L I F E , H E A LT H A N D D I S A B I L I T Y
The Expansion
of Remedies
Under ERISA
Who Would Have
Thought?
By Eric P. Mathisen
and Byrne J. Decker
Focusing on ERISA
The Supreme Court has interpreted ERISA’s “catch-all”
provision, section 502(a)(3), 29 U.S.C. §1132(a)(3), on
several occasions over the past 20 years. For the most part,
Supreme Court applications of that section, and of ERISA’s
principles both in
carrying out duties and
defending claims should
help to promote ERISA’s
purpose of not unduly
discouraging employers
from offering such plans
in the first place.
civil enforcement provisions generally,
have not provided for monetary remedies,
with the exception of benefits due under
the terms of an ERISA plan, recoverable
pursuant to section 502(a)(1)(B), 29 U.S.C.
§1132(a)(1)(B).
Section 502(a)(3) permits an ERISA plan
participant, beneficiary, or fiduciary to
obtain injunctive and “other appropriate
equitable relief” to remedy violations of
ERISA or the terms of an ERISA plan or to
enforce the terms of ERISA or the terms of
an ERISA plan. Section 502(a)(3) “act[s] as
a safety net, offering appropriate equitable
relief for injuries caused by violations that
§502 does not elsewhere adequately remedy.” Varity Corp. v. Howe, 516 U.S. 489
(1996) (emphasis added).
The Varity Court explained that section
502(a)(3) is not a license to “re-package” a
benefits claim otherwise cognizable under
section 502(a)(1)(B) and thereby avoid the
procedural protections, such as a deferential standard of review, generally applicable
to benefits claims. 516 U.S. at 514–15 (“we
should expect that where Congress elsewhere provided adequate relief for a beneficiary’s injury, there will likely be no need
for further equitable relief.”). And where
relief is potentially available under section
502(a)(3), the Supreme Court has repeatedly held that relief is limited to equitable
relief, not damages.
This limitation fits ERISA’s remedial
purposes. ERISA represents a “‘careful balancing’ between ensuring fair and prompt
enforcement of rights under a plan and
the encouragement of the creation of such
plans.” Aetna Health Inc. v. Davila, 542 U.S.
200, 215 (2004), quoting Pilot Life Ins. Co.
v. Dedeaux, 481 U.S. 41, 54 (1987). One primary way ERISA encourages the creation
Eric P. Mathisen is a shareholder with Ogletree, Deakins, Nash, Smoak & Stewart, P.C., working from the
firm’s Chicago, Illinois, and Valparaiso, Indiana, offices. His practice is focused on representing insurers,
employers, and plan administrators in class action and single plaintiff employee benefit litigation matters
throughout the United States. Byrne J. Decker is a partner in the Portland, Maine, office of Pierce Atwood,
LLP. He has a national practice in employee benefits/ERISA litigation and has defended benefits claims in
district courts in every federal judicial circuit and also has an active appellate practice with respect to benefits issues. Both authors are active in DRI and its Life, Health, and Disability Committee.
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of employee benefit plans is “by assuring
a predictable set of liabilities…” Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355,
379 (2002).
Liabilities are predictable when courts
focus on the face of the written plan documents, since ERISA does not confer substantive rights. Rather, ERISA’s principal
focus is to protect “contractually defined
benefits.” Massachusetts Mutual Life Ins.
Co. v. Russell, 473 U.S. 134, 148 (1985). See
also Kennedy v. Plan Adm’r for DuPont
Sav. & Inv. Plan, 555 U.S. 285, 300 (2009)
(“a straightforward rule of hewing to the
directives of the plan documents… lets
employers ‘establish a uniform administrative scheme, [with] a set of standard procedures to guide processing of claims and
disbursement of benefits’”).
However, most recently, in CIGNA Corp.
v. Amara, 131 S. Ct. 1866 (2012), the Supreme Court arguably expanded the scope
of relief available under section 502(a)(1)
(B). In Amara, the employer breached its
fiduciary duty and violated ERISA’s notice
provisions by issuing a summary plan description (SPD) that intentionally omitted
an important aspect of the employer’s retirement plan. The Supreme Court stated in
dicta that, in an appropriate case, “equitable relief” to redress such violations might
include “equitable reformation” of the plan,
and might also include monetary makewhole relief, including a monetary remedy
called “surcharge.” The Court made clear,
however, that a claimant must demonstrate
causation and “actual harm” in order to obtain such equitable relief.
