Tuesday, February 28, 2006

Posner on ERISA Fiduciary Status

Judge Richard Posner of the Seventh Circuit Court of Appeals authored a recent ERISA opinion concerning whether an insurance carrier involved in handling claims under a disability plan was a fiduciary for purposes of ERISA.  The issue came up in a denial of disability benefits case in which the court was exploring whether the arbitrary and capricious standard for denial of plan benefits was the appropriate one in light of the entity handling claims under the plan.

In Rud v. Liberty Life Assurance Co. of Boston, 2006 WL 399149 (7th Cir. Feb. 22, 2006), although the employer acted as the plan administrator, Liberty Life handled claims under the disability benefits plan.  Plaintiff had his disability benefits terminated by Liberty Life and sued the insurer under both ERISA and breach of contract theories. After the case was removed to federal court, the court dismissed the plaintiff's denial of benefit claims under the arbitrary and capricious standard.  The plaintiff challenged the standard of review arguing that Liberty Life was neither a plan administrator, nor otherwise a fiduciary.

Not so said Judge Posner. Stressing the functional definition of an ERISA fiduciary, Judge Posner explained that since Liberty Life clearly exercised discretion in the administration of the plan assets, Liberty Life qualified as a fiduciary of the plan.  As such, the arbitrary and capricious standard applied, and unlike the SIxth Circuit case blogged about yesterday, the utilization of that standard signaled the doom of the plaintiff's case.

No fireworks here folks, but it is encouraging to see a clean ERISA federal appellate circuit opinion in an area in which such opinions are more the exception than the rule.

Hat Tip: ERISA and Disability Benefits Law Blog



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