First Circuit reverses District Court reinstating putative class action causes of action against The Prudential Insurance Company of American who insured an employer provided long-term care plan.
Boston, Massachusetts, February 14, 2024 – In an important ruling under ERISA, the First Circuit Court of Appeals reinstated a former Tufts University employee’s claims against Prudential due to ambiguous insurance policy language.
Barbara Parmenter sued both Tufts University and Prudential, asserting that her insurance premiums were raised by 40% in 2019 and 19% in 2020 by Prudential without approval from the Massachusetts Commissioner of Insurance, as stipulated in the contract. The lawsuit centered on a clause in the contract that stated Prudential “may increase the premiums you pay subject to the approval of the Massachusetts Commissioner of Insurance.” Parmenter argued that the absence of such approval rendered the rate hikes illegal and in violation of the contractual terms.
The three-judge panel determined that the interpretation of the phrase “subject to” could not be conclusively determined based on the existing record. The court held the language was ambiguous.
The First Circuit’s ruling acknowledges the complexity of contractual language and underscores the importance of clarity in insurance agreements. The decision lets insurance companies know that they must draft unambiguous language regarding premium adjustments. The new ruling could affect how other courts will analyze premium increases in insured ERISA plans.
“While the court found insufficient evidence to hold Tufts University liable for the alleged premium increases, it recognized the need for further examination of the contractual language pertaining to Prudential’s actions,” said Jonathan M. Feigenbaum, legal counsel for Barbara Parmenter. “This ruling reaffirms the importance of precise and unambiguous language in insurance contracts to guarantee fair treatment of policyholders.”
Feigenbaum said, “This is an important ERISA decision, because the First Circuit determined that, when Prudential increased the premiums, that was a fiduciary act under ERISA.” He continued, “Prudential argued, without success, that raising premiums was a ‘business decision,’ and not a fiduciary act.”
Co-counsel 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 First Circuit’s ruling sets an important precedent for the interpretation of insurance contracts and the resolution of disputes related to premium adjustments. It underscores the significance of clear and unambiguous language in contractual agreements to prevent ambiguity and ensure equitable outcomes for all parties involved. The decision has broader implications, because the First Circuit held increasing insurance premiums was a fiduciary act under ERISA.
