A silver lining in Muniz

Late last year, the Ninth Circuit issued a decision that is not generally particularly favorable to ERISA disability insurance benefits plaintiffs. Muniz v. Amec Constr. Mgmt., Inc., 623 F.3d 1290, 1295 (9th Cir. 2010). The case involved a plaintiff's appeal from a district court decision in a case where the courts reviewed the insurer's adverse benefit determination de novo. The Ninth Circuit held generally that the failure of the insurer to provide a full and fair review (which would be evidence of a conflict of interest in a case reviewed for abuse of discretion), was not necessarily a relevent consideration for a court conducting a de novo review of the insurer's decision.

The case contained one little gem, however. In dicta, Muniz stated that, in cases reviewed for abuse of discretion, if the administrator has a structural conflict of interest (see my post about the Supreme Court's decision in Glenn v. MetLife, below), the administrator has the burden of proving that the conflict of interest did not improperly influence its decision. Muniz, 623 F.3d at 1295.

Last week in an unpublished decision in Dine v. MetLife (click the case name to read the decision at the Ninth Circuit's web site) -- an abuse of discretion case -- the Ninth Circuit cited Muniz for exactly that proposition, reversed the district court, and ordered benefits be paid to Ms. Dine forthwith. Prominent in Dine, a very short decision, is the following quote:

"The administrator has the burden of proving that the conflict of interest did not improperly influence its decision. See Muniz v. Amec Constr. Mgmt., Inc., 623 F.3d 1290, 1295 (9th Cir. 2010)."

Ever since the Supreme Court issued its landmark decision in Glenn v. MetLife, courts, claimants, and insurers have struggled to apply its mandate that the insurer's conflict of interest be weighed as a factor. In the Ninth Circuit, at least, weighing that factor just became simpler. If Muniz and Dine mean what they say, then conflicted fidicuiaries (i.e., those that both adjudicate and pay claims) must now overcome a presumption that their conflict tainted their claims administration.

At the end of the day this is a fair and just implimentation of the law, since the claimaint rarely can prove with certitude what went on behind the administrator's closed doors. Rather, it is the fiduciary that controls the adjudication, controls the evidence, and must honor its fiduciary duty with "an eye single" to the interests of the participants and beneficiaries. It is consistent with hundreds of years with of common law trusts and fiduciary jurispridence that the burden of proving fiduciary compliance should rest with the fiduciary.

If you find yourself struggling with your ERISA plan's administrator or insurer over your benefits (pension, disability, health, or otherwise), let us see if we can help.

Ninth Circuit Rules Unanimously For My Client Laura Cyr

Cyr v. RSL, 642 F.3d. 1202 (9th Cir. June 22, 2011)(en banc)

Laura Cyr, for whom I am co-counsel, sued her former employer's ERISA disability plan insurer after the insurer reneged on its promise to implement an upward correction of her disability benefit following the settlement of her wage discrimination lawsuit against the employer. Mrs. Cyr alleged claims for benefits under 29 U.S.C. § 1132(a)(1)(B), estoppel, and breach of fiduciary duty. The insurer, Reliance Standard Life Insurance ("RSL") initially prevailed on summary adjudication as to the (a)(1)(B) claim only, on the basis that the Ninth Circuit's holdings in Ford v. MCI and Everhart v. Allmerica categorically insulated ERISA plan insurers from civil liability to participants for payment of benefits.

In a decision authored by Judge Clifton, a unanimous 11-judge en banc panel of the Ninth Circuit explicitly overturned its prior decisions in Ford v. MCI, Everhart v. Allmerica, Spain v. Aetna, and Gelardi v. Pertec -- cases dating back to 1985 that RSL and other ERISA plan insurers had intermittently invoked in order to avoid liability for ERISA benefits on technical procedural grounds. Citing the Supreme Court's decision in Harris Trust & Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000), the Ninth Circuit held that the remedial provisions contained in ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), imposes no categorical limitations upon the universe of appropriate defendants. As such, an insurance company that makes benefit determinations and pays the benefits, such as Appellant RSL, is an entirely appropriate defendant in a suit for benefits under that section of ERISA.

This result of the case will likely prove beneficial for thousands of ERISA plan participants nationwide who are forced to pursue their benefit claims in court. It also benefits employers who no longer need to fear that they will be forced into litigation to defend the conduct of their insurers.

