Case Story: Our Client v. Sun Life Assurance Company of Canada

Before delving into the facts of this case, it is necessary to cover some legal details to explain how this case is different than most ERISA benefits cases.  Unlike most ERISA benefits cases in which the claimant is seeking benefits that are due under the terms of their ERISA plan insurance policy, sometimes employees have to fight because their employers don’t actually provide an insurance policy or benefit that was promised.  Likewise, employers sometimes give misleading information about an employee’s rights under an ERISA plan or ERISA insurance policy or fail to give necessary information, which results in the employee not having a proper claim for benefits under the policy.

Because employers are typically the plan administrators and because employers are acting as fiduciaries when they give employees information about their benefits, they have a duty to give employees accurate information. When employers do not give accurate information, the employee does not have a claim for ERISA benefits due “under the terms of a plan,” but, rather has a claim against his or her employer/plan administrator for breach of fiduciary duty.

Claims for benefits due under the terms of a plan are brought under ERISA § 502(a)(1)(B).  The remedy in §502(a)(1)(B) claims is the return of benefits promised under the plan or insurance policy.  When an employer, acting as plan administrator, misleads the employee about coverage or rights under the plan, the employee must bring a claim for breach of fiduciary duty under ERISA § 502(a)(3).  There is a long history of complicated case law about what remedies qualify as “an appropriate equitable remedy” and are thus available to successful claimants under ERISA § 502(a)(3).  However, recent Supreme Court and lower court decisions have clarified that employees can be awarded the benefits they were promised, even if those benefits were not available under the strict terms of the plan, or be awarded money to make up for the employer/plan administrator’s breach of fiduciary duties.

In this case, the misleading information did not come from a Summary Plan Description (SPD) but from confirmation of the coverage the employee thought they signed up for.   Our client, a part-time employee, was allowed to sign up for full-time life insurance coverage on their company’s benefits’ website, which meant that instead of $75,000 in coverage, they were allowed to enroll in $467,000 in coverage.  The policy doubled benefits in the case of accidental death.  As a part-time employee, they should have had $150,000 of coverage for accidental death, but our client was allowed to sign up for a plan which entitled them to $934,000 of coverage for accidental death.

While in the process of going through a divorce, our client returned to work as a pharmacist in a hospital, but because they had two small children, they only went to work part-time.  Our client and their employer knew they were working part-time, they never claimed to work full time, and they never attempted to work full-time.  However, the benefits website allowed our client to enroll in the full-time life insurance plan.  Our client received confirmation for their coverage in their employee benefits statements, and the insurance company accepted premiums for the amount of full-time life insurance.

After they had been at work less than a year, our client was shot and killed by their estranged spouse, which, under the terms of the policy, would qualify for enhanced benefits as an “accidental” death.  Id. at 3.  Sun Life denied our client’s young children’s claim (as their beneficiaries under the plan) beyond the $150,000 that should have been the coverage for a part-time employee.  Id. The children’s guardian hired our firm and sued in the Middle District of Tennessee for the employer’s breach of fiduciary duties for misleading our client into believing they had significantly more life insurance than the amount the life insurance company allowed them to be covered for under the plan.

The district court agreed with our client’s children’s guardian that the claim was not one for the benefits due under the terms of a plan under ERISA § 502(a)(1)(B) but rather was for a breach of fiduciary duties under ERISA § 502(a)(3).  Our client’s employer, as an ERISA fiduciary, allowed our client to enroll in full-time life insurance coverage, confirmed their coverage, accepted their payments, and never took any steps to correct the erroneous enrollment.  Id.  The district court explained that the employer breached its fiduciary duties “as a result of incomplete and misleading statements made to our client in connection with their benefits eligibility and CHS’ acceptance of insurance premiums from our client for insurance for which our client was not eligible.” Id, at 1.

Without citing to a specific equitable cause of action or remedy, the court held that to establish a claim for breach of fiduciary duties under these circumstances a plaintiff must show that (1) the defendant was acting in a fiduciary capacity when it made the challenged representations; (2) those representations constituted material misrepresentations; and (3) the plaintiff relied on those misrepresentations to their detriment.” Our client, Order Adopting R&R at 1 (citing Moore v. Lafayette Life Ins. Co., 458 F.3d 416, 433 (6th Cir. 2006)).[1]

The district court agreed these elements were met.   Our client was allowed to enroll in the full-time insurance on an employee benefits website, and the court agreed that the employer, CHS, was acting as a fiduciary because, “the subject website was set up under CHS’ authority and instruction for CHS employees, to perform functions on behalf of CHS related to its employee benefits plans. CHS was acting as a fiduciary in that respect.” 

As explained, the second element was met when CHS allowed our client to enroll, confirmed the coverage, accepted premiums, and never took any steps to correct the erroneous enrollment. Id.  The district court also found that our client had reasonably relied on the representations about their coverage, and because they had never been informed that their coverage amount was incorrect, our client “was not permitted to make informed decisions about that coverage and/or other options.” Id, at 2.  Finally, the third element was satisfied because our client “reasonably relied to their detriment upon the misrepresentations of CHS, . . .by paying premiums and by foregoing alternative coverage.” Id.

The district court granted our client’s motion for judgement against CHS, their employer/plan administrator.  The Court denied the claim against the insurance company, Sun Life, agreeing with Sun Life that it was not their fault the employer/plan administrator allowed our client to enroll in the wrong amount of coverage.

The court then asked for a further round of briefing on the appropriate remedy, found that the equitable remedy of surcharge was available against a fiduciary who caused the beneficiary to have a loss, and held that the surcharge remedy would be monetary compensation equal to the amount of benefits promised.  Because Sun Life had already paid $150,000 in life insurance (the amount a part-time employee would have been eligible for) the court ordered the employer/plan administrator to pay “a surcharge in the amount of $784,000 (face value minus amount already paid).” Id.

CHS appealed this decision, we cross-appealed against Sun Life, and the case was later settled for a confidential amount.

[1] Moore also holds that “[a] fiduciary breaches his duty by providing plan participants with materially misleading information, regardless of whether the fiduciary’s statements or omissions were made negligently or intentionally.” Our client, Order Adopting R&R at 1.

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