Cassidy v. Union Security Insurance Company
REVISED MEMORANDUM OPINION AND ORDER ON REPORT AND RECOMMENDATION OF MAGISTRATE JUDGE: SUSTAINING in part Defendant's objections 25 and RETURNS the matter 22 to the Magistrate Judge with instructions to reconsider the proper standard of review in light of Union Security's role as Plan Sponsor. (Written Opinion). Signed by Chief Judge John R. Tunheim on 12/06/2017. (JMK)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 16-4087 (JRT/FLN)
KRISTA M. CASSIDY,
UNION SECURITY INSURANCE
OPINION AND ORDER ON
REPORT AND RECOMMENDATION
OF MAGISTRATE JUDGE
Mark M. Nolan, NOLAN, THOMPSON & LEIGHTON, PLC, 5001
American Boulevard West, Suite 595, Bloomington, MN 55437, for plaintiff.
S. Russell Headrick and Robyn L. Anderson, LATHROP & GAGE LLP,
2345 Grand Boulevard, Suite 2200, Kansas City, MO 64108; and Terrance
J. Wagener, MESSERLI & KRAMER, 1400 Fifth Street Towers, 100
South Fifth Street, Minneapolis, MN 55402, for defendant.
Plaintiff Krista M. Cassidy (“Cassidy”) seeks payment of benefits under a longterm disability plan (“the Plan”) that her employer, Great Northern Bank (“Great
Northern”), purchased from Defendant Union Security Insurance Company (“Union
Security”) through the Minnesota Bankers Association Employee Benefits Trust (the
“Bankers Association”). After unsuccessfully appealing an adverse benefit determination
through Union Security’s internal review process, Cassidy filed this action under the
Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1132(a)(3). (Compl.,
Dec. 15, 2016, Docket No. 1). Subsequently, Cassidy moved for the Court to review
Union Security’s determination de novo. (Mot., Apr. 10, 2017, Docket No. 14.)
Recommendation (“R&R”) that the Court grant Cassidy’s motion. (R&R at 6, Aug. 18,
2017, Docket No. 22.) The Magistrate Judge found that the Bankers Association, as Plan
Administrator, lacked inherent discretionary authority to delegate to Union Security, that
Union Security therefore lacked such discretionary authority, and that the Court should
therefore review the determination de novo. (Id. at 5-6.) Union Security timely objected
to the R&R on the grounds that the Magistrate Judge did not consider whether the
Bankers Association, as Plan Sponsor, had plenary authority to confer discretionary
authority on Union Security. (Objs. to R&R at 4-8, Sept. 1, 2017, Docket No. 25.) The
Court will find that the Bankers Association, as Plan Sponsor, does have the authority to
bestow discretionary authority, and will return the matter to the Magistrate Judge to
determine whether the Plan’s authority provision was sufficient to do so.
As a preliminary matter, the parties dispute the proper standard of review to apply
to the R&R. Union Security argues that the Court should conduct a de novo review under
Federal Rule of Civil Procedure 72(b). Cassidy counters that, because the underlying
motion is not dispositive, this Court should only determine if the R&R “is clearly
erroneous or is contrary to law” under Rule 72(a). Neither Rule precisely fits this case:
Rule 72(a) contemplates review of “a written order,” while Rule 72(b) contemplates
review of R&Rs on “dispositive motions.”
Here, without deciding whether the
underlying motion is dispositive, the Magistrate Judge issued an R&R stating that the
district court would conduct a de novo review of any objections. 1 (R&R at 6.) The Court
deems it appropriate under these circumstances to apply a de novo standard. See Dyrda
v. Wal-Mart Stores, Inc., 41 F. Supp. 2d 943, 945 (D. Minn. 1999). In applying de novo
review, “[t]he district judge may accept, reject, or modify the recommended disposition;
receive further evidence; or return the matter to the magistrate judge with instructions.”
Fed. R. Civ. P. 72(b)(3); accord D. Minn. LR 72.2(b)(3).
