A federal circuit court yesterday decided that retirement-plan participants can sue third-party insurers under the Employee Retirement Income Security Act of 1974.
A panel of 11 judges on the 9th U.S. Circuit Court of Appeals ruled that ERISA does not specifically limit which parties can be sued to recover benefits due under the terms of an employee benefits plan. Previously, the court had held that only a plan or plan administrator could be held liable under the statute.
As a result of the ruling, the 9th Circuit will overrule four employee benefits cases: Ford v. MCI Communications Corp. Health and Welfare Plan, Everhart v. Allmerica Financial Life Insurance Co., Spain v. Aetna Life Insurance Co. and Gelardi v. Pertec Computer Corp.
The case before the court goes back to 2001, when Laura A. Cyr was terminated from her job as a vice president at Channel Technologies Inc. She immediately filed a claim for a back injury under the company's long-term disability plan, administered by Reliance Life Insurance Co.
Reliance granted her benefits based on her final salary. The following year, Ms. Cyr filed a civil suit against CTI for gender discrimination based on unequal pay for similar responsibilities, according to court documents. Her disability payments were based on her salary of $85,000.
Ms. Cyr reached a settlement with CTI, retroactively bumping her salary up to $155,000. However, when she sought to have her disability benefits adjusted to reflect the higher salary, Reliance declined and then said Ms. Cyr's claim file was lost, according to court documents.
As a result, she sued Reliance, claiming breach of fiduciary duty, but the district court initially found that only the plan or the plan administrator could be liable under ERISA — not a third-party insurer like Reliance. Afterward, the court changed its mind and decided in Ms. Cyr's favor, setting off the appeal by the carrier. Ms. Cyr petitioned for a hearing before the full panel of judges at the 9th Circuit.
“A plan administrator under ERISA has certain defined responsibilities involving reporting, disclosure, filing and notice,” wrote Judge Richard Clifton. “But the plan administrator can be an entity that has no authority to resolve benefit claims or any responsibility to pay them.” In this case, Judge Clifton wrote, Channel had nothing to do with Reliance's denial of Ms. Cyr's request.
“Reliance is, therefore, a logical defendant for an action by Cyr to recover benefits due to her under the terms of the plan,” he wrote.
“The Ninth Circuit recognizes that there's nothing in the statute that exonerates insurers,” said Joseph A. Creitz, an attorney who represents Ms. Cyr. “Nobody else has addressed it as clearly as the 9th Circuit has.”
He noted that most third-party insurers don't try to evade their responsibility on the claim that they're not subject to ERISA. Still, the case could shape the outcomes of similar suits in other jurisdictions: For instance, the 7th U.S. Circuit Court of Appeals has cases that have limited the liability to the plan and its administrator, as well as cases in which other parties have been sued under ERISA, Mr. Creitz said.
From here, the case goes to a panel of three judges for further consideration.
A call to Reliance for comment was referred to one of its attorneys, and a call to Reliance's lawyer in the Cyr case, Michael B. Bernacchi, was not immediately returned.