A flurry of court decisions following in the wake of the Supreme Court decision in Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011), has expanded the scope of “equitable” relief to include monetary damages. Monetary damages are now available to participants alleging misconduct by plan administrators and other plan fiduciaries. “Plan fiduciaries” include anyone who exercises any discretion over plan administration or plan investment decisions. This includes employers acting as plan administrators, members of investment and administrative committees, investment managers and advisors, and trustees.
Kenseth v. Dean Health Plan, Inc., No. 11-1560 (2013), a recent decision of the U.S. Court of Appeals for the Seventh Circuit, has received significant press attention as a case which permits the recovery of monetary damages in an ERISA breach of fiduciary duty case. In Kenseth, the aggrieved participant in a group health plan contacted a customer service representative and was assured that her proposed surgical procedure (correction of vertical banded gastroplasty surgery undertaken years before to treat obesity) would be covered under the plan. Following the corrective surgical procedure, coverage under the plan was then denied on the grounds that it was excluded as a service relating to a “non-covered benefit or service.” This exclusion was held to be ambiguous because the original gastroplasty surgery, although excluded from coverage under the current plan, was covered under the plan in effect at the time of that surgery.
The Court in Kenseth went on to explain that, in the case of an ambiguity in a plan document, proper exercise of fiduciary responsibility required that the plan administrator provide a means by which a participant could obtain an “authoritative determination” on coverage for a particular medical service in advance. The customer service information was found not to be such a mechanism because the plan administrator reserved the right to subsequently deny coverage even if a customer service representative advised that a particular service would be covered. The Court determined that the participant could have been harmed by her reliance on the misinformation provided by the customer service representative in that she would otherwise have checked to see if she had coverage under her husband’s health plan or undertaken alternative medical approaches. The court then observed that the participant was entitled to “make-whole” relief in the form of money damages under Amara if she could show that the above fiduciary breaches damaged her. The case was remanded to the trial court to fashion an appropriate remedy.
Other post-Amara cases include Gearlds v. Entergy Servs., Inc., 709 F.3d 448 (5th Cir. 2013) and McCravy v. Metropolitan Life Ins. Co., 690 F.3d 176 (4th Cir. 2012).
In Gearlds, the participant (Gearlds) elected early retirement after he was advised by a plan administrator that he would continue to receive medical benefits as a retiree. Gearlds waived benefits under his wife’s retirement plan in reliance on the coverage assurances from the administrator. Years later, Gearlds was notified that his medical benefits were being discontinued because he never had been eligible for retiree coverage (the administrator had mistakenly assumed that Gearlds was receiving long term disability benefits at the time of his retirement, which was an eligibility requirement for retiree medical coverage). Gearlds sued for payment of his past and future medical expenses but his case was dismissed by the trial court on the basis of pre-Amara law. The Fifth Circuit reversed and remanded noting that Gearlds was entitled to ask that plan fiduciaries be “surcharged” to cover Gearlds’ medical expenses as compensation for the misinformation provided to him as an “equitable form of money damages.”
In McCravy, an employee (McCravy) purchased life insurance for her daughter through an employer sponsored accidental death and dismemberment plan. McCravy continued to pay premiums until her daughter died at age 25, at which time the plan administrator refused to pay the insurance claim because under the terms of the plan, the daughter was no longer eligible for coverage after she attained age 24. McCravy’s complaint alleged that the plan’s actions amounted to a breach of fiduciary duty in that the plan continued to accept premium payments after her daughter was no longer eligible for coverage. This led McCravy to believe that her daughter was still covered. Because she believed her daughter was insured, McCravy did not purchase alternate insurance on the daughter’s life. The Fourth Circuit held that McCravy’s claim for make-whole relief in an amount equal to the life insurance proceeds was appropriate because the plan’s benefits were not available as a result of the fiduciary “wrongfully” accepting premium payments.
While these cases do extend the available of money damages as “equitable” relief in fiduciary breach actions, they also underscore the need for clear and unambiguous plan documents. Although it goes without saying that participant communications should accurately reflect the terms of the plan document, even written misrepresentation of plan provisions may not be actionable if the plan document itself is unambiguous.
Recent case law is not all bad news for plan fiduciaries. Consider David, et al. v. Alpine, et al., a 2013 decision of the U.S. Court of Appeals for the Fourth Circuit. In David, the claim of Bank of America (BOA) employees that their 401(k) accounts were invested in underperforming and expensive BOA-affiliate mutual funds was rejected as barred by the statute of limitations. This result applied even though the original selection of the BOA funds as investment options for the plan could have been attacked as prohibited transactions and imprudent investments within the six-year limitation period for ERISA actions. Because the plaintiffs failed to do so, the Court found that the continuing failure of plan administrators to remove the BOA funds from the plan investment array was not a “transaction” and therefore could not be characterized as a “prohibited transaction” during the actionable time frame. Further, because there was no claim that the BOA mutual funds became imprudent during the actionable time frame, the claim of fiduciary imprudence also was time-barred. In doing so, the court declined to assess liability with respect to the fiduciaries’ duty to monitor as well as select plan investments. The Court also handed plan fiduciaries another possible defense by finding that employees had no legal standing under Article III of the United States Constitution to raise similar claims as to the funding of the employee’s defined benefit plan. This holding applied even though the employees had statutory standing under ERISA.
The first line of defense for fiduciaries to any fiduciary claim is a clear and unambiguous plan document. Also bear in mind that, as to qualified retirement plans, participants can waive fiduciary breach claims and can be asked to do so upon payment of their retirement plan benefits (see here). Additional possibilities include permitted delegation of investment responsibilities to investment managers or even plan participants in the case of self-directed individual account plans. So plan fiduciaries still have significant legal defenses as well as viable mitigation strategies.
Plan fiduciaries do not have to make perfect decisions but they do need to exercise prudence in their deliberations. Cases in which fiduciary investment decisions are questioned frequently turn on the nature of the process followed by plan fiduciaries rather than the specific investment decisions that result from that process. Also note that the service provider fee disclosure rules for retirement plans provide specific new responsibilities that require plan fiduciaries to review and evaluate provider services and fees as well as the compliance of provider fee disclosures. Plan fiduciaries should document their compliance with these new rules (see “Protecting Retirement Plan Fiduciaries” here).
Finally, plan fiduciaries who may have concerns about their past conduct should review and consider their situation. They may need to engage advisors or legal counsel to assist. Both can assist and their communications can be protected from unintended disclosure by attorney-client confidentiality. But bear in mind that communication with the employer’s regular corporate or benefits attorney may not be privileged. It may make sense to seek independent legal counsel to assure such confidentiality.