Last year, in CIGNA Corp. v. Amara, the Supreme Court signaled a willingness to broaden the scope of equitable remedies available to successful ERISA plaintiffs. However, in McCravy v. MetLife, the Court of Appeals for the Fourth Circuit, in response to that signal, has now reversed itself regarding the issue of what remedies a court may impose in a case involving an employer-sponsored welfare plan where a life insurance beneficiary seeks the insurance proceeds to which she thought she was entitled. Thus, it appears the federal courts may be poised for a significant expansion of equitable remedies in ERISA cases.
Debbie McCravy participated in her employer’s life insurance plan, which was issued and administered by MetLife. The plan permitted participants to purchase life insurance for their children, and McCravy elected to insure her teenage daughter.
McCravy continued paying premiums, and MetLife continued to accept them, until her daughter’s untimely death at age 25. McCravy was the named beneficiary on the policy, but MetLife denied her claim for the life insurance proceeds because, under the terms of the plan, the daughter’s eligibility to participate in the insurance program had ended six years earlier when she reached her nineteenth birthday.
The plan administrator refunded the premiums it had mistakenly accepted, but McCravy refused to cash the check. Instead, she filed suit in federal court, alleging that MetLife had breached its fiduciary duties under ERISA by representing that the daughter had dependent life insurance coverage and by accepting the premium payments that McCravy had remitted year after year, thereby causing McCravy to believe that her daughter was insured. Had McCravy known that her daughter was not insured, the complaint alleged that she would have obtained coverage elsewhere.
Court Restricts Plaintiff’s Remedy
Section 502(a)(3) of ERISA allows a participant, beneficiary or fiduciary to obtain “appropriate equitable relief” to redress any act or practice that violates Title I of ERISA or the terms of an employee benefit plan. The district court ruled that McCravy could establish a claim under section 502(a)(3) of ERISA, but reluctantly concluded that the only recovery available to her under that section was a refund of the premiums mistakenly accepted by MetLife. The court viewed this result as unjust, but determined it had no other option in light of Fourth Circuit precedents limiting the scope of equitable remedies and specifically precluding money damages as an option. On May 16, 2011, the Fourth Circuit affirmed the District Court’s ruling, concluding that it too was limited by its own precedents and by those of the Supreme Court regarding equitable relief under ERISA.
Supreme Court Decides Amara
The Fourth Circuit’s opinion most likely would have ended McCravy’s lawsuit except that, on the same day that the appellate court filed its opinion, the Supreme Court announced its decision in Amara, signaling a significant departure from earlier rulings in which the equitable remedies available under section 502(a)(3) appeared to be far more limited.
Amara involved an employer’s conversion of a traditional defined benefit plan to a cash balance retirement plan. The affected participants filed a class-action, alleging that the disclosures regarding the transaction were “defective, harmful, and contrary to ERISA.” The district court concluded that the plan fiduciaries had violated specific ERISA provisions regarding notice and disclosure, and reformed the plan so that it is terms conformed to those described in the defective disclosures.
It ordered the plan fiduciaries to administer the plan as reformed rather than pursuant to the terms of the plan document actually adopted by the sponsoring employer.
The district court held that section 502(a)(1)(B) of ERISA provided the legal authority for its order reforming the plan. The court considered whether section 502(a)(3) might also provide such authority, but did not answer this question, having already concluded that section 502(a)(1)(B) provided a basis for the remedy. Similarly, in affirming the district court’s rulings, the Court of Appeals for the Second Circuit relied on section 502(a)(1)(B), and did not consider what remedies, if any, might be available under section 502(a)(3).
When Amara reached the Supreme Court in 2011, the Justices concluded that section 502(a)(1)(B) does not permit a court to reform an employee benefit plan, but only to enforce its terms as written. Having so concluded, the Court could have simply remanded the case to the lower court for further proceedings, and the concurring Justices contended that the Court should have done so. Instead, the Court addressed the question of whether section 502(a)(3) provides authority for reforming the terms of a plan, and concluded that it does.
The Court explained that the term “appropriate equitable relief” as used in section 502(a)(3) refers to the categories of relief that were traditionally available in courts of equity prior to the merger of the law and equity courts. The Court distinguished earlier cases in which it held that relief was unavailable under section 502(a)(3), in part because those earlier cases had not involved a situation in which a plan participant or beneficiary sought relief against a plan fiduciary. The Court noted that, prior to the merger of law and equity, such claims could only be brought in a court of equity, not a court of law, and that the range of remedies traditionally available in those equity courts were broad enough to encompass the relief that had been fashioned by the district court for the Amara plaintiffs.
The Court observed that the power to reform a contract is a traditional power of an equity court. Similarly, in requiring the plan fiduciaries to provide what they had promised, the district court had invoked promissory estoppel, another traditional equitable remedy. As the court explained, equitable estoppel “operates to place the person entitled to its benefits in the same position he would have been in had the representations been true.” The Court also noted that the equitable remedy of “surcharge” might be appropriate in compensating the Amara plaintiffs. Equity courts were empowered to provide relief from a loss caused by a trustee’s breach of fiduciary duty by “surcharging” the trustee; i.e., requiring the trustee to pay money damages to the plaintiff.
Having provided this guidance, the Court remanded the case so that the lower courts could determine which of these equitable remedies, if any, should be utilized in redressing the Amara plaintiffs’ injuries.
Fourth Circuit Reconsiders McCravy’s Appeal
In light of Amara, the Fourth Circuit reheard McCravy’s appeal and reversed its earlier affirmance of the district court’s ruling. The appellate court noted that prior to the Supreme Court’s decision in Amara, both it and other lower courts had misconstrued Supreme Court precedent as severely limiting the remedies available to plaintiffs suing fiduciaries under section 502(a)(3), but found that Amara had now clarified that remedies traditionally available in courts of equity, specifically including estoppel and surcharge, are available to a plaintiff suing fiduciaries under section 502(a)(3) of ERISA.
The Fourth Circuit remanded the case to the district court so that it could fashion an appropriate remedy. In addition, noting that the district court had given only cursory attention to the merits of McCravy’s claim, the appellate court instructed the district court to reevaluate the merits of the claim and provide a more detailed explanation of its reasons for determining that MetLife had violated a fiduciary duty owed to McCravy. Thus, while the Fourth Circuit made it clear that McCravy has a remedy if she can establish her claim, she must do so before the district court can give her any relief.
Having concluded in Amara that section 502(a)(1)(B) does not permit a court to reform an employee benefit plan, the Supreme Court could have remanded the case without providing guidance regarding section 502(a)(3). Thus, its discussion regarding equitable relief under section 502(a)(3) of ERISA is technically non-binding dicta, and it is unclear to what extent the lower courts will embrace this guidance. Traditionally, federal courts have often been reluctant to allow a participant to recover more than the benefit provided under the terms of a plan for fear of undermining the plan’s financial integrity. In recent years, however, the appellate courts have shed this reluctance to varying degrees in addressing what they perceive as serious inequities.
It remains to be seen to what extent Amara will accelerate this trend, but the Fourth Circuit’s holding in McCravy suggests that appellate courts will embrace the additional options that have apparently been added to their arsenal of remedies under section 502(a)(3) of ERISA. If so, plan sponsors and administrators should anticipate an increasing number of estoppel cases and other equity-based claims.