In Aschermann v. Aetna Life Ins. Co., — F.3d. –, 2012 WL 3090291 (7th Cir. Jul. 31, 2012), the Seventh Circuit gave a clear ruling that an ERISA claim administrator can delegate its discretionary authority to a substitute, as long as the plan does not expressly prohibit delegation.
The plan at issue was funded by a disability policy issued by Lumbermens Mutual Casualty Company. Lumbermens was withdrawing from the insurance business, and signed an Administrative Services Agreement under which Aetna undertook “all of Lumbermen’s day-to-day duties and discretion.”
The Court held that the question whether Lumbermens effectively delegated discretion to Aetna “can be decomposed into two questions: first, is a written delegation essential; second, is this particular delegation authorized?”
The Court said that it was not necessary to answer the first question, because the Administrative Services Agreement was a clear, written delegation. Thus, the Court left open the possibility that discretionary authority could be delegated without any writing at all.
Turning to the second question, the Court began by observing that the plan did not authorize Lumbermens to delegate its authority, but held that this was not necessary, “if Lumbermens can re-delegate discretion it enjoys under the group policy.” The Court held that Lumbermens did have this innate power:
Firestone derived its presumption of independent judicial decision-making from principles of trust law, observing that federal courts supply operating details under ERISA by using common-law principles. This leads us to ask whether the holder of a discretionary power may delegate it, in the absence of contractual language resolving that question one way or the other. According to the Restatement (Second) of Contracts § 318(1) (1981), delegation does not depend on an express grant; instead it is permissible unless it would be “contrary to public policy or the terms of [a] promise.” Nothing in AstraZeneca’s plan, or Lumbermens’ group policy, forbids delegation, and Aschermann does not argue that delegation would be contrary to any public policy. To the contrary, Aschermann concedes that ERISA allows delegation; she argues only that AstraZeneca’s plan does not authorize it expressly.
At common law, delegation is not allowed for personal-services contracts: if the Lyric Opera hires Plácido Domingo to sing Hoffmann, he can’t send Neil Shicoff in his stead, even though many opera buffs consider Shicoff the better interpreter of that role. See Restatement (Third) of Agency § 3.04(3) and comment c (2006). The group policy is not a personal-services contract, however; Aschermann has no interest in who, precisely, makes the decision. Like any other corporation, Lumbermens can act only through people. It must designate someone, or some group, to evaluate applications for disability benefits; Aschermann has no right to choose who among Lumbermens’ staff evaluates her application. By delegating this function to Aetna, Lumbermens has not done anything fundamentally different from choosing a particular working group within its internal hierarchy. That Aetna proceeds as an independent contractor on behalf of Lumbermens, rather than as an employee of Lumbermens, is of no moment under the common law or any of ERISA’s provisions.
The Court went on to say that delegation “could cause a problem by creating or aggravating a conflict of interest.” It did not hold that the existence of such a “problem” would prevent a delegation from being enforceable, and there is no reason why it should. In any event, the Court held that the delegation from Lumbermens to Aetna actually reduced any conflict, because Aetna was determining claims, while Lumbermens was still responsible for paying them.