IT Corp. v. General American Life Ins. Co.
| Citation | 107 F.3d 1415 |
| Decision Date | 03 March 1997 |
| Docket Number | No. 94-55947,94-55947 |
| Parties | , 20 Employee Benefits Cas. 2633, 97 Cal. Daily Op. Serv. 1550, 97 Daily Journal D.A.R. 2283, Pens. Plan Guide (CCH) P 23936N IT CORPORATION; IT Corporation Benefit Plan; Harry Joseph Lukowski, Plaintiffs-Appellants, v. GENERAL AMERICAN LIFE INSURANCE COMPANY, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Sherril Nell Babcock, Gianelli & Morris, Los Angeles, California, for plaintiffs-appellants.
David L. Bacon (Argued), and James J. Moak (On the Briefs), Thelen, Marrin, Johnson & Bridges, Los Angeles, California, for defendant-appellee.
Appeal from the United States District Court for the Central District of California, Stephen V. Wilson, District Judge, Presiding. D.C. No. CV-9400524-SVW.
Before: HUG, C.J., and BEEZER and KLEINFELD, Circuit Judges.
The issue in this ERISA case is whether a health benefits plan administrator can be sued as a fiduciary. We conclude that in this case dismissal of the claims against the administrator was error, because of questions regarding the administrator's discretionary authority, and also its control of plan money.
The district court dismissed this action on the ground that the defendant was, under its contractual undertaking, not an ERISA fiduciary. Though the case came before the district court on a 12(b)(6) motion to dismiss, the court considered the contracts between IT Corporation and General American (attached to the motion), as well as the complaint, so we review the dismissal de novo as on summary judgment. United States v. Grayson, 879 F.2d 620, 625 n. 8 (9th Cir.1989). The appeal does not argue procedural irregularity, so we do not consider it.
IT Corporation hired General American Life Insurance Company to administer IT's ERISA plan. Under the Administrative Services Agreement which General American had IT Corporation sign, IT was to establish a bank account and keep enough money in it to cover checks. General American had checkwriting authority. General American was to process claims, and pay or deny them. The contract says that General American "shall pay all claims which it has determined to be payable under the agreement, except ... all contested or doubtful claims or benefits amounts shall be referred to the client for its determination of liability and instruction."
The complaint alleges that General American paid over $600,000 for medical expenses relating to an IT Corporation employee's dependent child. According to the complaint, the child was ineligible for benefits, and General American paid $600,000 from the ERISA plan bank account in violation of the terms of the plan. There are three plaintiffs: the plan, IT Corporation, and a participant-employee.
The plan included a number of clauses designed to limit General American's liability in the event of error or misjudgment. IT Corporation and General American agreed that General American would be "acting only as agent of" IT, and would "not be liable for any mistake of judgment or other action taken in good faith, or for any loss unless resulting from its gross negligence." One clause in the agreement General American obtained from IT said that "under no circumstances shall the service contractor [General American] be considered the named fiduciary under the Plan." The agreement further provided: "Each individual administrative act, decision and interpretation by [General American] (including any errors, clerical or otherwise) shall be binding upon the [IT] with respect to past performance or completed action."
Basically, General American was supposed to refer doubtful claims to IT, but IT would ordinarily not even know about a claim unless and until General American exercised its judgment to decide that the claim was doubtful. In routine medical claims, General American was to conduct "verification of employee eligibility as to coverage and benefits" and provide "claim control practices," and then pay the claims as it deemed appropriate and provide monthly reports of claim payments. General American was to "consult with [IT Corporation] or legal counsel designated by [IT] in claim matters that are beyond the ordinary." The contract provided that General American "shall investigate the validity of each claim ... and shall compute the benefits payable, if any, on each such claim." Then General American "shall pay all claims which it has determined to be payable under the agreement," except that "[a]ll contested or doubtful claims or benefit amounts shall be referred to the client for its determination of liability and instruction to the service contractor." IT Corporation retained authority to "resolve any disputes which may arise with regard to the rights of persons covered under the Plan, including but not limited to eligibility for participation and claims for benefits."
