One of the difficulties of enforcing participants’ statutory rights under ERISA, heretofore, has been the lack of effective make-whole remedies. But in the wake of last term’s CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), participants have remedial options not previously available to them for breach of fiduciary duty claims. The Fourth Circuit reverses summary judgment in a case where a participant had been allowed to pay for years for dependent life insurance that (evidently) she was not entitled to receive.
McCravy v. Metropolitan Life Insurance Co., No. 10-1074 (4th Cir. July 5, 2012): The plaintiff participated in her employer’s life insurance and accidental death and dismemberment (“AD&D”) plan, issued and administered by MetLife. Under the plan, a participant could purchase coverage for “eligible dependent children.”
McCravy purchased coverage for her daughter, Leslie, and paid premiums – which MetLife accepted – until the year that her daughter was murdered at age 25. MetLife denied McCravy’s claim, nonetheless, because the plan did not permit an employee to carry a child past age 24. MetLife offered, instead, to return the overpaid premiums.
McCravy brought suit to obtain relief for MetLife’s negligence, alleging a breach of fiduciary duty under 29 U.S.C. § 1104. She sought recovery under ERISA § 502(a)(2) or (3), 29 U.S.C. § 1132(a)(2) or (a)(3), pleading entitlement to recovery under waiver, estoppel, “make whole,” and other equitable theories. The district court granted judgment to MetLife in all respects, limiting McCravy’s remedy to recovering the premiums.
The Fourth Circuit reverses. It observes that Amara changed the ground rules with respect to remedies under ERISA § 502(a)(3):
“Before Amara, various lower courts, including this one, had (mis)construed Supreme Court precedent to limit severely the remedies available to plaintiffs suing fiduciaries under Section 1132(a)(3) . . . .But with Amara, ‘[a] striking development,’ the Supreme Court ‘expanded the relief and remedies available to plaintiffs asserting breach of fiduciary duty under [Section 1132(a)(3)] and therefore seeking make-whole relief such as equitable relief in the form of “surcharge.”‘” [Citations omitted.]
The panel notes that the equitable remedy of “surcharge” – an monetary award against the breaching fiduciary for the amount of financial loss cause by the breach of trust – is now, in the wake of Amara, part of the remedial framework in ERISA cases. The court also holds that a participant may sue to hold the fiduciary to the promise to provide coverage under a theory of equitable estoppel.
The panel especially notes the equity of this outcome under ERISA:
“In sum, with Amara, the Supreme Court clarified that remedies beyond mere premium refunds-including the surcharge and equitable estoppel remedies at issue here-are indeed available to ERISA plaintiffs suing fiduciaries under Section 1132(a)(3). This makes sense-otherwise, the stifled state of the law interpreting Section 1132(a)(3) would encourage abuse by fiduciaries. Indeed, fiduciaries would have every incentive to wrongfully accept premiums, even if they had no ideas to whether coverage existed-or even if they affirmatively knew that it did not. The biggest risk fiduciaries would face would be the return of their ill-gotten gains, and even this risk would only materialize in the (likely small) subset of circumstances where plan participants actually needed the benefits for which they had paid. Meanwhile, fiduciaries would enjoy essentially risk-free windfall profits from employees who paid premiums on non-existent benefits but who never filed a claim for those benefits. With Amara, the Supreme Court has put these perverse incentives to rest and paved the way for McCravy to seek a remedy beyond a mere premium refund.”
The Fourth Circuit thus confirms that the new path paved by Amara will be far more attuned to the actual losses suffered by participants for fiduciary lapses, a profound development in this field of the law.