Barely a year after Amara was decided,
the Supreme Court again agreed to address
the scope of what constitutes “appropriate” equitable relief under section 502(a)
(3) in U.S. Airways, Inc. v. McCutchen, 133
S. Ct. 1537 (2013). McCutchen involved the
scope of a health plan’s right to enforce
its reimbursement and subrogation provisions. The question in McCutchen was
whether a plan’s action to enforce plan
reimbursement rights under section 502(a)
(3) is subject to equitable defenses such as
unjust enrichment where such defenses
are alleged to override express plan terms.
In answering this question in the negative, the Court held that section 502(a)(3)
“does not authorize appropriate equitable
relief at large… but countenances only such
relief as will enforce the terms of the plan
or the statute.”
That limitation reflects ERISA’s principal function: “to protect contractually defined benefits”…. The statutory
scheme, we have noted, is “built around
reliance on the face of written plan
documents... The plan, in short, is at
the center of ERISA. And precluding
McCutchen’s equitable defenses from
overriding plain contract terms help it
to remain there.
The McCutchen Court did provide an
important caveat to its holding. The Court
held that though equitable rules cannot
trump a plan provision, “they still might
aid in properly construing it.” Thus, in the
case where the plan is silent, a court may
look to “background legal rules,” including
equitable doctrines, as “manifestations of
the parties’ intent.”
“Appropriate Equitable Relief” and
Lower Court Applications of Amara
In the wake of Amara’s arguable expansion of relief available under section 502(a)
(3), followed by McCutchen’s adherence to
the “primacy of the plan” rule, lower courts
have continued to struggle with the scope
of remedies now available under ERISA’s
civil enforcement scheme, and especially
section 502(a)(3). Specifically, these courts
have examined whether make-whole monetary relief is available as “other appropriate equitable relief.” Examples include
the following:
Rochow v. Life Ins. Co. of N.A., 851 F.
Supp. 2d 1090 (E.D. Mich. 2012): The plain-
tiff sought long-term disability benefits
from the insurance carrier for his ERISA
plan. The district court overturned the
insurer’s decision and awarded benefits,
interest, and attorney’s fees pursuant to
section 502(a)(1)(1)(B). The decision was
affirmed on appeal. On remand to the district court, the court permitted plaintiff to
also assert a disgorgement of profits remedy under section 502(a)(3). Basing its decision on the insurer’s overall gains, rather
than on its earnings related to the withheld benefits, the district court awarded
over $3 million to the plaintiff in “disgorged profits.”
A divided panel of the Sixth Circuit
affirmed the award, holding that the Varity
bar against “re-­packaged” benefits claims
did not apply, because section “(a)(1)(B)
cannot provide all the relief Rochow seeks
[and] cannot provide the equitable redress
of preventing LINA’s unjust enrichment…”
737 F.3d at 427 (6th Cir. 2014).
A vigorous dissent accused the majority
of taking “an unprecedented and extraordinary step to expand the scope of ERISA
coverage.” As explained by the dissenting
The Court made clear,
however, that a claimant
must demonstrate
causation and “actual
harm” in order to obtain
such equitable relief.
judge, section 502 (a)(3) relief is available
“only when the catchall would remedy a
distinct injury. As Rochow was fully compensated and made whole by an award
under [section] 502(a)(1)(B), and as he sustained only one injury—the denial of benefits—there was no need to resort to the
catchall provision.” 737 F.3d at 435.
To the knowledge of the authors, this is
the first such decision to award disgorgement on top of a benefits award. However,
the Sixth Circuit granted LINA’s petition
for rehearing en banc and vacated the panel
opinion. The parties argued the case to the
en banc court in June, 2014. A decision is
expected in late 2014. Whatever it is, the
decision will be significant.
Skinner v. Northrup Grumman Ret. Plan,
673 F.3d 1162 (9th Cir. 2012): This case
involved a dispute over the application of
an offset under a pension plan. SPDs were
not consistent in describing or disclosing
the offset. The plaintiffs admitted that they
never read the SPD and therefore did not
detrimentally rely on the “faulty” SPD. The
district court ruled that because the plaintiffs did not rely on the SPD, they were not
entitled to greater benefits under the SPD.
On appeal, the Ninth Circuit affirmed, holding (1) there was no estoppel remedy requiring enforcement of SPD because there was
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no detrimental reliance; (2) no reformation
of the plan was permissible because there
was no proof of mutual mistake (no evidence
that the SPD represented intent of plan drafters) or fraud; and (3) no surcharge remedy
was available because there was no duty to
enforce faulty SPD, no unjust enrichment
by plan sponsor, and no actual harm to the
participants because there was no reliance.
