Insurance Company Declared ERISA Fiduciary; Court Cites Company’s Actual Coverage Determinations

Self-Funding Advisor

PUBLISHED ON: September 6, 2006

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The Seventh Circuit recently held that an insurance company providing a policy for a self-funded plan may be a fiduciary for purposes of ERISA liability, even if not designated as such in the plan. (Rud v. Liberty Life Assurance Company of Boston, Inc., Case No. 04-3655 (7th Cir. Feb. 22, 2006)). The holding is an important victory for self-funding employers, who are often the only designated fiduciaries in their ERISA welfare benefits plans, even though the insurance company makes all coverage decisions.

Rud involved a welfare benefits plan that the employer, Andersen Windows, Inc. (Andersen), provided for its employees. Andersen insured the disability portion of the plan through the defendant, Liberty Life. Liberty Life had denied permanent disability benefits to the plaintiff, Rud, who then sued for coverage. Interestingly, Rud did not sue his employer (Andersen), only Liberty Life.

ERISA plan participants ordinarily may only sue the plan fiduciary when benefits are denied under an ERISA plan. ERISA provides contractual liability only and limits damages to the value of the benefit denied, plus attorney’s fees. Very often, ERISA plans such as Andersen’s designate an “administrator” responsible for making coverage determinations and, thus, is a fiduciary. As the court framed the issue: “[t]he plan’s administrator was [Andersen], not Liberty Life. But if Liberty Life was not an ERISA fiduciary too, there is no basis for Rud’s claim.” (Id. at 3.)

The court looked beyond the plan language for evidence that Liberty Life was in fact a fiduciary with discretionary authority. Liberty Life’s disability policy provided that Liberty Life “shall possess” conclusive and binding authority to construe the terms of the policy and make benefit eligibility determinations. (Id. at 3.) Reading the policy and the plan together demonstrated that Andersen and Liberty Life had split the role of fiduciary. Andersen decided who was eligible to participate in the plan and Liberty Life decided who was eligible to receive benefits. (Id. at 4.)

Further evidence of Liberty Life’s fiduciary status was that when it determined coverage under its policy, it was determining whether benefits would be paid. As the court put it “The policy is the plan.” (Id. at 5) (emphasis original). Thus, Liberty Life was a de facto administrator.

The court recognized that its opinion involves a split in authority as to whether two administrators can coexist. In defending its holding, the court stated that the right question to ask in determining fiduciary status is: “whether the particular defendant made a discretionary determination concerning the plaintiff’s entitlement to plan benefits.” (Id. at 5.)

In holding that Liberty Life was a fiduciary, the court denied Rud’s claim. He had brought a state law claim against Liberty Life alleging that it was not a fiduciary and had a conflict of interest in making benefit determinations because it had a financial motive to deny benefits.


On a larger scale, Rud is an important victory for employers. Despite that insurance companies and TPAs make benefit determinations, they often try to force employers to accept all liability for such determinations. Rud makes clear that that practice is not appropriate or supported by the law. The ruling may help employers avoid becoming embroiled in lawsuits with their employees and TPAs.