Legal Summary: Rainey v. Sun Life Assurance Company of Canada

Order on Remedies, No. 3:13-CV-0612, 2014 WL 7156517 (M.D. Tenn. Dec.15, 2014)
Order adopting R&R, No. 3:13-CV-0612, 2014 WL 4979335 (M.D. Tenn. Oct. 6, 2014)
Report and Recommendation, No. 3:13-CV-0612, 2014 WL 4053389 (M.D. Tenn. Aug. 15, 2014)

Our client’s loved-one worked part-time in a hospital system. Rainey v. Sun Life Assurance Co. of Can., No. 3:13-CV-0612, 2014 WL 4053389, at *1 (M.D. Tenn. Aug. 15, 2014). She enrolled in life and accidental death and dismemberment (AD & D) coverage through her employer. Id. at *1–2. Tragically, she was killed, and our client as the executor of her estate brought a claim under her AD & D policy. Id. at *3, *12 n.1.

The insurance company refused to pay the full amount of our client’s claim, stating that his loved-one was only entitled to a fraction of the full amount listed online. Id. at *3. Turns out, the hospital wrongly classified our client’s loved-one as a full-time employee, which allowed her to enroll in a plan for more coverage than she should have been able to as a part-time employee. Id. at *2. We believed that the insurance company and employer were at fault and our client should not be denied his request on those grounds. So, we sued the insurance company and employer for the full amount of benefits. The magistrate who initially heard our client’s case found that the employer was primarily to blame, and ultimately, the district court ordered it to pay the rest of the amount listed on the web portal that the insurance company had not already paid. Id. at *12; Rainey v. Sun Life Assurance Co. of Can., No. 3:13-CV-0612, 2014 WL 7156517, at *1 (M.D. Tenn. Dec.15, 2014).

First, both the insurance company and employer attempted to argue that the Employee Retirement Income Security Act (ERISA) did not protect our client, but the magistrate rejected their argument. 2014 WL 4053389 at *5–6. To be sure, we acknowledged that our client was not protected by § 502(a)(1)(B), the ERISA provision that provides redress for individuals who are wrongfully denied benefits. Id. at *6. Under the plan, the insurance company was correct that our client’s family member, as a part-time employee, would not normally be eligible for full-time coverage. But, § 502(a)(1)(B) is not the only potential source of protection under ERISA. Id. at *5.

A different ERISA provision, § 502(a)(3), provided the requisite protection. Id. at *5–6. Section 502(a)(3) is a “catchall” provision that allows individuals “to obtain other appropriate equitable relief.” U.S.C.A. § 502(a)(3). And, given the failures of the employer in this case, we argued that 502(a)(3) protected our client and entitled him to receive the full amount of the benefits listed on the employer’s web portal. 2014 WL 4053389 at *6.

Under § 502(a)(3), a fiduciary–such as the employer in this case–breaches its “duty by providing plan participants with materially misleading information, ‘regardless of whether the fiduciary’s statements or omissions were made negligently or intentionally.’” Id. at *7 (citing Moore v. Lafayette Life Ins. Co., 458 F.3d 416, 433 (6th Cir. 2006)). This did not square with the employer’s attempt to simply write off its misrepresentations on the web portal as a “clerical error…not equal [to a] breach of fiduciary duty.” Id. at *6.

The employer argued in particular that a breach of fiduciary duty requires “willful misconduct or knowledge on the part of the plan administrator.” Id. In response, the magistrate explained that the employer’s understanding of the law was incorrect: “neither willful misconduct nor knowledge on the part of the plan administrator is required in the context of misrepresented benefits.” Id. at *7. Therefore, as the plan administrator, the employer in this case could not avoid liability by simply framing its misconduct as an unintentional “clerical error.” Id.

After rejecting the employer’s understanding of § 502(a)(3), the magistrate explained that our client’s case met the three legal requirements under § 502(a)(3). Id. at *7–9. First, the employer was serving as a fiduciary when it made representations through its web portal, which it required participants to use. Id. at *7.