Additionally, there are at least four notable procedural features of Cyr v. RSL, all of which are rare in federal appellate practice: first, the Ninth Circuit heard the case en banc in the first instance -- this was a hearing en banc, not a rehearing en banc; second, an 11-judge en banc panel of the Ninth Circuit issued a unanimous opinion; third, the Ninth Circuit explicitly overturned its own historical precedent; and finally, the United States Secretary of Labor filed an amicus brief in support of Mrs. Cyr's petition to have the matter heard en banc, and appeared and argued at the en banc oral argument. These events speak to the court's recognition of the importance of the issue that it resolved.

Here is a link to the published decision:

http://www.ca9.uscourts.gov/datastore/opinions/2011/06/22/07-56869.pdf

If you find yourself struggling with your ERISA plan's administrator or insurer over your benefits (pension, disability, health, or otherwise), let us see if we can help.

CIGNA v. Amara - Supreme Court recognizes a new ERISA remedy for aggrieved participants!

The insurance industry, oddly, is characterizing this case as a victory for CIGNA. If it's a victory for insurers and employers, it's a pyrrhic one at best. The case does hold that the remedies available under ERISA § 502(a)(1)(B) are limited to those specifically identified in that section of the statute, i.e., benefits, or a declaration of the right to future benefits. Under 502(a)(1)(B), a court does not have authority to reform a plan or award other remedies or damages.

However, the Court significantly altered the remedies available under § 502(a)(3). This provision is a catch all that imposes liability upon fiduciaries and parties in interest for breaches of fiduciary duty not otherwise remedied by (a)(1)(B), or by 502(a)(2). The Court has consistently held that the only rememdies available under (a)(3) are equitable remedies (which the Court has held to mean such remedies as were traditionally authorized and available in court of equity in the era of the English divided bench). Mertens v. Hewitt, 508 U.S. 248 (1993), Great-West v. Knudsen, 534 U.S. 204 (2002). That limitation -- equitable remedies only -- has consistently been held not to include the imposition of monetary damages.

In Amara, however, the Court wrote that in addition to remedies like reformation of plan documents, and injunctive relief, the traditional equitable remedy of "surcharge" is indeed available under (a)(3) to remedy a fiduciary breach. The Court in Amara wrote

[The] District Court injunctions require the planadministrator to pay to already retired beneficiariesmoney owed them under the plan as reformed. But the fact that this relief takes the form of a money paymentdoes not remove it from the category of traditionally equitable relief. Equity courts possessed the power to providerelief in the form of monetary “compensation” for a loss resulting from a trustee’s breach of duty, or to prevent the trustee’s unjust enrichment. Restatement (Third) of Trusts §95, and Comment a (Tent. Draft No. 5, Mar. 2,2009) (hereinafter Third Restatement); Eaton §§211–212,at 440. Indeed, prior to the merger of law and equity thiskind of monetary remedy against a trustee, sometimes called a “surcharge,” was “exclusively equitable.” Princess Lida of Thurn and Taxis v. Thompson, 305 U. S. 456, 464 (1939); Third Restatement §95, and Comment a; G. Bogert& G. Bogert, Trusts and Trustees §862 (rev. 2d ed. 1995) (hereinafter Bogert); 4 Scott & Ascher §§24.2, 24.9, at 1659–1660, 1686; Second Restatement §197; see also Manhattan Bank of Memphis v. Walker, 130 U. S. 267, 271 (1889) (“The suit is plainly one of equitable cognizance, the bill being filed to charge the defendant, as a trustee, for a breach of trust”); 1 J. Perry, A Treatise on the Law ofTrusts and Trustees §17, p. 13 (2d ed. 1874) (common-law attempts “to punish trustees for a breach of trust in damages, . . . w[ere] soon abandoned”).

The surcharge remedy extended to a breach of trust committed by a fiduciary encompassing any violation of aduty imposed upon that fiduciary. See Second Restatement §201; Adams 59; 4 Pomeroy §1079; 2 Story §§1261,1268. Thus, insofar as an award of make-whole relief is concerned, the fact that the defendant in this case, unlike the defendant in Mertens, is analogous to a trustee makes a critical difference. See 508 U. S., at 262–263. In sum, contrary to the District Court’s fears, the types of remedies the court entered here fall within the scope of theterm “appropriate equitable relief” in §502(a)(3).

What does it all mean? It means a huge victory for participants and beneficiaries bringing suit against ERISA plan fiduciaries who have breached their duties. For the first time, the Supreme Court has explicitly recognized that what would normally be characterized as "consequential damages" are an available remedy for breached of fiduciary duty under ERISA § 502(a)(3). This is a game changer for plaintiffs and a huge loss -- not a win -- for CIGNA.

