By: Sheryl Skibbe, Kathleen Cahill Slaught and Sam Schwartz-Fenwick
Recently, in Cyr v. Reliance Standard Life Ins. Co., Nos. 07-56869, 08-55234 (9th Cir. June 22, 2011), the Ninth Circuit ruled that in an action for benefits brought pursuant to Section 502(a)(1)(B) of ERISA, entities other than the plan, plan administrator, or trustee can be named as proper defendants. This decision overrules prior precedent and clarifies dicta in which the Ninth Circuit held that only these entities were proper defendants. Ford v. MCI Communications Corp. Health & Welfare Plan, 399 F.3d 1076, 1081 (9th Cir. 2005); Everhart v. Allmerica Financial Life Insurance 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).
Cyr was employed by Channel Technologies, Inc. (CTI). CTI provided its employees with long term disability benefits under a program insured by Reliance Standard Life Insurance Company. Following her termination, Cyr applied for and was approved for long term disability benefits that were based on a formula tied to her compensation. Cyr subsequently sued CTI for pay discrimination on account of sex. Cyr and CTI entered into a settlement under which Cyr’s salary was retroactively adjusted to nearly twice what she had been paid, effective one week prior to her termination. Cyr then sought adjusted disability benefits from Reliance but the insurer declined to pay higher benefits.
Cyr sued Reliance, the benefit plan, and CTI under Section 1132(a)(1)(B). Reliance argued that it was not a proper defendant. The district court on summary judgment agreed. The district court later reversed itself, finding that circuit precedent “left room for suits against insurers so long as they are functioning as the plan administrator.” Reliance appealed. On appeal the parties briefed the narrow issue of “whether appellant is a proper defendant in a suit for benefits under 29 U.S.C. section 1132(a)(1)(B) even though it isn’t a plan or a plan administrator.”
The Ninth Circuit en banc found that Reliance was a proper defendant because it effectively controlled the decision whether to pay or to deny a claim under the benefit plan. The Court noted that neither Section 502(a)(1)(B) nor any regulation limits which parties may be properly named as defendants in an action for benefits. The Court held that Section 502(d)(2) of ERISA supports this finding, as it provides that a party (not simply a plan or plan administrator) can be sued for money damages as long as that party’s individual liability is established. The Court found further support for its holding in Harris Trust & Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000). In Harris, the Supreme Court held that ERISA did not contain a limitation on who could be properly named as a defendant under 502(a)(3). The Ninth Circuit reasoned that Section 502(a)(1)(B) similarly contained no limitation.
This case will have reverberations throughout the Ninth Circuit for insurance companies and third party plan administrators who once thought themselves outside the reach of Section 502(a)(1)(B). In light of Cyr, whether an entity in the Ninth Circuit is a proper defendant turns on the amount of responsibility the entity has for approving and denying employee benefits.