Eleventh Circuit Addresses Statutory Penalty Claims Under ERISA

The ERISA statute authorizes a court to award a penalty of up to $110 per day based on the failure of an Administrator to respond to a participant's or a beneficiary's request for plan documents. The term "Administrator" is defined under ERISA as "the person specifically so designated" under the plan or the plan sponsor if no one is named. 29 U.S.C. § 1002(16)(A). Claimants often argue that a plan insurer can be liable for penalties as the "de facto plan administrator" because it administers claims under the plan. This interpretation of the statute has been rejected by nearly every circuit, including most recently the First Circuit in Tetreault v. Reliance Standard Life Ins. Co., 769 F. 3d 49 (1st Cir. 2014).

In Allena Burge Smiley v. Hartford Life and Accident Insurance Company, et al., No. 15-10056 (11th Cir. 2015), the Eleventh Circuit took a step closer to joining ten other circuits that have refused to recognize ERISA penalty claims against de facto plan administrators. Dr. Smiley, a dentist, brought an ERISA penalty claim against Hartford in connection with her claim for disability benefits. Hartford was the third-party administrator only for the Smile Brands' LTD Plan and did not insure benefits under the plan. Smile Brands was identified in the plan documents as the Administrator and it retained authority to make final claim decisions. The Eleventh Circuit concluded that a claim for penalties cannot be brought against third-party administrators and affirmed the judgment in favor of Hartford.

While the Eleventh Circuit reached the right conclusion in Smiley, its reasoning is suspect. The court concluded that because Hartford did not have authority to make the final claim decision, it could not be considered a plan administrator. But whether an entity makes the final eligibility decision has nothing to do with whether it fits within the definition of the term "Administrator." The Eleventh Circuit overlooked the fact that a plan can have multiple fiduciaries performing different functions. In most cases, a plan's insurer will have the authority to make the final claim decision and will even identify itself as a fiduciary of the plan. This does not mean, however, that the insurer has agreed to assume the duties of the Plan Administrator to disclose plan documents or that it can be liable for penalties. In most cases, the plan insurer will not even have copies of the plan documents other than the policy.

Following the reasoning in...