:: When Employer Lapses Cost Participants Their Coverage – Wrong Without Remedy?
We share appellant’s concern that her claim exists in a remedy-less “regulatory vacuum” created by ERISA’s broad preemption of state law claims and the Supreme Court’s narrow interpretation of “other appropriate equitable relief.” Aetna Health Inc. v. Davila, 542 U.S. 200, 222, 124 S. Ct. 2488, 159 L. Ed. 2d 312 (2004) (Ginsburg, J., concurring); see also Eichorn v. AT&T Corp., 489 F.3d 590, 591-94 (3d Cir. 2007) (Ambro, J., concurring in denial of petition for rehearing en banc); E. Daniel Robinson, Note, Embracing Equity: A New Remedy for Wrongful Health Insurance Denials, 90 Minn. L. Rev. 1447, 1449-55 (2006). Nevertheless, we are bound by the precedent of this circuit and the Supreme Court. Accordingly, the district court’s order of dismissal is affirmed.
Pichoff v. QHG of Springdale, Inc., 2009 U.S. App. LEXIS 3756 (8th Cir. Ark. Feb. 26, 2009)
This case is reminiscent of the disturbing cases which the Eighth Circuit cites as in accord with its opinion. (See, Amschwand v. Spherion Corp., 505 F.3d 342, 343, 348 (5th Cir. 2007) (section 1132(a)(3)(B) does not permit “damages in the form of payment of life insurance benefits that would have accrued to a plan beneficiary but for a plan fiduciary’s breach of fiduciary duty”); Callery v. U.S. Life Ins. Co., 392 F.3d 401, 406 (10th Cir. 2004))
Here the plan participant, Dr. Pichoff, had $1 million plus in life insurance benefits. A year after acquiring this coverage through his employment, Dr. Pishoff is diagnosed with cancer. You can imagine the consolation he must have taken in the insurance benefits he had obtained.
To maintain the insurance coverage, there were a few simple, but essential, preconditions. From the opinion:
Plan benefits generally ceased upon an employee’s termination. Nevertheless, the Plan provided for an extension of life insurance benefits with no further premium payments to employees who suffered permanent and total disability. To receive the extension, the Plan required proof of disability to the underwriter no later than twelve months after the disability’s onset date. The extension terminated if the employee began any work for pay or profit.
Sadly, the employer made a series of grave errors:
On February 5, 2002, Dr. Pichoff was diagnosed with multiple myeloma, which required him to take a medical leave of absence beginning on May 1, 2004. Unable to return to work, Northwest terminated Dr. Pichoff on January 31, 2005, without notifying him, Aetna or the third-party Plan administrator. Dr. Pichoff received no additional information regarding his rights or obligations under the Plan and did not claim an extension of his life insurance benefits.
So, though notice was required to continue the insurance coverage, Dr. Pichoff’s employer terminates him without notice to anyone, including Pichoff, who is on medical leave fighting his cancer. It gets worse.
One can only imagine the pressure this man was under at the latter stages of his illness. With this in mind, feature this turn of events:
Thereafter, Northwest senior management advised Dr. Pichoff that he could retain his $ 1,050,000 in life insurance coverage if he returned to work as a nonexempt part-time employee. As a result, Dr. Pichoff and Northwest entered into a two-year employment contract on April 1, 2005, that provided for group life insurance coverage. Dr. Pichoff’s health, however, continued to deteriorate and he took another medical leave of absence beginning August 1, 2005.
Northwest ultimately terminated Pischoff’s employment on February 2, 2006 with word that he would be advised of his insurance options. When the word came, it was disappointing.
On February 26, 2006, Triad provided the information and notified Dr. Pichoff that he maintained only $ 15,000 in life insurance coverage underwritten by Sun Life Assurance Company of Canada (Sun Life). 4 Upon investigation, Dr. Pichoff learned that his $ 1,050,000 life insurance policy lapsed following his January 31, 2005, termination because no claim was made to Aetna to extend the Plan’s coverage. Aetna and Sun Life denied Dr. Pichoff’s subsequent requests to reinstate his benefits. Dr. Pichoff died on August 28, 2006.
The lay person might here assume that the courts would favor Dr. Pichoff’s cause. Those familiar with the cases cited at the outset of this post know better.