When faced witha
novel ERISA claim and a
sympathetic fact pattern, the
extremely high bar required
to win a motion to dismiss,
combined with the ageold credo that “bad facts
make bad law,” should be
considered before pursuing
a motion to dismiss.
Tomlinson v. El Paso Corp., 653 F.3d 1281
(10th Cir. 2011): Plaintiffs alleged that the
SPD did not accurately explain the potential downside of a cash balance conversion of a pension plan. The court held that
the SPD did accurately explain the conversion but there was no remedy in any event
because, unlike Amara, there was no showing of deceit on the part of the employer.
However, the court also stated in dicta that,
after Amara, it was no longer mandatory to
show prejudice or detrimental reliance on
an SPD in order to obtain a remedy for a
defective SPD under ERISA.
McCravy v. Metropolitan Life Ins. Co.,
690 F.3d 176 (4th Cir. 2012): The employee
obtained dependent life insurance for her
daughter, who was under age 19. Premiums were deducted from the employee’s
paycheck until after the plan’s maximum
age for dependent coverage. The daughter died and the employee applied for life
insurance benefits, which were denied.
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The employee sued and the insurer filed
a motion to dismiss under Rule 12(b)(6),
arguing that the only remedy was a refund
of the insurance premiums. The court
held that surcharge was a potential remedy, taking the form of the life insurance
benefits, or that estoppel might apply to
prevent the insurer from denying a conversion right that would have applied
when coverage otherwise should have
terminated. Although the McCravy court
went out of its way to emphasize that its
ruling on a motion to dismiss expressed
no view as to whether plaintiff’s breach of
fiduciary duty claim might eventually succeed, the court did set forth some broad
dicta to the effect that limiting relief to a
premium refund would create “perverse
incentives” for fiduciaries to “wrongfully
accept premiums, even if they had no idea
whether coverage existed.”
Plaintiffs have since leapt upon this
dicta to argue that group insurers’ acceptance of premiums without independently
verifying the eligibility of each employee
for the coverage enrolled in constitutes an
ERISA fiduciary breach, entitling the beneficiary to the benefits otherwise available
as if properly enrolled. The Fourth Circuit,
however, has twice rejected such a broad
reading of McCravy, albeit in unpublished
opinions. See Moon v. BWX Technologies, Inc., 2014 WL 2958804, *7 (4th Cir.
July 2, 2014) (“[employer’s] acceptance of
Mr. Moon’s premium payments during
2006, as well as its failure to notify Mr.
Moon that he was no longer eligible for
life insurance benefits under the MetLife
Plan, were not ‘discretionary functions
with respect to the management, assets,
or administration of a plan’” and, thus,
did not even implicate fiduciary duties);
Lewis v. Kratos Def. & Sec. Solutions, Inc.,
2014 WL 2978547, *1 (4th Cir. July 3, 2014)
(rejecting “as meritless and unsupported
by the evidence [plaintiff’s] arguments
that [insurer] was bound by an [erroneous] eligibility determination made by her
husband’s employer”).
The Ninth Circuit also recently rejected
a plaintiff’s reliance on McCravy for the
proposition that the plaintiff could recover
more than he was entitled to under the
terms of the plan due to a mistake the plan
administrator made in calculating benefits. Gabriel v. Alaska Elec. Pension Fund,
755 F3d 647 (9th Cir. 2014). The court
noted that McCravy did not address the
issues of breach or entitlement to equitable relief. The court then went onto hold
that the equitable remedies of reformation, estoppel, and surcharge are not available as “appropriate, equitable relief,” as
a matter of law, to enlarge a beneficiary’s
rights beyond that to which he is entitled
under the clear and unambiguous terms
of the plan.
Silva v. Metropolitan Life Ins. Co.,
F.3d
, 2014 WL 3896156 (8th Cir.
2014): An employee enrolled with his
employer for group life insurance coverage in the amount of four times his
salary. The insurer deducted premiums
for this amount of coverage. When the
employee died, his beneficiary filed a
claim that the insurer denied because the
employee had not provided the evidence
of insurability required by the terms of
the plan at the time of enrollment. Plaintiff sued the employer and the insurer and
sought to amend his complaint to bring
a claim under section 502(a)(3) based on
the employer’s alleged failure to provide
a SPD informing the employee of the evidence of insurability requirement, and the
insurer’s acceptance of premiums despite
the lack of evidence of insurability.
