An Insurance Company Acting as a Claims Administrator is Again a Proper Defendant in an ERISA Suit for Benefits

Posted by Scott Calvert on June 29, 2011

The Ninth Circuit has reversed itself and ruled that insurance companies that make claim decisions or are responsible for paying benefits can serve as defendants in ERISA actions for benefits or to enforce the terms of the plan.  In Cyr v. Reliance Standard Life Insurance Company, 642 F.3d 1202 (9th Cir. 2011), the Ninth Circuit overruled some of its earlier precedents, including Everhart v. Allmerica Financial Life Insurance Company, 275 F.3d 751 (9th Cir. 2001), and ruled that potential liability under 29 U.S.C. section 1132(a)(1)(B) of ERISA is not limited to the benefit plan or the Plan Administrator.  In explaining this shift, which allows insurance companies that make the claim decision or are responsible for paying benefits to be named as a defendant, the Ninth Circuit stated:

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.

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ERISA Authorizes Breach of Fiduciary Duty Action for Misconduct When it Impairs Plan Assets in Participant's Individual Account

Posted by Robert McKennon on January 14, 2010

Can a plan participant sue for breach of fiduciary duty when his individual account is diminished by a failure of the administrator to follow his investment instructions? The U.S. Supreme Court answered this important question in the affirmative in James LaRue  v. DeWolff, Boberg & Associates Inc., 128 S. Ct. 1020 (2008).  LaRue filed an action under ERISA alleging that his employer (also the plan administrator) breached its fiduciary duty with regards to an ERISA-regulated 401(k) retirement savings plan by failing to follow his investment instructions.  Relying on the Supreme Court’s ruling in Massachusetts Mutual Life Insurance Co. v. Russell that a participant could not bring a suit to recover consequential damages resulting from the processing of a claim under a plan that paid a fixed level of benefits, the Fourth Circuit Court of Appeals affirmed the district court’s grant of summary judgment in favor of the plan on the grounds that section 502(a)(2) did not provide a remedy for LaRue’s “individual injury.”  The Supreme Court disagreed. 

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.