Turning to the merits, the Supreme Court has held that courts must review a
determination of ERISA benefits de novo “unless the benefit plan gives the administrator
or fiduciary discretionary authority to determine eligibility for benefits or to construe the
terms of the plan.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). In
keeping with Firestone, the Magistrate Judge determined that the Bankers Association, as
Plan Administrator, does not have inherent discretionary authority.
concedes that the Bankers Association, as Plan Administrator, does not have inherent
discretionary authority – but argues that the Bankers Association, as Plan Sponsor, has
plenary authority to confer discretionary authority onto an administrator or fiduciary.
Both parties cite cases more helpful to the other side. Union Security cites First Fin.
Sec., Inc. v. Lee, No. 14-CV-1843 (PJS/SER), 2016 WL 881003 (D. Minn. Mar. 8, 2016), as an
example of a “district court review[ing] de novo the magistrate’s ruling and recommendation as
to ERISA standard of review.” (Objs. to R&R at 3.) But Lee was not an ERISA case, and the
court applied de novo review because the sanctions recommended were “potentially dispositive.”
Lee, 2016 WL 881003, at *1 n.2. Meanwhile, Cassidy cites Spano v. Boeing Co., No. 06-CV0743-NJR-DGW, 2015 WL 4941698, at *2 (S.D. Ill. Aug. 19, 2015), as an example of a court’s
review of a non-dispositive R&R under Rule 72(a). But the Spano court noted that it was “not
entirely clear which standard applies to this hybrid circumstance” before holding that the R&R
would be adopted under either. Id.
Firestone does not spell out the source of authority for including a grant of discretionary
authority in the terms of a benefit plan. But ERISA itself does.
ERISA defines the multiple roles involved in the establishment and administration
of a benefit plan.
First, a plan sponsor is an employer, employee organization, or
U.S.C. § 1002(16)(B). A plan sponsor is analogous to the settlor of a trust and may
adopt, modify, or terminate a benefit plan however it sees fit. 2 Lockheed Corp. v. Spink,
517 U.S. 882, 890 (1996). Second, a plan administrator is “the person specifically so
designated by the terms of the instrument under which the plan is operated.”
29 U.S.C. § 1002(16)(A)(i). If the terms of the plan do not identify an administrator, the
plan sponsor takes on the secondary role of administrator by operation of law. See
29 U.S.C. § 1002(16)(A)(ii); Firestone, 489 U.S. at 105. And a fiduciary is one who
“exercises any discretionary authority or discretionary control respecting management of
[a] plan or exercises any authority or control respecting management or disposition of its
assets.” Id. § 1002(21)(A)(i). A plan sponsor takes on the secondary role of fiduciary to
the extent that it exercises discretionary authority to administer the plan, but not to the
extent that it adopts, modifies, or terminates a plan. That is, the plan sponsor may take on
subsidiary roles, but it simultaneously remains plan sponsor. Spink, 517 U.S. at 890-91.
Cassidy submits that Firestone “soundly rejected the argument that a plan
sponsor/fiduciary/trustee/plan administrator has inherent discretionary authority.” (Resp. to
Objs. at 4, Sept. 14, 2017, Docket No. 28.) But Spink shows that a plan sponsor is analogous to a
trust’s settlor, who sets the terms, not a trustee, who must act within them. 517 U.S. at 890.
Cassidy’s interpretation of ERISA would mean that a plan sponsor may always
grant itself discretionary authority – but may never grant the same authority to a third
party unless and until it grants itself the power to do so. The cases Cassidy cites do not
interpret ERISA to contain such a requirement; indeed, only one mentions a plan
sponsor’s grant of authority to itself. In McKeehan v. CIGNA Life Ins. Co., a plan
sponsor conferred discretionary authority on itself but not on a fiduciary. Although the
court noted the sponsor’s grant to itself, it did not suggest it was required for a secondary
grant to be valid. 3 344 F.3d 789, 793 (8th Cir. 2003). Similarly, in Groves v. Metro. Life
Ins. Co., a sponsor conferred discretionary authority on itself and appointed an
administrator to handle claims “in accordance with the terms of the Plan.” 438 F.3d 872,
874 (8th Cir. 2006). Although the court held those actions sufficed as a grant of authority
to the administrator, it did not suggest that an express grant to an administrator would be
invalid absent a sponsor’s grant to itself. See id.