Notably, the Court also rejected CIGNA’s argument that plan beneficiaries must always show detrimental reliance to obtain relief for violations of ERISA's notice provisions, but the Court also emphasized that the class members were required to make at least some showing of actual harm.

If you find yourself struggling with your ERISA plan's administrator or insurer over your benefits (pension, disability, health, or otherwise), let us see if we can help.

Cyr v. Reliance Standard Life Insurance Co., Ninth Circuit Case No. 07-56869 (en banc)

On March 22, 2011, an 11-judge en banc panel of the Ninth Circuit heard oral argument in this ERISA disability benefits suit in which I and Joseph Garofolo are co-counsel for the Plaintiff/Appellee, Laura Cyr. The Ninth Circuit ordered hearing en banc pursuant to our petition. The court receives between 20 and 25 petitions for hearing (as distinct from rehearing) en banc every year, but normally none are granted. In fact, this is the only ERISA appeal of which we are aware that was heard en banc in the first instance (without a 3-judge panel decision) upon the petition of a party. The United States Secretary of Labor also filed a brief an amicus (aka "friend of the court") brief in support of Mrs. Cyr, and argued at the hearing.

The amicus brief of the Secretary of Labor can be found HERE

A video of the hearing can be found HERE

An audio recording of the hearing can be found HERE

The issue that the Ninth Circuit agreed to consider en banc was whether it should affirm, reverse or modify its precedent on one narrow question: who or what is a permissible defendant to a suit for benefits under ERISA, 29 U.S.C. § 1132(a)(1)(B)? In Gelardi v. Pertec, the Ninth Circuit wrote that section (a)(1)(B) permits suits only against an employee benefit plan as an entity. 761 F.2d 1323 (9th Cir. 1985). Subsequently, the Ninth Circuit wrote that such suits may be brought against both a plan and its plan administrator (a term of art under ERISA § 3(16)), and left open the question whether or not a party functioning as a plan administrator could also be named. Everhart v. Allmerica, 275 F.3d 751 (9th Cir. 2001). In that case, Judge Reinhardt wrote an impassioned dissent arguing that any party with discretion over a claim determination should be subject to suit, and asserting that the panel should have referred the case for a hearing en banc to resolve a circuit circuit split. Subsequently, in Ford v. MCI, the Ninth Circuit, relying on Gelardi and Everhart, held that only a plan may be sued, and that, categorically, the plan’s insurer is not a proper defendant. 399 F.3d 186 (9th Cir. 2005).

In Cyr, the District Judge Dean Pregerson, in ruling in favor of Ms. Cyr on summary judgment, distinguished both Ford and Everhart on their facts, and held that Reliance was a proper defendant because it alone held ultimate authority to adjudicate benefits claims, and it alone shouldered the obligation to fund them. Cyr. V. Reliance, 525 F. Supp. 2d 1165 (C.D. Cal 2007). Reliance appealed that judgment on the basis that Ford and Everhart categorically insulate it from liability for benefits. If its interpretation of those cases were correct, it would implicate a split amongst the circuits, a split within the Ninth Circuit, and possibly contravene the Supreme Court’s decisions in Harris Trust v. Solomon Smith Barney, Inc., 530 U.S. 238 (2000), and MetLife v. Glenn, 554 U.S. 105 (2008).

If the Ninth Circuit adopts the position advocated by Mrs. Cyr and the U.S. Secretary of Labor, it will abrogate Gelardi, Ford, and Everhart, and hold that, on its face, 29 U.S.C. § 1132(a)(1)(B) admits no limit to the universe of proper defendants, and Reliance, as the party that adjudicated claims and funded the benefits, is a proper defendant to a claim for benefits under ERISA. Notably, both Judge Reinhardt and the author of the Everhart majority opinion, Judge Fisher, were on the Cyr v. Reliance en banc panel.

The pointed questions from the bench, especially from Judges Berzon and Smith, and Chief Judge Kozinski, imply that the court is inclined to adopt the Secretary's position. However, reading too much into the questions asked during an oral argument can be a risky proposition, so we'll have to wait until the court issues its opinion. A decision is expected later this year.

If you find yourself struggling with your ERISA plan's administrator or insurer over your benefits (pension, disability, health, or otherwise), let us see if we can help.