You know that typically claimants seeking ERISA-governed benefits make claims for recovery under Section 1132(a)(1)(B).

Now you are likely seeing more simultaneous assertions of equitable claims for breach of fiduciary duty and disgorgement under Section 1132(a)(3). A successful claimant asserting this theory may recover additional forms of monetary relief, and may get broader discovery.

But the availability of relief under Section 1132(a)(3) claims is narrow: a claimant may pursue a Section 1132(a)(3) claim “only where the [equitable] claim is based on an injury separate and distinct from the denial of benefits or where the remedy afforded by Congress…is otherwise shown to be inadequate.”

So, how do you defend Section 1132 (a)(3) equitable claims? This new case highlights the point: Davis v. Hartford Life & Accident Insurance Company, __F. 3d__, 2020 WL 6789448 (6th Circuit November 19, 2020)(attached) Section 1132(a)(3) claims dismissed).

FACTS: Davis sought ERISA governed short and long term disability benefits due to back pain, neuropathy and fatigue due to multiple myeloma. Hartford approved short term and long term disability.

The treating physician (Dr. Reddy) then reported in September 2012 that Davis had continued restrictions; but also stated that Davis was clinically stable and able to perform sedentary work. Hartford conducted surveillance, interviewed Davis, and had an orthopedist conduct an independent medical exam (IME). The IME report, which concluded Davis could perform sedentary work, was also sent to Dr. Reddy for comment. Dr. Reddy did not respond to the request for comment on the IME report.

After Hartford discontinued benefits, Davis appealed. Hartford then obtained a review by a pain management specialist and an internist. Both concluded Davis could perform sedentary work. An employability analysis also identified five occupations that aligned with the “Any Occupation” definition. Hartford denied the appeal and Davis sued, alleging among other claims, “breach of fiduciary duty and disgorgement” claims.

ISSUE: Whether claims for breach of fiduciary duty and disgorgement should be dismissed?

6TH CIRCUIT COURT OF APPEALS HELD: YES.

  1. “Section 1132(a)(3) permits a plan participant to file suit ‘to enjoin any act or practice which violates [ERISA] or the terms of the plan’, or ‘to obtain other appropriate relief (i) to redress such violations or (ii) to enforce any provisions of [ERISA] or the terms of the plan.’” Op. at 12.
  2. “[T]he availability of relief under Section 1132(a)(3) claims is narrow: a claimant may pursue a Section 1132(a)(3) claim ‘only where the [equitable] claim is based on an injury separate and distinct from the denial of benefits or where the remedy afforded by Congress…is otherwise shown to be inadequate.’” Op. at 12.
  3. “The upshot is that Davis fails to show that his fiduciary duty claim is based on an injury distinct from his contract claim.” Op. at 12.
  4. Purported examples to support the fiduciary duty claim included allegations that Hartford personnel “‘systematically delay[ed] claim decisions”, “automatically accepted[ed] the opinions of Hartford’s paid medical reviewers”, and “did not seek to reach an accurate decision.” Op. at 12.
  5. “As these are conclusory allegations without factual support we need not accept them as true.” Op. at 12.
  6. The Court also rejected the disgorgement claim. Davis alleged that Hartford “accumulated earnings on the plan benefits otherwise payable to Davis.” “But this too is not a distinct injury from the termination of Davis’s benefits.” Op. at 12-13.
  7. “’[I]n an action for wrongful denial of benefits, like this one, the denial of benefits necessarily results in a continued withholding of benefits until the denial is either finalized or rectified.’…As a result, ‘[t]he denial is the injury and the withholding is simply ancillary thereto…Together they comprise a single injury.’” Op. at 13.
  8. The Court also concluded Davis failed to show that remedies under Section 1132(a)(1)(B) were inadequate. Davis failed to show a separate injury for his breach of fiduciary duty claim. And Section 1132(a)(1)(B) “provides an adequate remedy for Davis’s disgorgement claim.” Op. at 13.
  9. “[W]here an avenue of relief for the injury [is] unavailable under Section 1132(a)(1)(B), ‘irrespective of the degree of success obtained,’ a breach-of-fiduciary-duty claim cannot be brought.’” Op. at 13. “As Davis plainly was able to avail himself of such a remedy, his equitable claims under Section 1132(a)(3) were properly dismissed.” Op. at 13.
  10. While the U.S. Supreme Court Amara case allowed participants to seek equitable relief under Section 1132(a)(3), the case is distinguishable from this case because the claimants in Amara were not otherwise authorized to seek relief under Section 1132(a)(1)(B) for “CIGNA’S misrepresentations about its ERISA plan.” Op. at 13-14.

KEY TAKE AWAYS

Section 1132(a)(3) permits a plan participant to file suit ‘to enjoin any act or practice which violates [ERISA] or the terms of the plan’, or “to obtain other appropriate relief (i) to redress such violations or (ii) to enforce any provisions of [ERISA] or the terms of the plan.”

  1. Be strategic on when to seek dismissal of the Section 1132(a)(3) claim. While it may be satisfying to file an early motion to dismiss, some courts are reluctant to grant motions at this stage because it is difficult to discern whether the claims are duplicative rather than alternative. It may be more strategic to seek dismissal at the dispositive motion stage. For additional thoughts, read this article.

ERISA: Winning Early Motions to Dismiss Breach of Fiduciary Claims — the Ministerial Defense

  1. Stress the available remedies under Section 1132(a)(1(B). Plaintiff must prove that remedies under Section 1132(a)(1)(B) are: -inadequate and -the injury asserted is “separate and distinct from the denial of benefits.” As the Davis v Hartford case above shows, courts are receptive to these arguments.
  2. Consider seeking to limit remedies to the plan terms. U.S. Airways v. McCutchen, 133 S. Ct. 1537, 1548 (2013). Language in the McCutchen may support an argument that a participant who loses the benefits claim cannot recover, through equitable relief, a benefit never authorized under the plan terms.