:: Fifth Circuit Rejects Claim For Death Benefits As Impermissible Attempt To Recovery Money Damages
The facts as detailed in Chief Judge Jones’s opinion scream out for a remedy beyond the simple return of premiums. Regrettably, under existing law it is not available. I am constrained to join the court’s opinion, which I find correctly applies controlling precedent. Judge Benavides, concurring opinion, Amschwand ex rel. Estate of Amschwand v. Spherion Corp., — F.3d —-, 2007 WL 3027072 (C.A.5 (Tex.)) (October 18, 2007)
Amschwand ex rel. Estate of Amschwand v. Spherion Corp. epitomizes the quandary created by the approach taken in ERISA jurisprudence by the federal judiciary. In this case, a widow of deceased plan participant brought suit against his employer for loss of life insurance benefits caused by employer’s breach of fiduciary duty. As noted by in the concurring opinion of Judge Benavides, the outcome of the case was unpalatable not only for the plaintiff, but perhaps for the court as well.
The Facts
Group life insurance policies routinely contain an “active at work” requirement. In other words, when the policy goes in force, unless other arrangements are made, the policy will not cover employees who are not actively at work during on the date specified in the policy. (Stop loss policies for sponsors of self-funded group health plans contain the same requirement.)
Thomas Amschwand was on medical leave when his employer, Spherion, switched insurance companies, replacing Prudential with Aetna Life Insurance Company (“Aetnaâ€) as “the new provider of basic and supplemental life insurance benefits under the company Plan.” The Aetna policy contained the aforementioned active at work requirement, stated as follows:
If the employee is ill or injured and away from work on the date any of his or her Employee Coverage (or any increase in such coverage) would become effective, the effective date of coverage (or increase) will be held up until the date he or she goes back to work for one full day.
Thus, Amschwand would lose coverage under the old policy, and by its terms, be excluded from coverage under the new Aetna policy.
Special Arrangements
The story does not end there, however, since other arrangements were purportedly made for employees on leave. The opinion recites the following as to this point:
As part of the transition to the new policy, Aetna and Spherion agreed that the Active Work Rule requirement would be waived for employees like Mr. Amschwand, who were not currently working full-time due to a medical condition that antedated the switch from Prudential to Aetna.
This reasonable arrangement was inapplicable to Amschwand, however, for reasons not disclosed in the opinion:
For reasons Spherion has failed to explain, however, Mr. Amschwand was not among those who received coverage despite being on disability leave when the Policy took effect on May 1, 2000. Unlike other similarly situated employees, Mr. Amschwand never received a waiver and, unbeknownst to him, he remained subject to the Active Work Rule.
Assurances Of Coverage
Notwithstanding the foregoing lapse, Amschwand’s employer continued to assure him that he had coverage under the Aetna policy.
As his condition deteriorated, Mr. Amschwand repeatedly contacted Spherion to confirm that he was fully covered under the Aetna Policy. Each time, Spherion representatives failed to mention the Active Work Rule requirement and incorrectly assured him that the full spectrum of coverage he enjoyed under the pre-Aetna Plan remained valid.
At the same time, his employer failed to supply him with requested plan documentation that would aid him in understanding the requirements of coverage under the Aetna policy.
Moreover, in spite of the Amschwands’ repeated oral requests for documentation of the Policy terms and the corresponding Summary of Coverage, Spherion either maintained that informational booklets were not yet available for employees, or simply failed to provide any paperwork describing the conditions of the Policy. Believing himself covered, Mr. Amschwand timely paid the basic and supplemental life insurance premiums while on disability leave until his death in February, 2001. Mr. Amschwand diligently sought to ensure that his wife would be provided for under the Plan. Both parties agree, however, that Spherion never informed him that in order for the Policy to take effect he was required to return to work for at least one full day.
Wrong Without Remedy
When his widow filed a claim with Aetna, she was for the first time informed that, because her husband did not satisfy the active at work requirement, he was ineligible for benefits under the policy. Her appeals being denied under the plan, she then filed suit seeking relief under ERISA § 502(a)(3) in the form of “monetary losses caused by [Sperion's] breach of fiduciary duty.â€
The district court granted the employer’s motion for summary judgment. The Fifth Circuit affirmed on the grounds that U.S. Supreme Court authority precluded awarding money damages as “appropriate equitable relief”. Despite various approaches to the issue, the Court held that the plaintiff’s claim for relief could only be characterized as an attempt to recover money damages.
