TPA Can Be Liable for Payment of Benefits

The 5th Circuit Court of Appeals recently held that a third party administrator is a proper defendant in an action to recover benefits under ERISA § 502 (a)(1)(B) and can be held liable for the payment of benefits where the TPA exercises actual control over the claims process with the unilateral power to decide and deny claims. Lifecare Management Services LLC v. Insurance Management Administration Corp., 54 EBC 2480 (5th Cir. 2013.) The 5th Circuit affirmed the lower district court’s decision awarding over $500,000 in benefits and attorney’s fees. The Court found that despite language in the TPA contract stating that its duties were ministerial, 1) nothing in the plain language of ERISA § 502 (a)(1)(B) limits who may be sued for benefits and 2) the TPA had been given, and had exercised, actual, unilateral control of the claims process resulting in the improper denial of benefits. The Court made it clear that although neither ERISA nor the applicable case law insulates an entity from liability “merely for being a TPA”, if the TPA contract had not given the TPA the power to unilaterally deny claims that it considered routine, and instead, provided that disputed claims had to be referred to the sponsoring employers for resolution, the TPA would not have found itself liable for exercising discretionary authority in denying the claims.