Some of our previous decisions have indicated that only a benefit plan itself or the plan administrator of a benefit plan covered under ERISA is a proper defendant in a lawsuit under [29 U.S.C. § 1132(a)(1)(B)].  We conclude that the statute does not support that limitation, however, and that an entity other than the plan itself or the plan administrator may be sued under that statute in appropriate circumstances.

Reliance Standard appealed the decision, and the Ninth Circuit heard the case en banc.  In considering only the issue of whether an insurer/claim administrator is a proper defendant in an action to recover benefits under the terms of the plan, the Ninth Circuit noted that “[b]y its terms,  § 1132(a)(1)(B) does not appear to limit which parties may be proper defendants in a civil action.  Nor has the Secretary of Labor promulgated a regulation setting out such limits.”  The Ninth Circuit analyzed the United States Supreme Court’s decision in Harris Trust & Saving Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2008) which examined a similar issue with respect to § 1132(a)(3) and noted that the section “makes no mention at all of which parties may be proper defendants—the focus, instead, is on redressing the ‘act or practice which violates any provision of [ERISA Title I]’”  Given the Supreme Court’s analysis of § 1132(a)(3), the Ninth Circuit could “see no reason to read a limitation into § 1132(a)(1)(B).”

The Ninth Circuit explained that, in this litigation, Reliance Standard was a proper defendant because:

Reliance denied Cyr’s request for increased benefits even though, as the plan insurer, it was responsible for paying legitimate benefit claims.  Reliance is, therefore, a logical defendant for an action by Cyr to recover benefits due to her under the terms of the plan and to enforce her rights under the terms of the plan, which is precisely the civil action authorized by § 1132(a)(1)(B).

With this ruling, the Ninth Circuit specifically overruled its previous rulings to the contrary, including Everhart, Ford v. MCI Communications Corp. Health & Welfare Plan, 399 F.3d 1076, 1081 (9th Cir. 2005), Spain v. Aetna Life Insurance Co., 13 F.3d 310, 312 (9th Cir. 1993) and Gelardi v. Pertec Computer Corp., 761 F.2d 1323 (9th Cir. 1985).

While, on its face, this case seems to impose liability on insurance companies they did not previously face, in reality, this is not the case.  In most ERISA cases for life insurance benefits, health insurance benefits or disability insurance benefits for which the insurance company was financially responsible, the insurance company typically controlled the defense of these lawsuits and paid any amounts due after a settlement or judgment, regardless of whether it was named as a defendant.  This decision realized the practical reality that insurance companies should be allowed defendants in ERISA cases involving life insurance benefits, health insurance benefits or disability insurance benefits for which insurance companies are financially responsible.  This decision simply put into law what was already happening in actual practice.

In an opinion written by Justice Stevens, the Court held that “although § 502(a)(2)  does not provide a remedy for individual injuries distinct from plan injuries, that provision does authorize recovery for fiduciary breaches that impair the value of the plan assets in a participant’s individual account.”  The Court reasoned that in the context of defined contribution plans, the misconduct did not need to threaten the solvency of the entire plan in order for section 409 (which provides remedies for breach of fiduciary duty) to apply.  Rather, the legislative history and plain language of the statute authorizes a participant to enforce fiduciary obligations under ERISA, and the administrator’s failure to follow the LaRue’sinvestment instructions could qualify as a breach of those duties.