Appeals Court Finds Pru Had Some Fiduciary Duty Over Group LTC Plan Rates

Parmenter argues that the state does have authority to regulate rates at employer-sponsored LTCI plans, and that Tufts and Prudential breached their fiduciary duty to her under ERISA when they increased her LTCI premiums without waiting for the Massachusetts insurance commissioner to begin reviewing employer LTCI plan rate increase requests.

She is seeking to represent a class consisting of all Prudential-administered group LTCI plan participants in plans with “subject to insurance commissioner approval” language in states where commissioners were not reviewing employer LTCI plan premium increase requests.

Prudential maintains that it is not a named Tufts LTCI plan fiduciary, that plan provisions granted it full discretion to increase the plan’s premiums, and that the “subject to” phrase was simply an “acknowledgment of the possibility that the commissioner may, at some future point in time, institute an approval process for group long term care policy premiums.”

The opinion: In an opinion written by senior U.S. Circuit Judge O. Rogeriee Thompson, the court found that Tufts LTCI plan documents gave participants the impression that Prudential was acting as fiduciary.

“In the plan documents, Prudential held itself out to the plan participants as owing them a fiduciary duty of prudence,” Thompson wrote in an opinion explaining the ruling. “In our view, Prudential’s decision to exercise its discretion and increase premiums is part of the overall management of the welfare benefit plan.”

The three-judge panel also found that Parmenter and Prudential are interpreting the “subject to commissioner approval” provision in different ways.

“Because we cannot resolve the meaning of the ‘subject to’ clause on the current record, we reverse the judgment as to Prudential and remand for further proceedings,” according to the opinion.

The panel approved a district court move to drop Tufts as a plaintiff, agreeing with the district court that Tuft’s failure to interfere with Prudential’s actions was different from the kind of active steps that could support breach-of-fiduciary-duty allegations.

Reactions: Jonathan Feigenbaum, one member of Parmenter’s team said in an email that he believes the new decision is an important ERISA decision, because the 1st Circuit determined that, when Prudential increased the premiums, that was a fiduciary act under ERISA.

“Prudential argued, without success, that raising premiums was a ‘business decision,’ and not a fiduciary act,” Feigenbaum said.

Sean Collins, another member of Parmenter’s legal team, said he believes the decision is an important LTCI decision.

“Long-term care insurance carriers tend to operate under the assumption that they can raise premiums however they see fit, but it is the policy language that governs their ability to raise rates, and policy language can vary widely across policy forms and carriers,” Collins said.

“The specific policy language concerning rate increases is a critical detail that is often overlooked,” Collins added. “The 1st Circuit paid close attention to the Massachusetts-specific policy language at issue here before arriving at its decision.”

Feigenbaum said that he tends to see far more individual LTCI cases than group LTCI cases, partly because ERISA provisions tend to favor the employers and group coverage issuers.

“ERISA was created to protect employees and participants, but, through court decisions, ERISA has been turned on its head,” Feigenbaum said.

Credit: Thinkstock