Insurer Liability for Discriminatory Policies: Can Insurers as Agents of the Employer Be Liable Under Title VII?

By Elizabeth Wellhausen*

In 1964, President Lyndon B. Johnson signed into law the Civil Rights Act of 1964. One section of the Act, referred to as Title VII, made it illegal for an employer to discriminate against an individual because of their race, color, religion, sex, or national origin. However, the courts have struggled to determine what entities are considered “employers” under the Act. 

When Congress enacted Title VII, it created The Equal Employment Opportunity Commission (EEOC) and charged it with enforcing Title VII. The EEOC takes the stance that an “agent of a covered entity is liable for the discriminatory actions it takes on behalf of the covered entity.” Conversely, a covered entity is liable for the actions of its agents. According to the EEOC, agents can be insurance providers, benefits administrators, and pension plan administrators, among other things. However, the EEOC’s interpretation of Title VII is not binding. While some courts have followed the EEOC’s interpretation that insurance providers can be liable under Title VII, other courts have held that insurance companies are not employers or agents of the employer. The latter interpretation fails to effectuate Title VII’s full purpose of protecting against discrimination in the workplace by allowing insurance companies to evade liability for discriminatory health insurance policies.

The Sixth Circuit is an example of a court rejecting the assertion that an insurance company could be liable under Title VII. In Peters v. Wayne State Univ., female university employees brought a Title VII suit on the grounds that the retirement benefits plan was discriminatory. The retirement benefits plan included a monthly annuity payment that was calculated from sex-segregated mortality tables. There was actuarial data that found that women lived longer than men, so the plan gave female annuitants a smaller monthly payment than similarly situated male annuitants. 

While the district court found that the plan’s administrator, Teachers Insurance and Annuity Association, was an employer under Title VII, the Sixth Circuit called this characterization “clearly erroneous.” The court reasoned that Teachers Annuity’s role was limited to management and reimbursement of annuities. Additionally, since Wayne State did not exercise any control over Teachers Annuity’s administrative plans, there was not sufficient control to constitute an agent-principal relationship. Teachers Annuity alone decided to use the mortality tables and therefore was not under the control of Wayne State. The court went on to cite the Supreme Court case City of Los Angeles, Dept of Water and Power v. Manhart by stating that “(Title VII) was not intended to revolutionize the insurance and pension industries.” In the end, the Sixth Circuit refused to hold that an insurance company could be liable for simply providing insurance services. 

The Second Circuit in Spirt v. Teachers Ins. & Annuity Ass’n had very similar facts to Peters v. Wayne State Univ., but the Second Circuit ultimately found that the Teachers Ins. & Annuity Ass’n and College Retirement Equities Fund (TIAA-CREF) was liable as an employer. In Spirt, female retirees asserted that the retirement fund was discriminatory on the basis of sex because they received smaller monthly retirement payments than male retirees even though they had made equal contributions. The court found that the TIAA-CREF was an employer because the term “employer” was meant to encompass “any party who significantly affects access of any individual to employment opportunities . . .” Since the TIAA and CREF existed solely to provide university employees retirement benefits, the court held that it was an employer for Title VII purposes. The court also considered it relevant that the plan was mandated for some employees and that the university shared in some administrative responsibilities.

Another case frequently cited to support the agency connection between an insurer and employer is Carparts Distrib. Ctr. v. Autho. Wholesaler’s Ass’n. In Carparts, the First Circuit articulated several different circumstances when an issuer can be considered an employer for Title VII purposes. First, the insurer would be considered an employer if it exercised control over an important aspect of employment. Second, the insurer would be considered an employer if it existed solely for the purposes of enabling the covered entity to delegate health insurance provider responsibilities. The court noted that relevant inquiries include the level of control that the insurer had over determining the level of benefits and whether the covered entity (in this case, Carparts) shared in the administrative responsibilities. The court stated that sharing administrative responsibilities would suggest that the insurer was an employer. The court also noted that even if the insurer did not determine the level of benefits or share in administrative responsibilities, it could still be liable if it acted as an agent. Thus, the insurer could be liable if it administered health benefits on behalf of the covered entity. This is arguably the broadest interpretation which would cover many insurers as employers.

Recent court opinions have not looked favorably upon the broad coverage granted by the Carparts court. Two courts recently discussed this issue in the context of denied insurance coverage for gender dysphoria treatment.  In Baker v. Atena Life Ins. Co., the Northern District of Texas decided that the plaintiff had not stated a claim that the insurer was her employer. The court rejected the agency theory in this situation, instead, stating that to be an employer, the entity has to have authority with respect to employment practices. The court read this as requiring the insurer to satisfy the “single employer” test or the “hybrid economic realities/common law control test. Each of these tests is a higher standard than the agency theory and creates a higher burden for the plaintiff.

The Western District of Wisconsin also decided a case regarding insurer liability when the insurer does not cover gender dysphoria treatment. In Boyden v. Conlin, the plaintiffs were employees of the University of Wisconsin–Madison. The State of Wisconsin Group Insurance Board (GIB) set the Employee Trust Funds’ (ETF) policy and helped oversee administration of the health insurance plans. Dean Health Plan, Inc. (Dean) was a health insurance administrator. In a 2017 ruling, the court concluded that Dean was not a proper defendant under Title VII since it only administered the plan and had no discretion to determine the health benefits covered. In doing so, the court rejected a reading of Carparts that would allow administrators to be liable as agents, stating that this was not the interpretation that Congress intended. The court decided to follow the Fifth and Sixth Circuit by requiring that the agent have authority or control to make employment decisions on behalf of the employer.

However, the court left open the possibility that GIB and ETF could be proper defendants. In 2018, the court decided that GIB and ETF were proper defendants. The court reasoned that GIB was solely responsible for setting health insurance for state employees and that Title VII could not be used to allow the only entity responsible for the policies to skirt liability. Additionally, the court noted that “ETF’s role in administrating the Group Health Insurance Program makes it a proper defendant on plaintiff’s Title VII claim.”

The court also noted that ETF made recommendations to GIB for policy inclusions and exclusions and had been statutorily delegated the role of administration which provides a sound basis to hold that it is an agent of the employer. These two decisions in the same case seem at odds; however, the court probably determined that ETF and GIB had more discretion in creating the policy while Dean only administered the plan. 

Future decisions will likely be based on what constitutes sufficient control over employment terms or practices. However, courts could determine that administration power is sufficient and follow the Carparts interpretation while other courts may determine that the insurer needs to have more control over setting the policy terms to have sufficient control and be labeled an agent of the employer. The recent decisions from the Northern District of Texas and the Western District of Wisconsin seem to support the conclusion that self-insured plans where the employer sets the terms and the insurance company is only an administrator does not create an agent-principal relationship. However, the 2018 Boyden v. Conlin decision seems to suggest that an insurer may be liable for a fully insured plan where the insurance company sets the terms of insurance. Regardless, employers and insurers that deny treatment (such as a vaginoplasty, mastectomy, or hormone treatment) to individuals for gender dysphoria under the premise that the treatment is not “medically necessary” while allowing the same treatment for other conditions should reconsider this decision as this practice could be violating Title VII.

* Elizabeth Wellhausen, J.D. Candidate, University of Minnesota Law School Class of 2022, JLI Vol. 40 Staff Member