Insurer functioned as administrator court

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Insurer functioned as administrator: court

Chicago Daily Law Bulletin
December 15, 2008

by MARK D. DEBOFSKY

A recent ruling from Texas discussed a vexing issue that often arises in benefit claim litigation brought under the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq.

In Franklin v. AT&T Corp., 2008 U.S.Dist.LEXIS 99128 (N.D.Tex. Dec. 9), Metropolitan Life Insurance Company, which administers AT&T's long-term disability plan, sought dismissal from a lawsuit brought by Laura Franklin, an AT&T employee who suffered from multiple illnesses including Crohn's disease and breast cancer.

Franklin qualified for disability benefits from AT&T for more than two years; and she had also been awarded Social Security disability benefits, after which she reimbursed MetLife for over $37,000 in claimed ''double payments'' due to plan provisions coordinating long-term disability payments and Social Security. However, just a few months after Franklin reimbursed MetLife, the insurer deemed her ineligible for additional benefits and terminated her monthly disability income payments. After exhausting pre-suit appeals, Franklin sued AT&T and MetLife seeking restoration of her benefits.

MetLife moved for dismissal, arguing it was not a proper defendant. Plaintiff countered that MetLife was properly sued as plan administrator. In resolving the dispute, the court relied heavily on a ruling issued by another judge within the Northern District of Texas, Bernstein v. Citigroup, Inc, No. 3:06-CV-209-M, 2006 WL 2329385 at 7 (N.D. Tex. July 5, 2006), which concluded that a ''plan administrator'' was a proper defendant in a suit under ERISA seeking restoration of plan benefits.

Further, in deciding MetLife's status as ''plan administrator,'' the court interpreted the statutory definition of that term (29 U.S.C. § 1002(16)(A)) as encompassing any entity that ''actually controls administration of the plan.'' (citing Bernstein and Garren v. John Hancock Mut. Life Ins. Co., 114 F.3d 186, 187 (11th Cir. 1997); Am. Med. Assoc. v. United Healthcare Corp., 00Civ.2800(LGG)(GWG), 2002 WL 31413668 at *6 (S.D.N.Y. Oct. 23, 2002) (''Insofar as any of the insurance company defendants in this action actually controlled the distribution of funds and decides whether or not to grant benefits under one of the plans, these entities may be sued as plan administrators.'')).

MetLife asserted that it was not the plan administrator, but was merely the ''claims administrator,'' a term not defined by the ERISA statute. However, MetLife's contract with AT&T undermined that argument. The administration agreement defined the insurer's role as claims administrator to encompass:

  • ''[T]he authority to evaluate disabilities, resolve claims and appeals and administer the Plan on behalf of the Company'';
  • The sole authority to determine whether an employee is disabled under the plan;
  • The ability to deny benefits if the employee is not following ''a course of treatment acceptable to the Claims administrator'';
  • ''[S]ole and complete discretionary authority to determine conclusively for all parties ... any and all questions arising from administration of the Plan and interpretation of all Plan provisions ... and eligibility for benefits, determination of all relevant facts, the amount and type of benefits payable ... and construction of all terms of the Plan ... '';
  • The responsibility for issuance of benefit checks.

The court also noted that the contract contemplated that MetLife could be sued in relation to administration of benefit claims; and MetLife agreed to be responsible for all legal costs incurred in defending such a suit.

Thus, even though AT&T, not MetLife paid benefits, the court determined that ''an entity that is functionally a plan administrator is a proper defendant in a Section 1132(a)(1)(B) suit [claim for benefits].'' (citing Sleater v. Boy Scouts of America, No. 3:01-CV-2097-G, 2002 WL 663563 at 3, n.3 (N.D. Tex. April 19, 2002)). Because MetLife ''had substantial, if not total, responsibility in evaluating what benefits were payable under the Plan,'' the court found the insurer was acting as plan administrator and denied the motion to dismiss on that basis.

The court also easily disposed of MetLife's final argument that it could not be sued as plan administrator because the plan named AT&T as plan administrator. The court explained, ''the test used to determine whether an entity is a plan administrator is how the entity actually functions vis-a-vis the plan, not how that entity is denominated in the applicable documents.'' Accordingly, the court found MetLife acted as plan administrator.

While the points made in this ruling seem self-evident, there are a host of cases ruling that only a benefit plan may be sued under ERISA even though the ''plan'' is nothing more than pieces of paper. See, e.g., Ford v. MCI, 399 F.3d 1076 (9th Cir. 2005).

This case presents a somewhat closer question than the typical situation where the insurer not only administers claims, but funds the benefit plan as well. In such cases, there is an even stronger argument against dismissal of the insurer. That reasoning was provided by famed bank robber Willie Sutton who, when asked why he robbed banks, responded, "Because that's where the money is."

Note: Copies of this ruling can be obtained by e-mailing me at [email protected]