Amschwand seeks relief-whether characterized as make-whole or restitutionary-that is legal in nature because it represents damages on the insurance contract that Spherion allegedly breached. (citing LaRue v. DeWolff, Boberg & Assocs., Inc., 450 F.3d 570 (4th Cir.2006), cert. granted, — U.S. —-, 127 S.Ct. 2971, — L.Ed.2d —- (2007) (“absence of unjust possession is fatal to an equitable restitution claimâ€); Bauhaus USA, Inc. v. Copeland, 292 F.3d 439, 445 (5th Cir.2002) (no § 502(a)(3) recovery because settlement proceeds were in the registry of the Mississippi chancery court, not under the defendant’s control). . . . Obtaining the lost policy proceeds, as Amschwand requests, is simply a form of make-whole damages. . . .This demand is not equitable in derivation, but is akin to the legal remedies of extracontractual or compensatory damages.
The Court opined that “[s]tated otherwise, even were we to find that Amschwand’s cause of action sounds in equity, her desired relief is not typically equitable.”
Fiduciary Status of Defendant Inconsequential
The plaintiff’s attempt to distinguish the facts of her case based upon the fiduciary status of the defendant likewise missed the mark. The Fifth Circuit noted that other circuit courts of appeal had not found this distinction of any consequence, stating:
Anschwand’s proposed distinction among defendants has been rejected by many of our sister circuits. There is no textual argument for drawing this distinction under § 502(a)(3). Under Great-West, only the nature of the claim and the relief sought-not the status of the litigants-determine the scope of available § 502(a)(3) recovery. See, e.g., Callery, 392 F.3d at 409; McLeod v. Or. Lithoprint Inc., 102 F.3d 376, 378 (9th Cir.1996) (“the status of the defendant, whether fiduciary or nonfiduciary, does not affect the question whether damages constitute ‘appropriate equitable relief’ †under § 502(a)(3)). That wider relief was traditionally available in equity courts against fiduciaries than nonfiduciaries is irrelevant to ERISA’s remedial scheme. Mertens and its progeny state that § 502(a)(3) relief is affirmatively not grounded in “the special equity-court powers available to trusts.†Great-West, 534 U.S. at 219, 122 S.Ct. at 718; Mertens, 508 U.S. at 258, 113 S.Ct. at 2070; see also Crosby v. Bowater Inc. Ret. Plan for Salaried Employees of Great N. Paper Inc., 382 F.3d 587, 596 (6th Cir.2004).
Note: The prevailing view is that equitable restitution “was designed to restore the trust res damaged by a trustee’s breach of duty; it did not aim to compensate a beneficiary for expected gains that would have accrued absent a fiduciary’s breach.” See Restatement (Second) of Trusts § 205 (1959).
Choice of Remedy - The Fifth Circuit case presents in stark detail the narrow construction given Section 502(a)(3). The plaintiff did recover statutory damages in the amount of $100 per day from the date of Spherion’s failure to timely provide policy documentation, as well as attorney’s fees, pursuant to ERISA §§ 502(c)(1)(B) and (g)(1), 29 U.S.C. §§ 1132(c)(1)(B), (g)(1), respectively. The only issue on appeal was the availability of a monetary remedy under § 502(a)(3). Given the narrow interpretation of Section 502(a)(3), ERISA plaintiffs must carefully consider what alternative claims may be available. The choice may be few, if any. (Note that the U.S. Supreme Court will have an opportunity to consider the Section 502(a)(3) “make whole” issue in the LaRue case, in which cert has been granted.)
Troublesome Requirement – While it is understandable why insurers would want to avoid adverse selection by including an active at work requirement, the provision can create substantial problems for employers. Employers should carefully review the effect of a policy change on employees on leave.
See also -:: Amicus Brief In LaRue v. DeWolff, Boberg & Associates, Inc. ; :: Faulty Description Of Benefits Constitutes Wrong Without Remedy ; Promises Of Coverage To Employees – What Happens When The Coverage Falls Through? (Part 2)
