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.
Laura Cyr was covered under a group long-term disability plan provided by her employer, Channel Technologies, Inc. Cyr was awarded disability benefits by Reliance Standard, but a dispute arose regarding whether her monthly benefits should be increased in light of a settlement with her employer over a dispute alleging gender discrimination based on unequal pay. Cyr named Reliance Standard as one of the defendants, but the district court granted Reliance Standard’s motion for summary judgment on the grounds that only the plan or the plan administrator could be held liable under section 1132(a)(1)(B). The district court then reversed its ruling in response to the parties’ supplemental briefing and awarded summary judgment to Cyr.
Reliance Standard appealed the decision, and the Ninth Circuit heard the case en banc. In considering only the issue of whether an insurer/claim administrator is a proper defendant in an action to recover benefits under the terms of the plan, the Ninth Circuit noted that “[b]y its terms, § 1132(a)(1)(B) does not appear to limit which parties may be proper defendants in a civil action. Nor has the Secretary of Labor promulgated a regulation setting out such limits.” The Ninth Circuit analyzed the United States Supreme Court’s decision in Harris Trust & Saving Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2008) which examined a similar issue with respect to § 1132(a)(3) and noted that the section “makes no mention at all of which parties may be proper defendants—the focus, instead, is on redressing the ‘act or practice which violates any provision of [ERISA Title I]’” Given the Supreme Court’s analysis of § 1132(a)(3), the Ninth Circuit could “see no reason to read a limitation into § 1132(a)(1)(B).”
The Ninth Circuit explained that, in this litigation, Reliance Standard was a proper defendant because:
Reliance denied Cyr’s request for increased benefits even though, as the plan insurer, it was responsible for paying legitimate benefit claims. Reliance is, therefore, a logical defendant for an action by Cyr to recover benefits due to her under the terms of the plan and to enforce her rights under the terms of the plan, which is precisely the civil action authorized by § 1132(a)(1)(B).
With this ruling, the Ninth Circuit specifically overruled its previous rulings to the contrary, including Everhart, Ford v. MCI Communications Corp. Health & Welfare Plan, 399 F.3d 1076, 1081 (9th Cir. 2005), Spain v. Aetna Life Insurance Co., 13 F.3d 310, 312 (9th Cir. 1993) and Gelardi v. Pertec Computer Corp., 761 F.2d 1323 (9th Cir. 1985).
While, on its face, this case seems to impose liability on insurance companies they did not previously face, in reality, this is not the case. In most ERISA cases for life insurance benefits, health insurance benefits or disability insurance benefits for which the insurance company was financially responsible, the insurance company typically controlled the defense of these lawsuits and paid any amounts due after a settlement or judgment, regardless of whether it was named as a defendant. This decision realized the practical reality that insurance companies should be allowed defendants in ERISA cases involving life insurance benefits, health insurance benefits or disability insurance benefits for which insurance companies are financially responsible. This decision simply put into law what was already happening in actual practice.