A participant or beneficiary in an employee benefit plan subject to ERISA may file suit under Section 502(a)(1)(B) of that statute 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.” This cause of action provides typical contract remedies such as recovery of accrued benefits, declaratory judgments to clarify plan benefits and injunctions against future denials of benefits.
ERISA does not identify the proper defendant in such a suit. Courts generally hold the plan to be the proper defendant. Indeed, ERISA Section 502(d)(1) allows an employee benefit plan to sue or be sued as an entity. Many courts hold that entities administering the plan may also be defendants.
The U.S. Court of Appeals for the Seventh Circuit has generally followed the rule that only the plan may be sued under Section 502(a)(1)(B). However, a recent decision by that court has permitted insurance companies providing benefits under fully-insured employee benefit plans to be sued under that section. Larson v. United Healthcare Ins. Co., No. 12-1256, 2013 U.S. App. LEXIS 15272 (7th Cir. July 26, 2013).
The Larson plaintiffs were insured under employer-sponsored healthcare plans underwritten by six defendant insurance companies, who were alleged to have the authority to determine all eligibility and benefit questions and to pay all claims under the plans.
Wisconsin law requires health insurers in the state to cover chiropractic care on an equal basis as other forms of medical care for the same condition. The ERISA plans at issue provided chiropractic coverage, but subject to the plans’ copayment requirements. Because chiropractic services are relatively inexpensive, the required copayments approached or exceeded the cost of chiropractic treatment. Accordingly, plaintiffs alleged, requiring copayments for chiropractic treatment shifts the cost of chiropractic care to the patient in violation of Wisconsin law.
The District Court and Seventh Circuit Decisions
Plaintiffs sued the insurers under ERISA Section 502(a)(1)(B) for recovery of benefits and ERISA Section 502(a)(3) for breach of fiduciary duty. The U.S. District Court for the Western District of Wisconsin dismissed the complaint for failure to state a claim, holding that (1) the insurers were not proper defendants on an ERISA benefits claim and (2) the practice of requiring chiropractic copayments is not a fiduciary act.
On appeal, the Seventh Circuit affirmed, although with different reasoning. The Court of Appeals held that the insurers were proper defendants under ERISA Section 502(a)(1)(B), but dismissed the benefit claim on the merits because Wisconsin law does not prohibit copayments for chiropractic coverage.
State Insurance Laws Are Not Preempted and Can Be Enforceable Plan Terms
The Court of Appeals reasoned that the Wisconsin law at issue was saved from ERISA preemption by ERISA Section 514(b)(2)(A) as a state law regulating insurance. Relying on the U.S. Supreme Court’s decision in UNUM Life Ins. Co. v. Ward, 526 U.S. 358, 375-76 (1999), the Seventh Circuit reasoned that requirements of the Wisconsin insurance law were plan terms that could be enforced for purposes of a benefit claim under ERISA Section 502(a)(1)(B).
Insurers May Be Proper Defendants Where They Decide Eligibility and Owe the Benefit
On the question of whether the insurers were proper defendants, the Court of Appeals concluded:
Although a claim for benefits ordinarily should be brought against the plan (because the plan normally owes the benefit), where the plaintiff alleges that she is a participant or beneficiary under an insurance-based ERISA plan and the insurance company decides all eligibility questions and owes the benefits, the insurer is a proper defendant in a suit for benefits due under §1132(a)(1)(B) [ERISA Section 502(a)(1)(B)].
Larson, supra, 2013 U.S. App. LEXIS 15272 at *24-*25.
In reaching this conclusion, the Seventh Circuit followed the Ninth Circuit, which reached the same result in Cyr v. Reliance Standard Life Ins. Co., 642 F.3d 1202 (9th Cir. 2011)(en banc). In Cyr, the U.S. Department of Labor had filed an amicus brief in support of the plan participant’s suit against the insurance company to recover plan benefits under Section 502(a)(1)(B).
Although the court of appeals in Larson held that the insurers were proper defendants, it nonetheless concluded that the benefit claims were properly dismissed under the terms of the plans because the Wisconsin statute unambiguously does not prohibit copayments for chiropractic coverage.
Issuance of Insurance Policy Is Not Fiduciary Act
The court of appeals in Larson also affirmed dismissal of plaintiffs’ fiduciary breach claim, focusing on the fact that plaintiffs alleged that the insurers “issued policies requiring illegal copayments for chiropractic services.” Although the insurers acted as fiduciaries when they made decisions about awarding plan benefits, the court found that plaintiffs were challenging the content of the insurance policies, rather than fiduciary actions of the insurers in determining benefits. Citing the Supreme Court’s statement in Pegram v. Herdrich, 530 U.S. 211, 226 (2000), that “decisions about the content of a plan are not themselves fiduciary acts,” the court of appeals concluded that plaintiffs had failed to allege a breach of fiduciary duty under ERISA.