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Whom can you sue under ERISA? What remedy can you get from the court? What about “surcharge,” or “equitable estoppel”? Such questions have been kicking around since the passage of ERISA in 1974. It has always been clear that participants can sue to recover benefits due under ERISA, but participants can also sue to obtain “appropriate equitable relief.” What does that mean? Answers are finally emerging. First, the US Supreme Court weighed in by deciding the case of Cigna Corp v. Amara in 2011, in which equitable remedies are discussed. Recently, in McCravy v. Metropolitan Life Insurance Company, the 4th Circuit has applied the Amara case, and elaborated the Amara discussion about the equitable remedies of surcharge and estoppel.
McCravy v. MetLife involved Debbie McCravy’s claim for death benefits when her daughter died. Ms. McCravy participated in her employer’s life insurance and accidental death and dismemberment plan, which was issued and administered by MetLife. Under the plan, participants could purchase coverage for eligible dependent children. Ms. McCravy elected to purchase life insurance coverage for her daughter and she paid premiums, which MetLife accepted, from before her daughter’s 19th birthday until she was murdered in 2007 at the age of 25.
MetLife contended that Ms. McCravy’s daughter did not qualify for coverage under the plan because the life insurance coverage she was paying for was only available to children under the age of 24. Because her daughter was 25 at the time of her death, MetLife said she no longer qualified as an eligible dependent child, and claimed that her remedy was limited to a premium refund. MetLife tried to give her premiums back, but Ms. McCravy refused to accept the refund check and filed suit in federal court
As the insurer of an ERISA plan, MetLife was a plan fiduciary and Ms. McCravy sued MetLife for a breach of fiduciary duty. The district court ruled that she could recover. However, the district court said that her recovery was limited to the life insurance premiums wrongfully accepted by MetLife, as under the terms of the plan, her daughter past the age when the plan permitted coverage.
Ms. McCravy appealed and MetLife cross-appealed. The United States Court of Appeals for the 4th Circuit, on July 5, 2012, found for Ms. McCravy. The 4th Circuit determined that her recovery in the case was not limited to a premium refund. Specifically, Ms. McCravy could seek “surcharge” or “equitable estoppel.” The discussion in the case sheds light on the laws of equity addressed by the US Supreme Court in the Amara case.
In order to understand this, one needs to realize that American law derives from British law and includes two distinct and different approaches. On the one hand, there is the “common law,” under which plaintiffs can sue defendants for money damages pursuant to a relatively limited number of claims, such as breach of contract, or trespass, or negligence. Because the common law gave no remedy for some obvious injustices, a separate court system was established, known as chancery, to provide appropriate equitable relief. Surcharge and equitable estoppel, as well as injunction, restitution, reformation and mandamus, are remedies which are “typically” available under the law of equity. Equity law developed to provide remedies against bad actors who happen to be trustee-type fiduciaries. Under ERISA, fiduciaries are treated the same the way that the law of equity treats trustees.
Equity courts possessed the power to provide relief in the form of monetary “compensation,” provided that the compensation was awarded for a loss resulting from a trustee’s breach of duty, or to prevent the trustee’s unjust enrichment. MetLife breached its fiduciary duty by keeping premiums it should have known would not pay for life insurance. The court reasoned that if it allowed it merely to return premiums, MetLife would, in effect, be allowed to benefit from its wrongdoing.
Ms. McCravy also argued that if she had been made aware that her daughter’s coverage would not be available after she reached age 24, she would have been able to convert the policy to an individual policy. Metlife had argued that she was no longer entitled to convert the policy because her daughter was dead. However, the 4th Circuit Court noted that the Amara case allowed consideration of estoppel as an equitable remedy; that is, the court could, on principles of fairness “estop” MetLife from denying her the right to convert her daughter’s coverage to an individual policy, despite the fact that the conversion did not occur within the period specified by the plan.
Amara has significantly changed the ERISA landscape. Prior to the Amara decision, Ms. McCravy’s claims would likely have been dismissed based on the plain language of the insurance policy. Post-Amara, plan sponsors and plan administrators should understand that errors in plan administration that previously could have been excused by the plan document may now be the basis for equitable claims.
© Copyright 2012 Devine Millimet & Branch, Professional Association
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