Signing up for employer benefit plans can be confusing and can lead to disputes where the parties are not careful.  ERISA fiduciaries such as employers who sponsor benefit plans and insurers who fund them have duties to plan members to communicate fully and accurately regarding the scope of plan benefits, and they can be liable for damages caused by misrepresentations of them.  Just such a case can be found with Delker v. MasterCard International, Inc., ___ F.4th ___, 2022 WL 38468 (8th Cir. 2022). There, the Eighth Circuit Court of Appeals addressed a not unusual situation – one in which a plan member reasonably believes that he or she is entitled to policy benefits based on the paperwork filled out in connection with the selection of benefits and based on the representations made by the employer and/or the insurer who is paying policy benefits.  In Delker, the plan member’s beneficiary claimed that a miscommunication regarding the level of selected benefits caused the plan member to decline further available life insurance coverage.  The plan member’s detrimental reliance on the employer’s (MasterCard’s) misrepresentations regarding the level of insurance benefits resulted in damages based on the amount of coverage that the plan member reasonably expected to receive, and MasterCard misled the plan participant by failing to procure the insurance coverage that its own insurance enrollment forms reasonably indicated would be provided.

The Delker court found that Edward Delker properly alleged in his complaint that MasterCard, as a plan fiduciary, violated its fiduciary duty by miscommunicating the scope of life insurance that was provided by the plan.  Mr. Delker’s late wife had completed documents that appeared to show that she had elected to receive life insurance coverage in an amount that was three times her annual salary, and MasterCard had also informed her that she was entitled to a credit for that level of coverage and that she could receive it without making any additional payment.

However, MasterCard only obtained life insurance coverage for Ms. Delker for the amount of her annual salary.  MasterCard claimed that Ms. Delker had not successfully elected to obtain coverage for the additional $288,000 in coverage, despite the fact that the enrollment form appeared to elect this coverage.

Because MasterCard was a functional fiduciary of the ERISA plan, it had a duty to communicate fully and completely with plan members like Ms. Delker regarding benefits.  The Delker court found that the enrollment form supported the election of life insurance coverage for three times her annual salary.  Accordingly, Mr. Delker was entitled to seek damages that resulted from MasterCard’s failure to enroll Ms. Delker in the requested coverage.  Mr. Delker  properly alleged that MasterCard breached its fiduciary duty by miscommunicating the fact that Ms. Delker had elected coverage for three times her annual salary.  As a result, MasterCard could be found liable for the full amount of coverage because (1) Ms. Delker could reasonably believe she was covered for life insurance benefits of three times her annual earnings, (2) she did not seek to procure additional insurance and (3) the expectation damages, if proven on remand, would approximate the amount of the misrepresentation – two times her annual salary.

The Delker court described the nature and extent of ERISA’s fiduciary duties as follows:

“ERISA imposes upon fiduciaries twin duties of loyalty and prudence. …” Braden v. Wal‑Mart Stores, Inc., 588 F.3d 585, 595 (8th Cir. 2009). The duty of loyalty requires that fiduciaries act in the sole interest of benefit plan participants and beneficiaries; the duty of prudence mandates “care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” 29 U.S.C. § 1104(a)(1)(B).

The court then cited its ruling in Howe v. Varity Corp., 36 F.3d 746, 754 (8th Cir. 1994), aff’d, 516 U.S. 489, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996), noting that the duties of loyalty and prudence extend beyond prohibiting affirmative misrepresentations and require the fiduciary to advise or inform plan members of circumstances that threaten their interests:

Making materially misleading statements constitutes a violation of a fiduciary’s duties of loyalty and prudence. See Howe v. Varity Corp., 36 F.3d 746, 754 (8th Cir. 1994), aff’d, 516 U.S. 489, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996). At times, this “duty goes beyond merely refraining from making affirmative misrepresen­tations” to include a duty to advise and inform about circumstances that threaten the interests of one to whom a fiduciary duty is owed. Id. In this context, a statement is materially misleading if substantially likely to mislead a reasonable employee making decisions about employer benefits and entitlements. Kalda v. Sioux Valley Physician Partners, Inc., 481 F.3d 639, 644 (8th Cir. 2007).

It is important to note “that the duty of loyalty requires an ERISA fiduciary to communicate any material facts which could adversely affect a plan member’s interests.” Shea v. Esensten, 107 F.3d 625, 628 (8th Cir. 1997). This includes “answering questions about a plan, noting changes in the plan, [and] disseminating information directly to plan participants concerning their rights within the plan.” Anderson v. Resol. Tr. Corp., 66 F.3d 956, 960 (8th Cir. 1995) (alteration in original) (quoting Pickering v. USX Corp., 809 F. Supp. 1501, 1567–68 (D. Utah 1992)). These are all “classic fiduciary activities” implicating the duties of loyalty and prudence. Id. (quoting Pickering, 809 F. Supp. at 1568). In addition to demonstrating that pertinent statements were materially misleading, a plaintiff must further establish that he reasonably relied to his detriment on such statements in order to succeed on an ERISA misrepresentation claim. Brant v. Principal Life & Disability Ins. Co., 50 F. App’x 330, 332 (8th Cir. 2002) (unpublished per curiam).

The court determined that MasterCard was acting in a fiduciary capacity because it was communicating with plan members regarding benefits.  MasterCard could have breached its fiduciary duty to the Delkers by miscommunicating the amount of coverage that was provided under the plan.  ERISA claims regarding the miscommunication of information about benefits can arise from either affirmative representations or from the failure to communicate material facts that could adversely affect a plan member’s interests.  And disseminating information to plan participants is a classic fiduciary function.

The lesson for plan fiduciaries is that they must ensure that they accurately communicate with plan members regarding plan benefits because they can be held liable for damages caused by misrepresentations of those benefits.  In this case, MasterCard’s insurance enrollment forms caused the plan member to believe that she had elected life insurance coverage in an amount that was three times her annual salary, and as a result, she declined the opportunity to purchase additional life insurance coverage under the plan or through an outside broker.

McKennon Law Group specializes in representing ERISA plan members in claims against ERISA fiduciaries involving the misrepresentation of plan benefits.  If you believe that your insurer or employee benefit plan has miscommunicated information about your coverage and that this has caused you to suffer damages, please contact us at (949) 387-9595 for a free consultation.