Email Alert
June 30, 2011
By Michael Maddigan*
On June 22, 2011, the Ninth Circuit issued an en banc opinion in which the court overruled prior Ninth Circuit precedent and held that insurers, not just benefit plans (Plans) and plan administrators may be sued for denial of benefits under Employee Retirement Income Security Act (ERISA). In Cyr v. Reliance Standard Life Insurance Company, the court held that the civil enforcement provision contained in Section 1132(a)(1)(B) of ERISA "does not appear to limit which parties may be proper defendants" in a civil action.
Origins of Cyr's Claims
Cyr involved a claim by Laura Cyr, a vice president of Channel Technologies Inc. (CTI), which provided its employees with long term disability benefits under the company's Plan through a program (Disability Benefits Program) administered by Reliance Standard Life Insurance Company (Reliance). Under the Disability Benefits Program, Reliance effectively controlled the decision whether to honor or deny a claim. After being terminated from her position, Cyr immediately filed a claim for long term disability based on a back condition. Reliance approved the claim and paid benefits under the Program.
Subsequently, Cyr sued CTI for gender discrimination, alleging that prior to her termination, she had received only approximately half of the annual salary of male employees performing work of equal skill, effort, and responsibility. Cyr and CTI entered into a settlement that retroactively increased her salary, effective one week prior to her termination date. Reliance, however, refused to pay increased benefits based on the higher salary figure, as was provided for under the Disability Benefits Program.
Cyr eventually sued the Plan, CTI as administrator of the Plan, and Reliance for denial of benefits and breach of fiduciary duty. The District Court originally granted summary judgment to Reliance on Cyr's claim for benefits, concluding that under Ninth Circuit precedent, only the Plan or plan administrators can be held liable under Section 1132(a)(1)(B). The District Court later changed course however, granting summary judgment to Cyr and holding that prior Ninth Circuit cases "left room for suits against insurers so long as they are functioning as the plan administrator," as the court found Reliance had been.
Reliance appealed. The Ninth Circuit agreed to hear en banc the issue of whether Reliance was a proper defendant in a suit for benefits under
29 U.S.C. § 1132 "even though it isn't a plan or a plan administrator."
The Ninth Circuit's Change in Course
The court ruled that Reliance was a proper defendant, focusing on the language of Section 1132(a)(1)(B) in doing so. The court stated that
"[v]iewed as a whole, § 1132(a) appears to provide a comprehensive listing of which parties can bring which types of civil action under ERISA." The court also concluded that "[t]here are no limits stated anywhere in § 1132
(a) about who can be sued, however." In addition to the plain language of the statue, the Ninth Circuit also relied on the United States Supreme Court's decision in Harris Trust & Savings Bank v. Salomon Smith Barney Inc., 530 U.S. 238 (2000) in reaching its result in Cyr. In Harris Trust, the Supreme Court rejected the suggestion that there was a limitation contained within a different subsection of Section 1132 "on who could be a proper defendant in a lawsuit under that subsection." The Ninth Circuit concluded: "We see no reason to read a limitation into § 1132(a)(1)(B) that the Supreme Court did not perceive in § 1132(a)(3)." The court also explained that Reliance is a "logical defendant for an action by Cyr to recover benefits due to her under the terms of the [P]lan and to enforce her rights under the terms of the
[P]lan" because Reliance was the entity responsible for paying legitimate benefits claims.
In the "Conclusion" section of its opinion, the Ninth Circuit succinctly summarized its decision as holding "that potential liability under 29 U.S.C. § 1132(a)(1)(B) is not limited to a benefits plan or the plan administrator." The court also expressly overruled "[a]ny statements or suggestions to the contrary in [its] prior decisions, including Ford v. MCI Communication Corp. Health & Welfare Plan, 399 F. 3d 1076, 1081 (9th Cir. 2005); Everhart v. Allmerica Financial Life Ins. Co., 275 F. 3d 751, 756 (9th Cir. 2001); 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)."
The Cyr opinion has the potential to affect significantly the nature and scope of litigation over the denial of benefits under ERISA plans, especially in the Ninth Circuit. At a minimum, it is likely to increase the number of cases in which plaintiffs challenging a denial of benefits under an ERISA plan name an insurer as a defendant. In addition, it may also change the way in which plan administrators defend themselves against wrongful denial of benefits claims, particularly in circumstances where the benefits decision effectively was made by an insurer and not by the plan administrator itself.
*We would like to thank Michael Maddigan, Esquire (O'Melveny & Myers LLP, Los Angeles, CA) for authoring this email alert.