Ayotte v. Prudential

Casenote of the Month

Ayotte v. Prudential Ins.Co., 2012 U.S.Dist.LEXIS 141928 (N.D.Ill. October 1, 2012)( Issue: Proper Party) . Although the rationale expressed by the Ninth Circuit in Cyr v. Reliance Standard, 642 F.3d 1202 (9th Cir. 2011) (en banc) should have put this issue to rest throughout the nation, in the Seventh Circuit, it remains questionable whether benefit claimants may sue the insurer responsible for both funding and administering the benefits that were denied. The Seventh Circuit has maintained the position that only the "plan" can be named as a defendant in a suit to recover benefits based on the language of 29 U.S.C. § 1132(d). However, after this ruling, the underpinning of the Seventh Circuit's position has been thoroughly demolished.

In Ayotte, the plaintiff sued the Prudential Insurance Company of America after his employer-sponsored disability insurance benefits were denied. Prudential moved to dismiss the action, claiming Ayotte's employee benefit plan was the only defendant amenable to suit. The court denied that motion. The court pointed to the "plan" which was nothing but a group insurance contract. The plan specified that Prudential was responsible for both evaluating claims and paying any benefits found due. The summary plan description attached to the plan also identified Prudential as "claims administrator."

Under ERISA, participants in and beneficiaries of ERISA plans are authorized to bring a civil action "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B). A later provision, Section 1132(d)(2), adds: "Any money judgment under this subchapter against an employee benefit plan shall be enforceable only against the plan as an entity and shall not be enforceable against any other person unless liability against such person is established in his individual capacity under this subchapter." Applying that language and citing Seventh Circuit precedent, Prudential argued that only the plan may be sued.

Although the Seventh Circuit has repeatedly found that suits to recover benefits under ERISA are generally "limited to a suit against the Plan." ( See, e.g., Mote v. Aetna Life Ins. Co., 502 F.3d 601, 610 (7th Cir. 2007)), exceptions have been made to allow actions to be brought against plan administrators who are "closely intertwined" with the plan itself. Most recently, however, the Seventh Circuit noted in Feinberg v. RM Acquisition, LLC:

The proper defendant in a suit for benefits under an ERISA plan is . . . normally the plan itself [citations omitted], rather than the plan administrator, because the plan is the obligor. To sue the administrator for plan benefits is like suing a corporation's CEO to collect a corporate debt. . . . But when the lines between the plan, the plan administrator, and the plan sponsor are indistinct or contested, the plaintiff's designation of the "wrong" defendant can be forgiven provided the "right" defendant is not misled. [citing Mote, Mein, and Musmeci v. Schwegmann Giant Super Markets, Inc., 332 F.3d 339, 349-50 (5th Cir. 2003).]

629 F.3d 671, 673 (7th Cir. 2011). The court further pointed out that the Seventh Circuit has never "squarely held" that claims against "an insurer that issues and administers a plan, determines eligibility for benefits, and pays all claims under the plan" are barred. Hence, after reviewing all of the relevant authorities, the court concluded "that the proper interpretation of this circuit's precedent is that a claim may proceed against a party other than the ERISA plan itself where the identity of that party--be it an employer, an insurance company, or another third-party administrator--is 'closely intertwined' with the plan, and where the party controls eligibility for benefits and makes benefits payments. In other words, a party may be sued when it acts as an 'obligor' to an ERISA plan beneficiary. Feinberg, 629 F.3d at 673." *12. Applying that framework, the court held the plan language shows that since Prudential and the "plan" are closely intertwined, Prudential may be sued. The court added, "Prudential thus appears to be the only party that could provide the benefits allegedly due under the Plan, and is therefore the logical defendant for Ayotte's action." *14.

The court also referenced out of circuit cases, pointing to the Ninth Circuit's Cyr decision overruling the seminal case ( Gelardi v. Pertec Computer Corp., 761 F.2d 1323, 1324 (9th Cir. 1985)) upon which the Seventh Circuit rulings deeming the "plan" the only party amenable to suit. Cyr, in turn, was based on Supreme Court authority, Harris Trust & Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000), that suggested the universe of defendants was not limited solely to the plan. The court also cited to rulings from the First, Sixth, and Eleventh Circuits permitting suit against insurers. The court concluded by noting,

The prevailing logic in these other circuits is that entities responsible for administering a plan that exercise discretion as to benefit payments are proper parties to a § 502(a)(1)(B) suit. This court finds that logic sound. Given the role played by Prudential with respect to Ayotte's benefits, the court concludes that Prudential is a logical defendant for Ayotte's action. *17-*18.