The Eighth Circuit relied in part on
McCravy to hold that the equitable remedies of reformation, surcharge, and estoppel were potentially available against both
the employer and the insurer. The court
implied that recovery in the form of the
amount of benefits the employee enrolled
for could constitute “appropriate, equitable relief,” particularly in light of the
fact that there was no evidence that the
employee could not have provided evidence
of insurability if aware of the requirement.
The court also allowed the section 502(a)
(3) claim to proceed along with a section 502(a)(1)(B) claim, holding that the
motion to dismiss stage is too early to discern whether the Varity bar against “re-­
packaging” applies.
Gearlds v. Entergy Services, Inc., 709 F.3d
448 (5th Cir. 2013): Plaintiff stopped work-
ing and collected long-term disability benefits. He remained on the company rolls as an
employee and continued to participate in the
company’s medical plan. Later, the disability benefits were terminated. Plaintiff then
went out on early retirement and was told
at that time that he would continue under
the company’s medical plan. Based on this
representation, the plaintiff waived benefits
under his wife’s medical plan. The company
later discovered that the plaintiff’s long-term
disability benefits had been terminated before he retired and, as a result, his eligibility for medical benefits ceased. Plaintiff sued
under ERISA to continue his health insurance and for reimbursement of the lost benefits. The court held that the plaintiff had a
potential remedy of surcharge under ERISA
in the form of reimbursed medical benefits
and ongoing medical coverage.
Kenseth v. Dean Health Plan, Inc., 722
F.3d 869 (7th Cir. 2013): Plaintiff called the
defendant health plan’s customer service
line to ask whether surgery her doctor had
recommend was covered under the plan.
The customer service representative told
her that the surgery was covered without inquiring as to whether the surgery
was connected to a prior surgery for treatment of morbid obesity. Plaintiff proceeded
with the surgery and the plan denied the
claim pursuant to a plan exclusion for obesity treatment.
The Seventh Circuit relied on McCravy
and Gearlds (as well as the Third Circuit’s decision in McCutchen which the
Supreme Court subsequently reversed) to
hold that if she could prove that the defendant breached its fiduciary duty and
that the breach caused her harm, Plaintiff could recover make-whole equitable relief under section 502(a)(3), even
if the terms of the plan unambiguously
excluded coverage.
Practice Pointers
The expansion of available remedies under
section 502(a)(3) represents an important
development under ERISA for employers,
plan administrators, and insurers. While
such claims previously focused on pension plans, these claims have expanded
into the context of fully insured welfare
benefits plans. In this context, it is particularly important that employer and plan
administrators exercise vigilance in carrying out their fiduciary duties with respect
to plan administration, including both
enrollment and the provision of accurate
information regarding plan benefits, notwithstanding the fact that the benefits
themselves are fully insured. Insurance
companies also have a vested interest in
ensuring that employers understand their
plan administration duties and carry them
out, particularly in the wake of recent
claims surrounding alleged “wrongful”
acceptance of premiums.
When faced with creative plaintiffs’
claims for relief under section 502(a)(3),
particularly under sympathetic fact patterns, it is important for practitioners to
remind courts that ERISA represents a
“‘careful balancing’ between ensuring fair
and prompt enforcement of rights under a
plan and the encouragement of the creation
of such plans.” Because employers need not
offer any benefits at all, these interests are
furthered by adherence to “predictable liabilities.” Moreover, ERISA does not confer
substantive rights or provide for windfalls.
Rather, ERISA’s “repeatedly emphasized
purpose” is the protection of “contractually defined benefits.” Thus, while ERISA
fiduciaries are required to “act solely in
the interests of participants and beneficiaries,” the only such “interests” that ERISA
protects is the receipt of the benefits promised by the plan.
It is also important for practitioners to
remember that many of the cases arguably allowing expansion of equitable remedies under section 502(a)(3) were decided
on motions to dismiss. When faced with a
novel ERISA claim and a sympathetic fact
pattern, the extremely high bar required
to win a motion to dismiss, combined with
the age-old credo that “bad facts make bad
law,” should be considered before pursuing
a motion to dismiss.
It seems clear that section 502(a)(3)
will be the subject of continued creative
claims and further case law development.
Focus on the ERISA principles discussed
above both in carrying out ERISA duties
and defending such claims when brought,
should help to promote ERISA’s purpose of
not unduly discouraging employers from
offering such plans in the first place.
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