Second, the representations on the web portal materially misled our client’s loved-one. Id. at *7–9. The employer thought that it only had fiduciary duties to plan participants in limited circumstances, including “where a plan provider offers material misrepresentations regarding the future of a plan on its own volition.” Id. at *8. This articulation of the relevant fiduciary duty did not help the employer, explained the magistrate, since on the web portal, the employer was representing “on its own volition” the future benefits that it would provide to our client’s family member. Id. Therefore, its false statements were capable of misleading and accordingly violated the fiduciary duty to provide accurate information that does not mislead a reasonable employee in making informed benefits decisions. Id. at *8–9.

Additionally, the magistrate explained that silence when a participant makes his or her initial election could also violate an employer’s fiduciary duty, if the participant lacks the information necessary to make a valid choice. Id. at *8. Such was the case here, where our client’s family member did not possess the summary plan description that the employer claims would have allowed her to recognize its misclassification. Id.

Furthermore, the employer tried to argue that the benefits enrollment guide it provided also would have allowed our client’s family member to identify its misclassification. Id. at *9. The magistrate likewise rejected this argument, explaining that the guide is not as clear regarding part-time benefits as the employer claimed it was. Id. For these reasons, the magistrate concluded that “there [was] a substantial likelihood that any reasonable employee would be unable to make an informed decision regarding those benefits under the circumstances here.” Id.

Lastly, the magistrate found that our client’s family member relied on her employer’s misrepresentations to her detriment. Id. Even without much direct evidence about the thought process of our client’s family member, the magistrate recognized that she did not purchase coverage beyond what her employer offered and indeed forwent part of her monthly income to her detriment under the belief that she would receive coverage. Id. On these grounds, the magistrate found in our client’s favor on the final requirement for a § 502(a)(3) breach of fiduciary duty claim. Id. Regarding compensation, the magistrate left that determination to the district court that would later review its recommendations regarding our client’s claims. Id. at *10.

Upon review, the district court agreed with the magistrate’s recommendations. Rainey v. Sun Life Assurance Co. of Can., No. 3:13-CV-0612, 2014 WL 4979335, at *1 (M.D. Tenn. Oct. 6, 2014). It rejected the employer’s argument that the magistrate used the wrong mode of analysis when it assessed our client’s case. Id.

The district court additionally provided helpful clarification on why our arguments succeeded, particularly with respect to the second requirement of a § 502(a)(3) breach of fiduciary duty claim. See id. at *1–2. It explained that allowing our client’s family member “to enroll, confirming that she had enrolled, accepting her payments for the greater coverage, and never taking any steps to correct this erroneous enrollment were all materially misleading statements (and silence) about the future of the plan.” Id. at *2.

Finally, in a subsequent decision, the district court approved our request for $784,000 as compensation for the employer’s breach. Rainey v. Sun Life Assurance Co. of Can., No. 3:13-CV-0612, 2014 WL 7156517, at *1 (M.D. Tenn. Dec.15, 2014). We requested this amount because after the insurance company paid $150,000 (the full amount of part-time coverage), our client still needed $784,000 to reach the full amount of coverage ($934,000) that his loved-one expected to receive based on the employer’s misrepresentations.

We couched our request in the equitable remedy of surcharge. Id. at *1. The court agreed with us that surcharge was available, noting that the Supreme Court has specifically mentioned surcharge as a potential remedy under ERISA. Id. (citing Cigna Corp. v. Amara, 563 U.S. 421, 442–45 (2011)).

The employer argued that surcharge is limited to situations in which (a) “the breach of trust resulted in a loss to the trust or plan” or (b) “the breach unjustly enriched the fiduciary.” Id. at *1. The court rejected this based on the seminal Supreme Court case, Cigna Corp. v. Amara, which stated that surcharge was available “for a loss resulting from a trustee’s breach of duty or to prevent the trustee’s unjust enrichment.” Id. at *2 (citing Amara, 563 U.S. at 442). Therefore, the court disagreed with the employer and concluded that we could request monetary compensation using the surcharge remedy for the employer’s breach of fiduciary duty. Id. at *2. Lastly, the court granted our request for $784,000, which it agreed was necessary to make our client whole for the employer’s breach. Id.