This month’s Friday Five addresses cases considering: (1) whether monetary relief in the amount of lost benefits is an available remedy for breach of fiduciary duty; (2) the validity of an ex-spouse’s beneficiary designation that contradicts a subsequent divorce decree; (3) if waiver of a pre-existing condition exclusion in an STD benefits plan affects waiver of a different exclusion in the LTD benefits plan; (4) whether an independent medical reviewer retained by an insurer must explicitly address a claimant’s expert report; and (5) whether a plaintiff can circumvent ERISA preemption by pleading a state law fraud claim alleging that the insurer never intended to pay benefits despite collecting premiums.
The Saul Ewing Employee Benefits/ERISA Litigation Team
- ERISA Section 1132(a)(3) allows a beneficiary to sue a fiduciary for monetary relief equal to the amount lost as a result of the fiduciary’s breach of duty during plan enrollment. In Gimeno, the employer helped its employee complete enrollment paperwork for life insurance benefits through an ERISA plan. However, the employer failed to provide the employee with the required “evidence of insurability form” and failed to notify him that the form was necessary or missing. After the employee’s death, his spouse filed a claim for benefits, which the insurer partly denied because it had never received the necessary form. The claimant sought monetary relief equivalent to the lost benefits under Section 1132(a)(3), which permits claims for “appropriate equitable relief.” In a matter of first impression, the Eleventh Circuit held that an ERISA plan beneficiary may bring a lawsuit under Section 1132(a)(3) against a fiduciary to recover the amount of benefits that were lost due the fiduciary’s breach of its duties. The court’s ruling followed Supreme Court dicta and precedent from several circuit courts that had addressed the issue. The court noted that, while it is not typical to allow recovery of money damages in Section 1132(a)(3) actions because they are equitable, breach of fiduciary duty is an exception to the general rule. Specifically, the court explained that the remedy of “equitable surcharge”—ordering a trustee to pay a beneficiary for losses due to a breach of the trustee’s fiduciary duty—is an equitable remedy that applied here. Accordingly, the claimant was able to seek monetary relief equivalent to the lost benefits under Section 1132(a)(3). Gimeno v. NCHMD, Inc., No. 21-11833, 2022 WL 2309436 (11th Cir. June 28, 2022).
- An ex-spouse was entitled to receive life insurance benefits where the participant never revoked the beneficiary designation naming the ex-spouse, although the beneficiary and participant divorced and the divorce decree “divested” the ex-spouse of benefits. In Transocean, the court addressed the “common scenario” of who receives life insurance benefits when a plan participant designates their spouse as beneficiary, but the participant and beneficiary thereafter divorce. The participant listed her then-husband as the beneficiary of an employee welfare benefit plan offered by her employer, Transocean. The couple divorced years later, and the divorce decree “divested” the husband of “all right, title, interest, and claim in . . . [t]he individual retirement accounts, simplified employee pensions, annuities, and variable annuity life insurance benefits in [the participant’s] name.” When the participant passed away, the plan administrator made the payout to her estate. Two years later, her ex-husband sued the employer for his ex-wife’s benefits, and the administrator then also paid the full benefits to him. The plan administrator sued the participant’s estate for an equitable lien in the amount of the erroneous first payment. On cross-motions for summary judgment, the court granted the plan administrator’s motion because the ex-spouse, not the estate, was entitled to the benefit and the estate was still in possession of some of the benefit. The court reasoned that the ex-spouse was still the beneficiary because the participant had never revoked the designation and the plan provided that “[n]o designation of any Beneficiary other than the Participant’s surviving Spouse shall be effective unless in writing . . . .” The court ruled that Transocean was entitled to equitable relief for its “self-inflicted cost,” but only for the amount of money still in the estate’s possession. Transocean U.S. Savings Plan v. Thure, Civil Action No. H-21-3969, 2022 WL 2439183 (S.D. Tex. July 5, 2022).
- An insurer did not waive its right to assert a pre-existing condition exclusion in an LTD plan by waiving a different pre-existing condition exclusion in the participant’s STD plan. In Bunner, the plaintiff enrolled in her employer’s STD plan after relying upon assurances from her employer that the pre-existing condition exclusion in its STD plan could be waived. The STD enrollment automatically qualified the plaintiff for enrollment in her employer’s LTD benefits plan, which also contained a separate pre-existing conditions exclusion. The plaintiff eventually received STD benefits, and the insurer waived the pre-existing condition exclusion for STD benefits. After exhausting her STD benefits, she applied for LTD benefits, and the insurer denied her claim due to her pre-existing condition. The Fifth Circuit affirmed the district court’s grant of summary judgment to the insurer and held that the denial was proper. Specifically, the record reflected that the plaintiff’s asserted new condition was actually a continuation of the condition for which she applied for STD benefits and the insurer had only waived the exclusion for the STD plan, not the LTD plan. The court refused to extend this waiver to the LTD plan as well. Bunner v. Dearborn Nat’l Life Ins. Co., No. 21-20327, 2022 WL 2156227 (5th Cir. June 15, 2022).
- An insurer did not abuse its discretion by basing its adverse benefits determination in part on an independent expert report that did not explicitly address one of the plaintiff’s independent medical examination reports. In Wallace, the plaintiff sued her disability insurer for denying her LTD benefits claim. The plaintiff alleged that the denial of her claim was not the result of “full and fair” review because the insurer’s independent medical reviewer did not explicitly mention the independent medical examination (“IME”) report she submitted. Per the regulation then in effect, the insurer had to consult with a health care professional because it was deciding an appeal of a denial of benefits based in part on a medical judgment. The court noted that the regulation did not require the medical expert to “address each document [in the record] in detail before arriving at a determination,” and therefore the independent reviewer was not required to explicitly discuss the IME report in his own report. Moreover, the independent reviewer had listed the IME report in the materials reviewed section of his report. The plaintiff also argued that the insurer abused its discretion by basing its decision on “unreliable medical reports and evidence.” The court rejected this argument because the plan vested the plan administrator with considerable discretion, and substantial evidence supported the administrator’s decision, including the decision to rely on independent medical resources. Wallace v. Hartford Life and Accident Ins. Co., 21-1019, 2022 WL 2207926 (2d Cir. June 21, 2022).
- A plaintiff’s creative pleading of a state law fraud claim relating to ERISA benefits did not allow him to avoid federal ERISA preemption. In Tousignant, the plaintiff attempted to skirt ERISA by bringing a state law fraud claim alleging that his AD&D provider violated the Illinois Consumer Fraud and Deceptive Business Practices Act by collecting monthly premiums for AD&D coverage that it allegedly never intended to pay. The insurer removed the case to federal court and moved to dismiss, arguing that ERISA preempted the plaintiff’s claims because it would require the court to “interpret the terms of [the] ERISA-regulated insurance plan.” The court applied the Seventh Circuit’s three-factor test for determining whether a claim falls under Section 502(a) and found that all factors were met. The court held that, despite the plaintiff’s attempt to creatively plead around ERISA regarding an ERISA-governed plan and related plan benefits, ERISA preempted the plaintiff’s fraud claim. Accordingly, the court granted the insurer’s motion to dismiss. Tousignant v. Metro. Life Ins. Co., 22 C 0735, 2022 WL 2356429 (N.D. Ill. June 30, 2022).
Please click here to learn more about the Saul Ewing Employee Benefits/ERISA Litigation Group.