In Larson v. United Healthcare Ins. Co., __ F.3d __, 2013 WL 3836236 (7th Cir. 2013), the Seventh Circuit upheld the dismissal of plaintiffs’ putative class action claims that health insurers violated Wisconsin state law (WIS. STAT. § 632.87(3)), requiring coverage for chiropractic services when diagnosis and treatment of the same condition is covered if performed by a physician or osteopath. The plaintiffs argued that the insurers set unreasonably high co-payment amounts such that the result was that the insurance company did not provide coverage. The plaintiffs alleged several health benefit plans set co-payments at $50.00 to $60.00 per visit, which was basically the cost of the visit. The district court dismissed the action on the grounds that the insurance companies were not the proper parties to a benefits claim under Section 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1132(a)(1)(B), and the plaintiffs failed to state a claim for breach of fiduciary duty under ERISA.
The Seventh Circuit affirmed the grant of dismissal of the action, but on slightly different grounds. Initially, the Seventh Circuit ruled that in certain circumstances an insurance company may be a proper party to an ERISA claim for benefits. The Seventh Circuit ruled that, “[b]y necessary implication[,] a cause of action for ‘benefits due’ must be brought against the party having the obligation to pay” the benefits due. Larson, 2013 WL 3836236, at *6. The Seventh Circuit then reviewed its precedent and concluded that, “[a]lthough a claim for benefits ordinarily should be brought against the plan (because the plan normally owes the benefits), 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).” Id. at *9; see also Cyr v. Reliance Standard Ins. Co., 642 F.3d 1202 (9th Cir. 2011) (en banc).
The Seventh Circuit went on to determine the merits of plaintiffs’ claims against the defendants and uphold the dismissal of the action. First, the Seventh Circuit agreed with the district court ruling that the setting of co-payment amounts is not a fiduciary act under ERISA and, therefore, there was no breach of an ERISA fiduciary duty. Larson, 2013 WL 3836236, at *10.
Second, the Seventh Circuit considered whether the plan terms violated Wisconsin state law. The Seventh Circuit ruled that the insurance policies complied with the law because they provided coverage for chiropractic services. The Seventh Circuit rejected the plaintiffs’ argument that the setting of co-payments at high amounts effectively carved-back the coverage, ruling that the statute “does not mandate a particular amount or level of coverage” and it does not prohibit the amount of co-payments. Id. at *11.
In the end, the Seventh Circuit focused on the merits of the plaintiffs’ claims. Over the years, the defense that the insurance company is not the proper party for an ERISA § 502(a)(1)(B) claim has become the subject of a circuit split. Therefore, it is important not to rely solely on this defense, and to consider substantive defenses on the merits of the allegations of any complaint.