In Van Loo v. Cajun Operating Co, No. 14-cv-10604 (E.D. Mich. Sept. 17, 2015), the Eastern District of Michigan, a Sixth Circuit district court, held that the requirement for evidence of insurability was triggered based on the total amount of insurance as opposed to the amount of supplemental life insurance. Additionally, while acknowledging a split between the Sixth and Ninth Circuits on the matter, the court found that there was no right to contribution or indemnification between co-fiduciaries under the Employee Income Retirement Act of 1974 (ERISA).

Factual and Procedural Background

Donna Van Loo was an employee of cross-plaintiff Cajun Operating Company d/b/a Church’s Chicken (Church’s). Church’s provided life insurance to its employees, including Van Loo, through cross-defendant Reliance Standard Life Insurance Company (Reliance Standard). Church’s acted as the plan administrator. The policy required that insureds submit an evidence of insurability (EIF) form for certain coverage elections to be effective. Van Loo never submitted an EIF. After her death, her parents, plaintiffs Donald and Harriet Van Loo, submitted a claim. Reliance denied benefits in excess of the guaranteed-issue amount.

The plaintiffs sued Church’s and Reliance Standard. After initial motion practice, the remaining claims were a denial of benefits claim against Reliance Standard and a breach of fiduciary duty claim against Church’s. See Van Loo v. Cajun Operating Co., 64 F. Supp. 3d 1007 (E.D. Mich. 2014) and Wilson Elser’s Alert on that case published in December 2014. Church’s subsequently filed a cross-claim against Reliance Standard, asserting that Reliance Standard caused Van Loo’s failure to submit the EIF. Reliance Standard moved to dismiss the cross claim and Church’s moved to amend its cross claim. The district court granted Reliance Standard’s motion to dismiss and denied Church’s motion to amend.

The Decision

Evidence of Insurability

The policy stated, “Amounts of insurance over $300,000 are subject to our approval of a person’s proof of good health.” In examining the policy, the court referred to the term “amount of insurance” as defined under the Schedule of Benefits and found that the definition included both basic life and supplemental life. As such, the court stated that “amount of insurance” refers to the sum of the insured’s basic and supplemental benefits. The court specifically noted “that the phrase ‘amounts of insurance’ rather than ‘supplemental life’ is used in the sentence at issue is telling given that both terms are defined in the Schedule of Benefits section.” Therefore, the court found that the EIF requirement was applicable to the total amount of insurance purchased by the insured, as opposed to merely the supplemental coverage purchased as argued by Church’s (and the plaintiffs).

The court applied this holding to the time frame when Van Loo had first bought a total amount of insurance over $300,000, which in this case was when Church’s was responsible for providing the EIF. Reliance Standard did not undertake responsibility for the EIF requirement until two years later but, as the court noted, “by that point, the breach had occurred and the damage was done.”

No Contribution or Indemnification Rights Between Co-fiduciaries

Regarding the issue of contribution and indemnification between co-fiduciaries, the court recognized that there is a circuit split as to whether one ERISA fiduciary may pursue a contribution action against a co-fiduciary. The court additionally recognized that the Sixth Circuit has not yet adopted a position on the issue. However, the court also noted that every district court in the Sixth Circuit to face the issue has thus far held that there is no right of indemnification or contribution between co-fiduciaries.

The court distinguished this case from CIGNA Corp v. Amara, 563 U.S. 421 (2011). First, the court noted that “Amara does not address a fiduciary’s claim for contribution or indemnification under ERISA; it involves a beneficiary’s claim against a fiduciary for reformation of plan terms.” The court also cited the Middle District of Florida decision Guididas v. Cmty. Nat. Bank Corp, No. 8:11-cv-2545-T-30TBM, 2012 for the way it also distinguished Amara. The court cited the Guididas holding that “502(a)(3) refers to violations of ERISA or enforcement of a plan’s terms, not to the equitable remedies available to a breaching fiduciary against another fiduciary. Moreover, the Supreme Court has previously held that, in order to recover for a violation of sec 409 … the relief must ‘inure to the benefit of the plan as a whole’ and ‘Congress did not intend that section to authorize any relief except for the plan itself.’” As such, the court joined the other Sixth Circuit district courts in finding that, even if assuming that Reliance was a co-fiduciary of Church’s for the purpose of the EIF administration, there is no right of indemnification between co-fiduciaries.

Practice Pointer

It is important in the defense of claims administrators, particularly in the context of self-administered group plans, to carefully explain the claims administrator’s responsibilities and distinguish them from the plan administrator’s responsibilities. Generally, it is the plan administrator’s responsibility in the context of a self-administered plan to, for example, (1) enroll its employees and provide an EIF to complete during that enrollment when needed and (2) ensure proper premium deductions from the employee’s paycheck and not deduct money for coverage that was, for example, not yet approved by the insurance carrier. The proper distinction of the respective administrators’ duties can be the key to a favorable outcome.