The problem is simply that ERISA Section 502(a)(3) does not provide for legal damages, only equitable relief. Though lengthy, the following excerpt is necessary to appreciate the “wrong with remedy” perspective of the federal courts in these cases:
The term “other appropriate equitable relief” is limited to relief that was “typically available in equity (such as injunction, mandamus, and restitution, but not compensatory damages).” Mertens v. Hewitt Assocs., 508 U.S. 248, 256-57, 113 S. Ct. 2063, 124 L. Ed. 2d 161 (1993) (emphasis omitted); see also Knieriem v. Group Health Plan, Inc., 434 F.3d 1058, 1061 (8th Cir. 2006); Kerr, 184 F.3d at 943. In addition, not all monetary relief “falling under the rubric of restitution” is available under § 1132(a)(3)(B). Great-WestLife & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 212, 122 S. Ct. 708, 151 L. Ed. 2d 635 (2002). Rather, whether restitution is equitable or compensatory depends on the “origin of the award sought.” Knieriem, 434 F.3d at 1061. Equitable restitution seeks to impose “a constructive trust or equitable lien on ‘particular funds or property in the defendant’s possession.’” Sereboff v. Mid Atl. Med. Servs., Inc., 547 U.S. 356, 362, 126 S. Ct. 1869, 164 L. Ed. 2d 612 (2006) (quoting Knudson, 534 U.S. at 213). Thus, monetary relief in the form of restitution is generally available only if the action seeks “not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property [*7] in the defendant’s possession.” Knudson, 534 U.S. at 214. To determine whether a plaintiff requests legal or equitable relief, “we ask whether the value of the harm done that forms the basis for the damages is measured by the loss to the plaintiff or the gain to the defendant, and whether the money sought is specifically identifiable as belonging in good conscience to the plaintiff.” Calhoon v. Trans World Airlines, Inc., 400 F.3d 593, 596-97 (8th Cir. 2005) (citations and quotations omitted).
In this case, appellees did not benefit from the lapse of Dr. Pichoff’s initial life insurance policy, and they retain no funds identifiable as belonging to appellant. Rather, appellant seeks compensation for the benefits that would have been paid to Dr. Pichoff’s estate had the policy not lapsed. Such HN4relief, however, is compensatory in nature and unavailable under § 1132(a)(3)(B). Accord Amschwand v. Spherion Corp., 505 F.3d 342, 343, 348 (5th Cir. 2007) (HN5section 1132(a)(3)(B) does not permit “damages in the form of payment of life insurance benefits that would have accrued to a plan beneficiary but for a plan fiduciary’s breach of fiduciary duty”); Callery v. U.S. Life Ins. Co., 392 F.3d 401, 406 (10th Cir. 2004) (same).
Note: Whether or not these opinions make sense, this is where the federal courts are on this issue. There are calls for change. My friend Paul Secunda has long been an advocate for change and in a recent law review article sets forth a case for reform.
The Final Word - In pronouncing the case DOA, the court provided the following editorial comment:
We share appellant’s concern that her claim exists in a remedy-less “regulatory vacuum” created by ERISA’s broad preemption of state law claims and the Supreme Court’s narrow interpretation of “other appropriate equitable relief.” Aetna Health Inc. v. Davila, 542 U.S. 200, 222, 124 S. Ct. 2488, 159 L. Ed. 2d 312 (2004) (Ginsburg, J., concurring); see also Eichorn v. AT&T Corp., 489 F.3d 590, 591-94 (3d Cir. 2007) (Ambro, J., concurring in denial of petition for rehearing en banc); E. Daniel Robinson, Note, Embracing Equity: A New Remedy for Wrongful Health Insurance Denials, 90 Minn. L. Rev. 1447, 1449-55 (2006). Nevertheless, we are bound by the precedent of this circuit and the Supreme Court. Accordingly, the district court’s order of dismissal is affirmed.
Alternatives? These cases might fare better as state law claims against the employer. See, Puller v. UniSource Worldwide, Inc., et. al. which is discussed on erisaboard.com here. On the other hand, there is an interesting analysis of this case here, suggesting that the ERISA claim was improperly addressed by the court. If equitable remedies would permit reinstatement, however, would the return to employment (at the employer’s behest – see above), forfeit coverage? A preconditionto the benefit was that the extension of benefits would be forfeited if the employee returned to work.
