Although the Employee Retirement Income Security Act (ERISA) clearly delineates the parties who have standing to sue to redress a claimed wrongful benefit denial (employee benefit plan participants and beneficiaries – 29 U.S.C. Section 1132(a)(1)(B)), the statute is silent as to whether insurers that both underwrite and fund employer-sponsored benefits such as disability or health insurance can be sued if benefits are denied. Larson v. United Healthcare Ins.Co., 2013 U.S.App.LEXIS 15272 (7th Cir. July 26, 2013) finally answered that question in the affirmative.

Larson was brought as a class action against six health insurers who were claimed to have violated Wisconsin law by requiring co-payments for chiropractic treatment. Because the insurance coverage at issue was employer-sponsored, the claim was brought under ERISA. The district court dismissed the case, finding that the insurers could not be named as defendants.

The court of appeals affirmed the dismissal, but on somewhat different grounds. The court of appeals disagreed with the finding that an insurer could not be a proper party and determined that insurers could be named as defendants in suits seeking benefit payments where the insurer both decided the claim and was also responsible for paying the benefits. However, the court agreed with the lower court’s dismissal of a secondary claim for breach of fiduciary duty because “[s]etting policy terms, including co-payment requirements, determines the content of the policy, and ‘decisions about the content of a plan are not themselves fiduciary acts.'” (citing Pegram v. Herdrich, 530 U.S. 211, 226 (2000)).

The court also ruled on the merits that the Wisconsin statute, under which the suit was brought, does not prohibit co-payments for chiropractic services.

The court began by addressing the issue of which the defendants may be sued under ERISA. Until this ruling, courts within the 7th U.S. Circuit Court of Appeals had adhered to case law establishing that the only proper party to such an action is the plan itself, not the employer, nor the claims evaluator. However, as this ruling noted, “it does not follow from this general rule that an ERISA claim for benefits may never be brought against an insurer.”

The court explained that claims under ERISA Section 502(a)(1)(B) are essentially contractual in nature. And while many employee benefit plans are sponsored and funded by employers, others simply involve the purchase of insurance. The court acknowledged with insurance-based plans, however, “confusion is all too common in ERISA land; often the terms of an ERISA plan must be inferred from a series of documents[,] none clearly labeled as ‘the plan.'” Health Cost Controls of Ill., Inc. v. Washington, 187 F.3d 703, 712 (7th Cir. 1999); see also Admin. Comm. of Wal-Mart Stores, Inc. v. Gamboa, 479 F.3d 538, 542 (8th Cir. 2007) (“[I]dentifying ‘the plan’ is not always a clear-cut task.”). We sometimes equate the ERISA “plan” with the insurance policy. See, e.g., Raybourne v. Cigna Life Ins. Co. of N.Y., 576 F.3d 444, 448 (7th Cir. 2009) (describing an insurance policy as “the original plan”). More commonly, however, we refer to an insurance policy as a “plan document” that implements the plan. See Ruiz v. Cont’l Cas. Co., 400 F.3d 986, 991 (7th Cir. 2005); Health Cost Controls, 187 F.3d at 712.

To complicate matters further, insured plans are subject to state insurance law and “the requirements imposed by state insurance law become plan terms for purposes of a claim for benefits under Section 1132(a)(1)(B).” (citing UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 375-76 (1999)(incorporating state common law involving the timeliness of claims).

The Ward case emphasized that under ERISA’s statutory scheme, which precludes pre-emption of state insurance laws, insurers may not “displace any state regulation simply by inserting a contrary term in plan documents.” Id. at 376. That result, the court said, “would virtually ‘read the saving clause out of ERISA.'” Id.

However, while ERISA recognizes that plans may be insurance policies and specifies who may bring an action, the law does not identify the parties who may be sued. But neither does the statute limit “the universe of possible defendants”; indeed, it “makes no mention at all of which parties may be proper defendants.” (citing Harris Trust & Sav. Bank v. Salomon Smith Barney Inc., 530 U.S. 238, 246 (2000)). The court, therefore, determined that “[b]y necessary implication, however, a cause of action for ‘benefits due’ must be brought against the party having the obligation to pay.”

And as another court of appeals recently found, “When an employee benefits plan is implemented by insurance and the insurance company decides contractual eligibility and benefits questions and pays the claims, an action against the insurer for benefits due ‘is precisely the civil action authorized by Section 1132(a)(1)(B).'” (citing Cyr v. Reliance Standard Life Ins. Co., 642 F.3d 1202, 1207 (9th Cir. 2011)(en banc)).

The 7th Circuit agreed, finding that “[t]he insurance companies are the obligors and may be sued under ERISA for benefits due the plaintiffs.”

Turning to the fiduciary duty breach claim, the court relied heavily in Pegram in finding that while insurers act as fiduciaries when they “make eligibility and benefits determinations under an ERISA plan,” they are not acting as fiduciaries when they make decisions regarding the content of insurance policies.

Finally, the court held that the policies in question did not violate Wisconsin law because they included coverage for chiropractic treatment. Although the plaintiffs claimed for the first time on appeal that the coverage was not equal to that afforded to other physician services, the court found the issue was raised too late and was therefore waived.

The 7th Circuit’s approval of suits being brought against insurers to challenge benefit denials has been a long time coming. However, the conclusion reached by the court states the obvious – insurers that underwrite and fund benefit programs should be amenable to suit because that’s where the money is.

Although Willie Sutton, a notorious bank robber, supposedly uttered that line in response to being asked why he robbed banks, denies he ever said it.

Editor’s note: DeBofsky represented the plaintiff in the Raybourne ruling cited by the court.

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