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Who Do You Sue Under ERISA When Your Health Insurance Claim is Denied?

Employees of Chicago area employers that participate in an employer sponsored group health insurance plan often assume if and when their claim is denied, they must sue the insurance company. But that is not always the case in litigation under the Employee Retirement Income Security Act of 1974 (“ERISA”). The insurance company is undoubtedly the party with whom the employee or other covered participant has had communications, and received a denial letter from. But the inquiry does not stop there.

In the case of a health insurance plan that is fully insured, meaning the insurance company bears the financial risk, then the insurer will undoubtedly be a fiduciary under the plan. But in the case of large employers, the plan is often self-funded, and the insurance company merely acts as a claims administrator. The question then is whether the insurance company exercised any discretionary authority or control over approving or denying the claim. See ERISA § 3(21)(A).

In Wesson v. Jane Phillips Medical Center & Affiliates Employee Group Healthcare Plan, No. 09-561 (N.D. Okla. Sept. 30, 2011), this issue arose. The plaintiff named BMI-Healthplans, the insurance company acting as a claims administrator, as a defendant. According to the plan document, BMI was merely a “plan supervisor” and would process claims and apply the rules of the plan to claims, but would not have any discretion. If this were true, BMI would be a non-fiduciary third party administrator not subject to liability in a claim for benefits due under the terms of the plan. However, the plaintiff alleged that BMI, despite not being contractually obligated to do so, actually did exercise discretionary authority or control, thereby making BMI a “functional” or “de facto” fiduciary. This just means that if a party does the acts the ERISA statute says makes one a fiduciary, that party is a fiduciary regardless of what any contract says to the contrary.

Despite the allegation, nothing in the administrative record revealed that BMI in fact did anything to make it a functional fiduciary, so the court dismissed all claims against BMI (but not the plan). If you have questions about an ERISA lawsuit, speak to an ERISA lawyer today.

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