Kentucky Court Holds Insurer is Proper Party Defendant

An issue that crops up often in ERISA litigation is just who can be sued.  A strict interpretation of the statute would lead one to the conclusion that only the “plan administrator” can be sued.  Unfortunately, the plan administrator is often a fictitious entity with no assets and no ability to respond to a judgment.

This anomaly occurs because most “plans” do not exist in reality and consist only of one or more insurance policies.  To be sure, there are often written plans that are drawn up and they have names like “Employees’ Welfare Benefits Plan of XYZ Corporation.”  But that plan only exists in that document and has no other legal existence.

Of course, some courts, unable to see the forest for the trees, have held that only the “plan” or “plan administrator” may be sued.  This usually does not create a problem because the insuring agreement will usually contain a clause that makes the insurer liable for any judgment against the plan – but not always.

The practice in many jurisdictions is to sue the insurer, and in many jurisdictions, unless the insurer objects to being named as a defendant, there is no problem.  It is rare, then, for a court to directly address the issue and come up with the correct decision.  The United States Federal District Court for the Western District of Kentucky did just that in Moss v. Unum Life Insurance Co. of America, 2010 WL 3829203 (WD KY 9/24/2010):

‘[T]he proper party defendant in an action concerning ERISA benefits is the party that controls administration of the plan.’ “ Terry v. Bayer Corp., 145 F.3d 28, 36 (1st Cir.1998) (quoting Garren v. John Hancock Mut. Life Ins. Co., 114 F.3d 186, 187 (11th Cir.1997)). Such a defendant is deemed a fiduciary under ERISA. See 29 U.S.C. § 1002(21)(A).

The court arrived at the common-sense conclusion that under ERISA an entity is a fiduciary only over aspects of the of the plan which it controls.

When an insurance company administers claims for employee welfare benefit plans and has authority to grant or deny claims, the insurance company is a “fiduciary” for ERISA purposes. See Libbey-Owens-Ford Co. v. Blue Cross & Blue Shield Mut. of Ohio, 982 F.2d 1031, 1035 (6th Cir.1993). An employer who does not control or influence the decision to deny benefits is not the fiduciary with respect to denial of benefit claims. Chiera v. John Hancock Mut. Life Ins. Co., 3 Fed. Appx. 384, 389 (6th Cir.1001) (unpublished decision).

The court went on to hold that Unum is a proper party to be sued, but that the employer is not, as there was no evidence that it “. . . played any role whatsoever in the denial of  [Claimant’s] benefits. . .” and therefore was not a fiduciary as to the denial of those benefits.

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