Though General American did much to exonerate itself from responsibility by means of the contract it had IT Corporation sign, the contractual exoneration cannot do it much good in this case. There are several reasons why not. First, a contract exonerating an ERISA fiduciary from fiduciary responsibilities is void as a matter of law. Second, a fiduciary's contract with an employer cannot get it off the hook with the employees who participate in the ERISA plan. They did not sign a contract exonerating the fiduciary. Third, a contract providing that a party is not a named fiduciary does not mean that it is not an unnamed fiduciary. Fourth, discussed in section 2, below, the contract does not limit General American's tasks to the purely ministerial.
If an ERISA fiduciary writes words in an instrument exonerating itself of fiduciary responsibility, the words, even if agreed upon, are generally without effect. With exceptions not relevant to this case, ERISA provides that "any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void as against public policy." 29 U.S.C. § 1110(a). If General American is a fiduciary, as defined in section 1002(21)(A), "any interpretation of the Plan which prevents [General American] acting in a fiduciary capacity from being found liable as [a] fiduciar[y] is void." Kayes v. Pacific Lumber Co., 51 F.3d 1449, 1460 (9th Cir.) cert. denied, --- U.S. ----, 116 S.Ct. 301, 133 L.Ed.2d 206 (1995). "ERISA defines fiduciary not in terms of formal trusteeship, but in functional terms of control and authority over the plan, thus expanding the universe of persons subject to fiduciary duties--and to damages--under § 409(a)." Id. at 1459 (quoting Mertens v. Hewitt Assocs., 508 U.S. 248, 262, 113 S.Ct. 2063, 2071, 124 L.Ed.2d 161 (1993)) (emphasis in original).
Even if General American could by contract exonerate itself from fiduciary responsibilities to IT Corporation, there is no reason to suppose that the contract would exonerate General American from its duties to participants and beneficiaries of the ERISA plan. 29 U.S.C. §§ 1104, 1110(a); cf. Restatement (Second) of Trusts § 216, comment i (1959). The participant-employee plaintiff did not sign the contract with the exonerating provisions, and he is entitled to have the plan administered in the interest of participants and beneficiaries. 29 U.S.C. § 1104. The ERISA Plan itself also sued for breach of what it claimed was General American's fiduciary responsibility to the Plan.
The contract says that "under no circumstances shall the service contractor [General American] be considered the named fiduciary under the Plan." The word "named" in this provision leaves open the possibility that General American may be an unnamed fiduciary. There is a difference under ERISA, between a "named fiduciary," under 29 U.S.C. § 1102(a), and a "fiduciary" under 29 U.S.C. § 1002(21)(A). Named fiduciaries are a subset of fiduciaries.
The most substantial argument for exonerating General American is that it was not a fiduciary, because its duties were purely ministerial. The contract says:
It is understood that the Service Contractor [General American] performs purely ministerial functions for the Client [IT Corporation] within a framework of policies, interpretations, rules, practices and procedures made by the Client.
Though based on the contract, General American's "purely ministerial" argument is not subject to the weaknesses of contractual exoneration. It is one thing to say "we promise to act as a fiduciary, but we shall not be subject to the liabilities of fiduciaries to beneficiaries." That generally cannot be done. It is different to say "we will do certain things for you, but only cut and dried things under your direction, not any of those acts which would make us a fiduciary." That can work. If a fiduciary tells a bookkeeping service to send a check for $950 to Mercy Hospital, the bookkeeping service does not thereby become a fiduciary.
The words General American used in its contract, "purely ministerial functions," were obviously written to fit the established legal understanding of what acts could be done without turning General American into a fiduciary. The Department of Labor has issued "questions and answers" regarding the distinction between persons performing "ministerial duties" and fiduciaries. These "questions and answers" distinguish persons performing "purely ministerial functions" from fiduciaries:
Only persons who perform one or more of the functions described in section 3(21)(A) of the Act with respect to an employee benefit plan are fiduciaries. Therefore, a person who performs purely ministerial functions such as the types described above, for an employee benefit plan within a framework of policies, interpretations rules, practices, and procedures made by other persons is not a...
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