De Facto Plan Administrator Claims in the First Circuit

by Wilson Elser

According to 29 U.S.C. § 1132(c)(1)(B) of ERISA, it is within a court’s discretion to award a penalty of up to $110 per day based on an administrator’s failure to comply with a plan participant’s or beneficiary’s request for plan documents. Citing to Law v. Ernst & Young, 956 F.2d 364 (1st Cir. 1992), some have argued that this statute applies to plan insurers acting as de facto plan administrators even though they are not named as such. This interpretation is inconsistent with the language in the statute as well as the court’s discussion in Law.

The term “administrator” is defined in the ERISA statute as “the person specifically so designated by the terms of the instrument under which the plan is operated.” 29 U.S.C. § 1002(16)(A). If no one is named plan administrator, it is deemed to be the plan sponsor, which is usually the employer. Based on the specific definition of the term “administrator,” nearly every circuit has refused to recognize “de facto” plan administrators. See Thorpe v. Retirement Plan of the Pillsbury Co., 80 F.3d 439, 444 (10th Cir. 1996); Brown v. J.B. Hunt Trans. Serv., 586 F.3d 1079 (8th Cir. 2009); Coleman v. Nationwide Life Ins. Co., 969 F.2d 54, 62 (4th Cir. 1992); Klosterman v. W. Gen. Mgmt., Inc., 32 F.3d 1119, 1122 (7th Cir. 1994); Lee v. Burkhart, 991 F.2d 1004, 1010 (2d Cir. 1993); Moran v. Aetna Life Ins. Co., 872 F.2d 296 (9th Cir. 1989); Benham v. Disability Portion of Life & Disability Plan, 6 Fed. App’x 280 (6th Cir. 2001); Davis v. Liberty Mutual Insurance Co., 871 F.2d 1134, 1139 n. 5 (D.C. Cir. 1989).

In Law, the First Circuit found that the defendant could be liable for penalties under ERISA as de facto plan administrator. However, contrary to the argument made by some, the holding does not extend to plan insurers. In Law, a “retirement committee” was named as plan administrator. However, there was a “plethora of evidence indicating that Arthur Young had assumed and controlled the plan administrator’s function of furnishing required information in response to a plan beneficiary's request.” Law, 956 F.2d at 372. The Court recognized that “the employer against whom recovery was sought” gave the committee “little, if any, separate identity, and in fact took control of the function allegedly delegated to that committee.” Id. at 374. Based on these unique facts, the Court correctly concluded that the employer was acting as plan administrator and could be liable for penalties under ERISA.

A plan insurer stands in very different shoes from an employer such as the one in Law. An employer is an entity that may be considered the plan administrator under the ERISA statute. Moreover, the Court in Law was concerned over employers creating separate entities with no real authority in an effort to insulate themselves from potential liability. Law, 956 F.2d at 373. This concern is not implicated by a plan insurer carrying out claim functions.

The decision in Law was never intended to apply to plan insurers. This is clear from the passage below in which the First Circuit stated that its conclusion was not inconsistent with two of the decisions cited above, which held that statutory penalty claims cannot be brought against plan insurers:

This result is not inconsistent with the decisions of other circuits refusing to impose § 1132(c) liability on entities other than the plan administrator. See Moran v. Aetna Life Insurance Company, 872 F.2d 296 (9th Cir.1989) (divided panel) (refusing to hold insurance company liable under § 1132(c) because it was not plan administrator, even though its employee had represented to plan participant that it was); Davis v. Liberty Mutual Insurance Co., 871 F.2d 1134, 1139 n. 5 (D.C. Cir.1989) (refusing to hold insurance company liable under § 1132(c) because it was not plan administrator). Law, 956 F.2d at 374.

There is a distinction between being a plan administrator and a fiduciary of the plan. An ERISA plan can have multiple fiduciaries performing different functions. 29 U.S.C. § 1102(a)(1). Plan insurers generally function as decision makers for benefit claims that make them fiduciaries. However, there can be only one plan administrator and it is this entity that has the responsibility to disseminate plan documents under the ERISA statute or face potential penalties.

There is also a difference between requests for plan documents and requests for claim documents. Under the ERISA regulations, a person whose claim is denied is entitled to receive free of charge “copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.” 29 C.F.R. § 2560.503-1(h)(2)(iii). Therefore, while a plan insurer has no duty to respond to a request for plan documents, it is required to provide claim documents as outlined in the regulation. Does this mean that the plan insurer can be liable for statutory penalties if it fails to provide claim documents that have been requested? No.

Numerous courts have recognized the difference between a request for plan documents under 29 U.S.C. § 1132(c) and a request for claim documents under the ERISA claim regulations. The Third, Sixth, Seventh and Eighth Circuits have all ruled that 29 U.S.C. § 1132(c) may not be relied on to seek penalties for violations of 29 C.F.R. § 2560.503-1(h)(2)(iii). See Brown v. J.B. Hunt Transp. Servs., Inc., 586 F.3d 1079, 1089 (8th Cir.2009); Wilczynski v. Lumbermens Mut. Cas. Co., 93 F.3d 397, 405-07 (7th Cir.1996); Stuhlreyer v. Armco, Inc., 12 F.3d 75, 79 (6th Cir.1993); Groves v. Modified Ret. Plan for Hourly Paid Employees of Johns Manville Corp. & Subsidiaries, 803 F.2d 109, 116-18 (3d Cir.1986).

Plan insurers can still help to insulate themselves from improper penalty claims. When a claim is denied, counsel representing claimants frequently send “kitchen sink” requests for documents, requesting both plan and claim documents from the insurer. A plan insurer receiving such a letter should respond to the request letter by stating that it is not the plan administrator and is responding only as the claim fiduciary in accordance with 29 C.F.R. § 2560.503-1(h)(2)(iii). Otherwise, if there are plan documents included in the claim materials that are provided (and an insurance policy is a plan document), the claimant may argue that the insurer assumed the duties of the plan administrator as was the case in Law.

A case currently pending in the First Circuit, Tetreault v. Reliance Standard Life Ins. Co., et al., No. 13-2353, will address the scope of Law and claims of de facto plan administrators. The decision in that case will hopefully put to rest any argument that a plan insurer can be liable for statutory penalties as de facto plan administrator.



DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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