Post-Amara Fourth Circuit Approves Equitable Remedies under ERISA § 502(a)(3)

In light of the Supreme Court’s decision in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), a panel of the Fourth Circuit has allowed the pursuit of equitable remedies – including surcharge and equitable estoppel – under ERISA § 502(a)(3).

Background

Plaintiff Debbie McCravy participated in an ERISA governed life insurance and accidental death and dismemberment plan sponsored by her employer. The plan allowed participants to purchase coverage for “eligible dependent children.” This term was defined as children of the insured who are unmarried, dependent upon the insured for financial support, and either under the age of 19 or under the age of 24 if enrolled full-time in school. Under this provision, Plaintiff purchased coverage for her daughter, Leslie, and paid premiums from before Leslie’s nineteenth birthday until she was murdered in 2007 at the age of 25.

Following Leslie’s death, Plaintiff, as the beneficiary of Leslie’s policy, filed a claim for benefits. Plaintiff’s claim was denied because Leslie was 25 at the time of her death, thus no longer qualifying as an “eligible dependent child” for whom coverage could be purchased. Upon denying Plaintiff’s claim, the insurer attempted to refund the premiums Plaintiff paid for Leslie’s coverage. However, Plaintiff refused to accept the refund check and instead brought suit.

Plaintiff’s complaint sought various forms of relief, including equitable remedies under ERISA § 502(a)(3). In June 2009, the district court ruled that Plaintiff could recover under this section, but that her recovery was limited to the cost of the premiums. In January 2010, the district court entered a final order and judgment awarding Plaintiff the improperly withheld premiums. Appeals followed, and on May 16, 2011, the Fourth Circuit entered an opinion affirming the district court’s order. That same day, the Supreme Court issued its opinion in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011). On the basis of Amara, the Fourth Circuit granted a petition for panel re-hearing.

The Fourth Circuit’s Published Opinion on Re-hearing

On appeal, Plaintiff challenged the district court’s limitation of remedies under ERISA, arguing that § 502(a)(3) allows for surcharge and equitable estoppel. On the re-hearing, the Fourth Circuit agreed and summarized Amara’s consideration of § 502(a)(3) as “stand[ing] for the proposition that remedies traditionally available in courts of equity, expressly including estoppel and surcharge, are indeed available to plaintiffs suing fiduciaries under Section 1132(a)(3).”

Thus, the Fourth Circuit held that Plaintiff’s potential recovery was not limited to a premium refund. Instead, a remand to the district court was warranted to allow her to seek surcharge and equitable estoppel under § 502(a)(3). The Fourth Circuit’s recognition of equitable estoppel as a remedy is particularly significant due to the Court’s previous indication that equitable estoppel “is of limited applicability in ERISA cases.” See Coleman v. Nationwide Life Ins. Co., 969 F.2d 54 (4th Cir. 1992).

Ultimately, the Fourth Circuit’s opinion offers little guidance on the circumstances warranting either surcharge or equitable estoppel under § 502(a)(3). For example, the Fourth Circuit fails to discuss whether “actual harm” is required and, if so, whether either Justice Scalia’s or Justice Breyer’s definition of “actual harm” applies. In Amara, Justice Scalia opined that the “actual harm” required for surcharge is “harm stemming from reliance on the SPD or the lost opportunity to contest or react to the switch.” In contrast, Justice Breyer’s majority opinion suggested “actual harm” could encompass “the loss of a right protected by ERISA.” Instead of considering this conflict, the Fourth Circuit simply remanded to allow the district court to determine the appropriateness of equitable remedies based on the facts of the case.

Conclusion

The Fourth Circuit has now joined the Ninth Circuit in analyzing the availability of equitable remedies under § 502(a)(3) post-Amara. See Skinner v. Northrop Grumman Ret. Plan B et al., No. 10-55161, 2012 WL 887600 (9th Cir. Mar. 16, 2012). In Skinner, a three-judge panel of the Ninth Circuit held that inaccuracies in a summary plan description did not warrant reformation or equitable surcharge under ERISA § 502(a)(3). However, our blog post on Skinner noted that the case was not a strong one for the plaintiffs, and that a more sympathetic case may have a different result. Our predictions appear to have come true in this Fourth Circuit case, involving the heartwrenching murder of a young adult.

The case is McCravy v. Metro. Life Ins. Co., Nos. 10-1074, 10-1131 (4th Cir. July 5, 2012).

Click here for our earlier blog post on Skinner.