First Circuit Finds Insurer Owed Fiduciary Duty under ERISA When It Increased Premium Rates for Group Long-Term Care Insurance

In Parmenter v. Prudential Ins. Co. of Am., No. 22-1614, __F.4th__, 2024 WL 613959 (1st Cir. Feb. 14, 2024), Plaintiff-Appellant Barbara Parmenter, on behalf of a putative class, appealed the district court’s dismissal of this action alleging that her employer, Tufts University, and Prudential Insurance Company of America, breached their respective fiduciary duties owed to her under ERISA due to Prudential’s two increases of her premium rates for long-term care insurance. The First Circuit reversed in part and affirmed in part.

Parmenter was employed by Tufts when she alleges that she attended a presentation by Prudential where it represented to prospective enrollees that any future premium increases would need to be approved by the Massachusetts Commissioner of Insurance before the increase could become effective. Parmenter enrolled in the coverage and received the group contract which contains a foreword stating that Prudential “may increase the premiums you pay subject to the approval of the Massachusetts Commissioner of Insurance.” In another section of the contract regarding premiums, there is an “Increases in Premiums” subsection that states Prudential “reserves the right to change premium rates”, without reference to the need for approval. The contract also includes a “Substantial Premium Increase Table” purporting to show the amount Prudential may increase premiums based on an insured’s age. After paying premiums for years, Prudential raised the premiums substantially in both 2019 and 2020 without first securing the approval of the Massachusetts Commissioner of Insurance.

Parmenter sued Prudential and Tufts asserting that Prudential breached its fiduciary duties under ERISA by raising the premium rates without permission of the Commissioner and that Tufts was guilty of “failing to monitor Prudential.” Under ERISA § 502(a)(3), Parmenter sought equitable remedies of reformation and disgorgement of the increased premiums. She also sought to enjoin Prudential from raising the premiums again without obtaining approval. The district court concluded that Parmenter did not plausibly state a claim for breach of fiduciary duty because the Commissioner had not yet exerted its regulatory authority over premiums for group employer coverage. Thus, the court interpreted the foreword as requiring approval only if and when the Commissioner opts to require such approval.

The threshold issue is whether Prudential owed Parmenter a fiduciary duty under ERISA with respect to premium rates. Prudential argued that it was not a fiduciary with respect to setting the premium rate because that is a business decision. The First Circuit first determined that Prudential’s decision to exercise its discretion and increase premiums is part of the overall management of the welfare benefit plan and that Prudential owed Parmenter a fiduciary duty of prudence to manage the plan in accordance with the plan documents.

The next issue is whether Prudential breached its fiduciary duty when it increased premiums without first securing the Commissioner’s approval. The parties argued that the language at issue is plain and unambiguous in support of their respective positions. Turning to Black Law Dictionary’s definition of “subject to”, the court determined that “subject to” can indicate either an absolute or a possibility, which renders both parties’ interpretations plausible and reasonable. Evaluating the term in the context of the rest of the policy, the court found the term to be ambiguous and that the ambiguity cannot be resolved with the pleading and contract documents before the court. It’s not clear what the parties intended. As explained by the court:

“Prudential may not have intended to promise that it would lock the premium rate until such time that the Commissioner of Insurance instituted a process to review and approve proposed premium increases. Discerning Prudential’s intent is not possible, however, without knowing, inter alia, when the terms of the group contract were first drafted, whether the terms existed prior to 2013 and, if so, whether the contract was subsequently amended after the Massachusetts Legislature passed chapter 176U, § 7 to allow for a Commissioner-imposed approval process. In addition, we would need to know when Parmenter first joined the policy and therefore agreed to the terms of the insurance policy applicable to her. As Prudential argues, these are details that Parmenter has not included in her allegations, but because of the ambiguous “subject to” clause in the contract, these missing details are not fatal to the plausibility of her allegations. . . . While the date Parmenter enrolled in the policy is information to which she would have had access prior to filing her complaint, the timing for the initial drafting of the group contract and amendments (if any) is not likely to have been readily available to her without the benefit of the discovery process. This information will be relevant to resolving the ambiguity once extrinsic evidence has been gathered through the discovery process.” The court reversed the judgment with respect to Prudential and remanded for further proceedings.

With respect to Tufts’s alleged co-fiduciary liability, the court affirmed the judgment dismissing the complaint as to Tufts because there are no allegations that “Tufts knowingly participated in, concealed, enabled, or failed to intercede in any way to influence Prudential’s decision to increase the premium rates which affected Parmenter’s premium payments.”