunctive relief prohibiting Crown from continuing or imposing unlawful surcharges in the future and the removal or replacement of Crown as a fiduciary of the plan. Additionally, Ortiz seeks pre-judgment interest, attorneys' fees, expenses, and costs. "Defendant breached fiduciary duties and engaged in prohibited transactions by collecting unlawful surcharges and using them for its own benefit," the complaint alleges in support of Counts III and IV (Compl. ¶101). Ortiz claims she suffered individualized harm from paying unlawful surcharges and being deprived of plan benefits and reserves (Compl. ¶102). The complaint alleges that the Plan suffered harm and opportunity-cost loss due to Crown’s use of Plan assets to reduce its contribution obligation (Compl. ¶97).
The complaint asserts the following claims against Crown: (1) unlawful surcharge for failure to make available a reasonable alternative standard in violation of ERISA’s wellness program regulations (29 U.S.C. § 1182(b), 42 U.S.C. § 300gg-4(j)(3)(D); 29 C.F.R. § 2590.702(f)(4)(iv)); (2) unlawful tobacco surcharge for failure to provide required notice in violation of ERISA’s wellness program regulations (29 U.S.C. § 1182(b), 42 U.S.C. § 300gg-4(j)(3)(E); 29 C.F.R. § 2590.702(f)(4)(v)); (3) breach of fiduciary duty and prohibited transactions (plan-level relief) (ERISA §§ 404, 406, 409; 29 U.S.C. §§ 1104, 1106, 1109); and (4) breach of fiduciary duty (individual relief) (ERISA §§ 404, 406; 29 U.S.C. §§ 1104, 1106).
The allegations in the complaint are unproven, and Crown Cork and Seal Company Inc. has not yet responded to the claims. The complaint was filed on July 10, 2026.
The allegations described here are taken from the filing and remain unproven; no responsive pleading is reflected in the source document.
David Brunk is a civil litigation attorney. He can be reached at david@newmanbrunk.com.
From the Complaint Public Court Record
1 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA CHARITY A. ORTIZ, on behalf of herself and all others similarly situated, Plaintiff, v. CROWN CORK AND SEAL COMPANY, INC., Defendant. Civil Action No.: CLASS ACTION COMPLAINT Plaintiff, Charity A. Ortiz (“Plaintiff”), individually and on behalf of the Class defined below of similarly situated persons, alleges the following against Crown Cork and Seal Company, Inc. (“Crown” or “Defendant”), based upon personal knowledge with respect to herself and on information and belief derived from, among other things, investigation of counsel and review of public documents as to all other matters: NATURE OF THE ACTION 1. It is both unfair and unlawful for entities like Crown to impose discriminatory and punitive health insurance surcharges on employees who use tobacco products without making available a reasonable alternative standard to avoid those surcharges. This lawsuit challenges Defendant’s unlawful practice of charging a tobacco surcharge under the CC&S Group Health Plan (the “Plan”) in a manner that violates the Employee Retirement Income Security Act of 1974 (“ERISA”) and the implementing regulations. ERISA permits health-contingent wellness programs that promote health if, and only if, such programs strictly comply with the criteria governing these programs, including: (i) making available a meaningful and accessible reasonable
2 alternative standard to any individual being charged extra based on a health factor; (ii) clearly disclosing the availability of that alternative standard, the means to access it, and the right to a physician-directed alternative in “all plan materials” describing the surcharge; and (iii) making available the “full reward” to all participants who satisfy the reasonable alternative standard, including retroactive reimbursement of surcharges paid while completing the alternative. 29 U.S.C. § 1182(b)(2)(B); 4
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