The source of confusion seems to be that one party filled all three roles in
Firestone: Firestone was simultaneously plan sponsor, plan administrator, and fiduciary.
The other cases Cassidy cites each seem to take for granted the proposition that a plan
sponsor’s power to establish or amend the plan includes the power to include an authority
provision granting discretionary authority to a plan administrator or fiduciary. See Finley v.
Special Agents Mut. Benefit Ass’n, 957 F.2d 617, 619 (8th Cir. 1992) (applying de novo review to
interpret an authority provision); Jacobs v. Pickands Mather & Co., 933 F.2d 652, 656 (8th Cir.
1991) (requiring de novo review when plan lacked an authority provision, regardless of plan
sponsor’s intent); Wallace v. Firestone Rubber & Tire Co., 882 F.2d 1327, 1329-30 (8th Cir.
1989) (requiring de novo review when plan lacked an authority provision for Firestone, as plan
administrator, even though Firestone, as plan sponsor, could amend the plan).
489 U.S. at 105. It was the sole source of funding and did not outsource its claim
management. Id. Firestone, as plan sponsor, failed to include in its benefit plan any
language granting discretionary authority to Firestone, as plan administrator, or Firestone,
as fiduciary – or to anyone else. Id. at 112. The Supreme Court held that this lack of
discretion-conferring language in the Plan required the district court to apply a de novo
standard when reviewing eligibility determinations. Id. at 115. But Firestone only says
that administrators and fiduciaries lack inherent discretionary authority absent an express
grant. It does not say that a plan sponsor lacks the authority to make such an express
grant to an administrator or fiduciary. See id.
Here, like in Firestone, the Plan Sponsor and Plan Administrator are the same. Cf.
489 U.S. at 105. Plan documents identify the Bankers Association as Policy Holder, Plan
Sponsor, and Plan Administrator. 4 (Aff. of Mark M. Nolan (“Nolan Aff.”) ¶ 2, Ex. A at
1, Apr. 10, 2017, Docket No. 17; Nolan Aff. ¶ 3, Ex. B at 2.) But here, unlike in
Firestone, a third party is involved. The Bankers Association, as Plan Sponsor, included
in the Plan a provision purporting to grant Union Security the authority to determine
eligibility for benefits and to interpret the Plan’s terms. 5 (Nolan Aff. ¶ 2, Ex. A at 32.)
“Plan documents explaining an ERISA plan for employees are generally acceptable
evidence of the plan terms.” Groves, 438 F.3d at 874 n.2.
The authority provision reads in full: “The policyholder delegates to us and agrees that
we have the authority to determine eligibility for participation or benefits and to interpret the
terms of the policy. However, this provision will not restrict any right you may have to pursue
an appeal or file a lawsuit if your claim for benefits is denied.” (Nolan Aff. ¶ 2, Ex. A at 32.)
Because this grant of authority falls under the wide net of “any discretionary authority,”
Union Security meets the statutory definition of “fiduciary.”
See 29 U.S.C.
The remaining question is whether the Plan’s authority provision is sufficient to
bestow “discretionary authority to determine eligibility for benefits or to construe the
terms of the plan” upon Union Security as fiduciary such that de novo review is
unwarranted. See Firestone, 489 U.S. at 115. In the Eighth Circuit, “when an insurance
policy is the ERISA plan,” that means determining whether the contested provision uses
“explicit discretion-granting language.” Walke v. Grp. Long Term Disability Ins., 256
F.3d 835, 839-40 (8th Cir. 2001) (noting that a provision granting “full” discretion and
authority to determine eligibility for benefits and to construe the terms of the plan is
sufficient). Because the Magistrate Judge did not have reason to reach this question in
the R&R, the Court will return this matter to the Magistrate Judge to resolve.
Based on the foregoing, and all the files, records, and proceedings herein, the
Court SUSTAINS in part Defendant’s objections [Docket No. 25] and RETURNS the
matter [Docket No. 22] to the Magistrate Judge with instructions to reconsider the proper
standard of review in light of Union Security’s role as Plan Sponsor.
DATED: December 6, 2017
at Minneapolis, Minnesota.
__________s/John R. Tunheim________
JOHN R. TUNHEIM
United States District Court
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