Individuals in Chicago and the rest of Illinois who have had to bring a lawsuit for employer sponsored long term disability plan benefits have often been frustrated when they sue the insurance company responsible for paying the benefits and administering the claims, and the insurance company argues it is not a proper party to the lawsuit. This has been problematic for several reasons. First, the insurance company is usually the only source of money to pay the benefits. Second, even if you get a judgment against a plan, the insurance company has to honor its commitment without actually being ordered to do so. For these reasons, individuals suing to enforce their rights under ERISA have often preferred to name the insurance company as a defendant in addition to the plan. When the insurers have challenged being named as a party to the lawsuit, they have met mixed results. Recently, a federal court in Chicago clarified when the insurer is the proper party.
In Ayotte v. Prudential Insurance Company of America, the district court held that Prudential was properly named as a defendant in a case where Mr. Ayotte sued for long term disability insurance benefits. Prudential moved to dismiss, arguing it was not a proper party to the lawsuit. The court disagreed where, as here, the plan administrator (Prudential) was "closely intertwined" with the plan itself. While the district court had on other occasions held that the insurer cannot be named as a party, Judge Gottschall wrote that those decisions misconstrued the authority. Nothing in ERISA § 502(a)(1)(B) prohibits naming the insurer as a defendant where the insurer "issues and administers a plan, determines eligibility for benefits, and pays all claims under the plan." In such a case, the insurer is intertwined with the plan and in control of the benefits. This decision is in line with a recent decision out of the Ninth Circuit Court of Appeals, Cyr v. Reliance Standard Life Insurance Company, 642 F.3d 1202 (9th Cir. 2011) (en banc).
If you have questions about pursuing a long term disability insurance claim, consult with an experienced ERISA lawyer.