Eleventh Circuit Allows Claim for Equitable Relief Based on Fiduciary Breach in ERISA Plan Enrollment

A federal appellate court has reinstated a lawsuit brought by the surviving spouse of a participant in an ERISA-governed life insurance plan. The lawsuit alleges that while helping the participant enroll in $350,000 of supplemental life insurance coverage, the participant’s employer breached fiduciary duties when it did not provide the required form for evidence of insurability or indicate that the form was necessary or missing. Despite the defective enrollment, the employer deducted premiums for the supplemental coverage for three years and provided a benefits summary stating that the supplemental coverage was in effect. After the insurer denied the claim for supplemental benefits because it had never received the evidence of insurability form, the surviving spouse sued the employer under ERISA to recover benefits due under the plan. The employer moved to dismiss, contending that the insurer, not the employer, was obligated to pay plan benefits. Conceding that point, the spouse sought to amend his complaint to sue the employer for breach of fiduciary duty and seek appropriate equitable relief. The trial court dismissed the lawsuit and denied the request to amend the complaint, concluding that an award of lost benefits would be compensatory rather than equitable relief and, consequently, was not recoverable for breach of an ERISA fiduciary duty.

The appellate court reversed, holding that ERISA permits actions to recover money equal to insurance benefits lost due to a breach of fiduciary duty. Citing the Supreme Court’s Amara decision (see our Checkpoint article), the court ruled that equitable surcharge, although a form of monetary relief, is a typical equitable remedy that may be imposed for a breach of fiduciary duty. The court determined that the spouse adequately alleged that the employer acted as a fiduciary by providing enrollment paperwork to the participant, guiding him through it, notifying him when important components—such as proof of dependent eligibility—were missing, providing a benefits summary reflecting supplemental coverage, and deducting premiums for supplemental coverage. Assertions that the employer provided misinformation about benefits and failed to notify the participant about evidence of insurability adequately stated breaches of fiduciary duties. The court rejected the employer’s argument that the spouse impermissibly and inconsistently pled both a claim for benefits and a claim for equitable relief, noting that claimants are allowed to bring alternative claims for relief and—because he lacked a claim for benefits due to the failure to submit evidence of insurability—the spouse must rely on the claim for equitable relief or have no remedy at all.

EBIA Comment: The line between fiduciary and nonfiduciary actions is sometimes unclear, but employers step into a danger zone when assisting employees with enrollment. This court was obviously troubled by the administrative mistakes that deprived the surviving spouse of substantial insurance benefits. Employers should ensure that staff performing enrollment functions are thoroughly familiar with the terms and conditions of coverage. For more information, see EBIA’s ERISA Compliance manual at Sections XXVIII.F (“ERISA Fiduciary Duties and Participant Disclosure”) and XXVIII.I.5 (“Fiduciaries May Sometimes Be Liable for Harm Caused to Individual Participants”).

Contributing Editors: EBIA Staff.