Two recent cases involving benefit plan mistakes illustrate the increased litigation and liability risks faced by employers in the wake of the Supreme Court’s decision in Cigna Corp. v. Amara. In one case, a participant was erroneously told that a surgical procedure she planned to have would be covered by her employer’s health insurance plan. It wasn’t, and she sued her health plan for money damages equal to the medical expenses she incurred in connection with the surgery. The plaintiff in this case claimed that the plan’s fiduciaries had breached their obligations by failing to adequately explain the process that employees needed to follow to obtain clarification of the benefits to which they are entitled and to inform employees that verbal statements about benefits were not binding on the plan (Kenseth v. Dean Health Plan, Inc., 7th Cir., June 2013). In the other case, discussed in more detail on page three of this newsletter, a part-time employee was erroneously enrolled in a life insurance plan and died a little over a year later. When the life insurance carrier refused to pay up, the employee’s widow sued the employer for money damages equal to the life insurance the employee thought he had. The court held that the employer breached its fiduciary duties “as it erroneously allowed [the employee] to enroll in the plan, encouraged him to believe he was covered by the plan, and deducted premiums from his salary to pay for the plan” (Lewis v. Kratos Defense and Security Solutions, Inc., E.D. Va. 2013). BeforeAmara, cases of this kind were routinely dismissed on the grounds that ERISA only permits a plaintiff to recover “appropriate equitable relief” and that an award of “make-whole” money damages was not equitable relief. The Supreme Court inAmara reversed this trend by “clarifying” that equitable relief may come in the form of money damages when the defendant is a fiduciary who is alleged to have breached a fiduciary duty. These cases are examples of a growing body of post-Amara case law that exposes employers who breach their fiduciary duties to suits seeking to hold them liable for money damages equal to the benefits an employee or beneficiary claims he or she would have been paid but for the employer’s breach of duty.
To reduce the risk of Amara-type liability, employers should engage in a risk management review process that focuses on plan governance, plan documents, and employee communications.