:: Eighth Circuit Requires “Detrimental Reliance” For Employee To Recover Based Upon Inaccuracy in Summary Plan Description
The district court erred by adopting a “likely harm†prejudice standard. In order for an employee to recover from his employer for a faulty SPD, this court requires the employee to show he relied on its terms to his detriment. Greeley v. Fairview Health Services, — F.3d —-, 2007 WL 528218 (8th Cir. 2007) (February 22, 2007)
This case is one of three recent Eighth Circuit opinions involving summary plan descriptions (see case note below). As in the case of the other two opinions, this decision reverses a district court holding in favor of the plan participant.
The facts of this case are fairly simple. In February 1998, according to the district court opinion, Fairview Hospital enhanced its pathologists’ disability benefits and had a meeting with its pathologists to discuss benefits and related issues. The pathologists received a packet that contained a memo and an attached summary.
The memorandum stated: “This is to advise of an enhancement to your current benefits which insure you in the event of disability. The improvement is effective immediately.” It went on to describe disability benefits rates and periods of duration, referring both to a short term and a long term disability plan.
The critical language at issue was contained in this sentence: “The benefit continues as long as you are disabled and unable to work in your specialty area of medicine, until age 67 and may extend beyond depending on your age as of the date of disability.”
The memorandum included an attached “summary” which did not contradict the “age 67″ statement, and promised a more detailed summary would be sent later. The detailed summary was never sent.
The Application For Benefits
The district court opinion states that, in December 1998, Greeley began the process of applying for disability benefits because the chemicals he used in pathology were aggravating his asthma. He applied for and received short term disability benefits. In 1999 he realized that the 1998 memorandum conflicted with documents he received in preparing his long term disability claim (which referred to an age 65 terminal date). The opinion states that Greeley assumed that the memorandum controlled since it promised “enhanced” benefits.
When his benefits expired on the age 65 date, the issue over the proper period of benefits resulted in litigation.
A Single Typographical Error or Likely Harm?
The district court held that the 1998 memorandum was, in fact, a “faulty” summary plan description. Under the Eighth Circuit line of cases on the issue, a plan participant must still show prejudice to obtain relief based upon the inaccuracies in the document.
The district court concluded Greeley had been prejudiced. It was here that the Eighth Circuit found error. The Court of Appeals stated:
The district court correctly stated that in order to recover under a faulty SPD, Greeley must show that he was prejudiced by it. The court concluded that Greeley was prejudiced and explained the prejudice standard it applied as follows:
It is not clear what showing of prejudice is required under Eighth Circuit law. See Antolik, 383 F.Supp.2d at 1177. The Second Circuit requires a plan participant to show that he or she “was likely to have been harmed as a result of a deficient SPD,†and allows the employer to rebut this showing “through evidence that the deficient SPD was in effect a harmless error.†Burke v. Kodak Ret. Income Plan, 336 F.3d 103, 113 (2d Cir.2003). The Court adopts this standard and applies it here. Greeley v. Fairview Health Services, No. 04-cv-05023, slip op. at 7 (June 30, 2006).
The district court erred by adopting a “likely harm†prejudice standard. In order for an employee to recover from his employer for a faulty SPD, this court requires the employee to show he relied on its terms to his detriment.
From the Eighth Circuit’s point of view, the issue arose “from a single typographical error”. In its judgment, Greeley showed no detrimental reliance, and failing that, he could not demonstrate prejudice. The Court opined:
. . . we recently reversed the decision relied upon by the district court, Antolik v. Saks Inc., 383 F.Supp.2d 1168 (S.D.Iowa 2005), explaining that there was no actionable misrepresentation by the employer and “no reasonable detrimental reliance by … employees who continued to work without confirming exactly what severance benefits were available….†Antolik v. Saks, Inc., 463 F.3d 796, 802 (8th Cir.2006); see also Anderson, 836 F.2d at 1520 (requiring a showing of detrimental reliance). Detrimental reliance means that the plaintiff took action, resulting in some detriment, that he would not have taken had he known that the terms of the plan were otherwise or that he failed, to his detriment, to take action that he would have taken had he known that the terms of the plans were otherwise. Maxa, 972 F.2d at 984 (citing and quoting Monson, 739 F.2d at 1302).
Therefore, in the instant case, assuming arguendo that the February 1998 memorandum was a faulty SPD, Greeley must show that he took action or failed to take action, that he would not have otherwise, resulting in some detriment. See Maxa, 972 F.2d at 984; cf. Dodson v. Woodmen of the World Life Ins. Soc’y, 109 F.3d 436, 439 (8th Cir.1997) (finding prejudice because employee would have filed or preserved claim had SPD informed of benefits’ expiration deadlines).
Detrimental Reliance Versus Materiality Of Inaccuracy
The district court appears to have viewed the issue of prejudice in terms of materiality. The district court stated:
Defendants’ error occurred in a central provision-the age at which benefits expire. The faulty SPD promised Greeley disability benefits to age 67, which is two more years than Greeley would have received under the formal plan documents. The consequences of a faulty SPD must be placed on the employer because the individual employee is powerless to affect the drafting and less equipped to absorb the financial hardship of the employer’s errors. Burke, 336 F.3d at 113. Moreover, if defendants wanted to disavow the statements in the February 1998 Memo, they should have promptly corrected the error.
The district court also stated that it was troubled that the defendants neglected to correct their error. The court observed that:
Defendants were given the opportunity to correct the mistake in 2003 when plaintiff wrote defendants and asked for assurance that he would receive disability benefits until age 67. Defendants never responded to plaintiff’s letter.
But this was not the form of prejudice the Eighth Circuit was looking for. Rather, it sought evidence of some harm in the form of detrimental reliance. The Eighth Circuit concluded:
Greeley has failed to make a showing of detrimental reliance. Greeley testified that he had no choice but to go on disability because of the condition of his lungs. The district court specifically stated, “Greeley offered no evidence that he changed his course of action or otherwise relied on the faulty SPD.†Greeley, No. 04-cv-05023, slip op. at 6. The district court observed the financial harm to Greeley that resulted from the nonpayment of benefits for two years, but we have previously determined that such financial loss, without detrimental reliance, provides an insufficient basis for recovery.
Note: The concurring opinion in Greeley would have held that the memorandum was not even a faulty SPD and thus inconsequential since oral or informal writings cannot amend or modify the written terms of a plan document. The application of the disclosure requirements in the Eighth Circuit creates many ambiguities. The rules may be briefly recapitulated as follows:
1. If summary intended as an SPD is “faulty”, the beneficiary “must generally show that he relied on or was prejudiced by the SPD’s description of the plan’s benefits.â€
1A This means the beneficiary must “have taken action, resulting in some detriment, that he would not have taken had he known that the terms of the plan were otherwise or that he failed, to his detriment, to take action that he would have taken had he known that the terms of the plans were otherwise.”
1B The court may infer detrimental reliance from egregious misrepresentations.
2. If summary is so “hopelessly inadequate†as to not even be deemed faulty, the terms of the summary have no legal effect on the terms of the formal plan.
For other Eighth Circuit summary plan description cases, see:: Ambiguous Letter Does Not Constitute SPD and :: Eighth Circuit Finds Grant of Discretionary Authority In Policy Sufficient Notwithstanding Absence In Summary Plan Description
