Most Americans obtain their insurance benefits through their employment.  These employee benefits include health insurance, dental insurance, disability insurance, and life insurance.  Most of these benefits are governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).  ERISA imposes a variety of fiduciary obligations on the administrators for these employee benefit plans.  One of those obligations is to not make misrepresentations to plan participants, i.e., the employees and insureds.  When either a plan administrator (usually the employer) or a claims administrator (usually an insurance company) provides misinformation to a plan participant, the administrator may have breached its fiduciary duty to the plan participant.  McKennon Law Group recently brought a breach of fiduciary duty claim in the Western District of Kentucky and defeated the employer’s Motion to Dismiss (the “Motion”) for failure to state a claim.  See Blackburn v. Reliance-Standard Life Ins. Co., 2022 WL 17082673 (W.D. Ky. 2022).

Our client, Ashley Blackburn, is a nurse.  She and her husband, Ray Blackburn, both worked for Baptist Healthcare System (“BHS”) in Kentucky.  Through their employment, they obtained a variety of employee benefits, including disability insurance and life insurance.  Our client and her husband obtained life insurance through Reliance Standard Life Insurance Company (“Reliance Standard”) that covered themselves.  They also obtained supplemental life insurance that covered the other spouse.  Before doing so, they asked BHS’s representative whether they were allowed to obtain supplemental coverage.  They were told that they could.  BHS’s representative told them that they were allowed to obtain up to $100,000 in supplemental coverage.

The couple paid for their supplemental coverage for ten years.  During that time, our client’s husband developed cancer.  Through BHS, he had disability insurance.  While out on disability, his life insurance was automatically maintained under a waiver of premium provision of his disability policy.  Our client had to spend increasingly longer periods of time away from work to tend to her husband and ultimately had to leave her job.  When she left BHS, she converted the supplemental life coverage for her husband into an individual policy.  This allowed her to maintain the insurance even though she had left her job to tend to her ailing husband.

Unfortunately, our client’s husband passed away due to cancer.  When she submitted a life insurance claim to Reliance Standard, it denied her claim because the supplemental life insurance was improper and disallowed by the Plan language, contrary to what our client had been told by BHS’s representative.  Ms. Blackburn hired McKennon Law Group PC, and we sued both the employer and Reliance Standard under ERISA Section 502(a)(3) alleging defendants breached their fiduciary duties by misleading her into believing that she was insured. She also sought statutory penalties under Section 1132(c) for defendants failing to timely disclose plan documents upon request. BHS moved to dismiss our claims against it.  It insisted that even assuming that everything in our complaint was true, Ms. Blackburn was not entitled to relief.  BHS raised a variety of arguments. It insisted that our client’s breach of fiduciary claim was improper because it was duplicative of an improper denial of benefits claim (a separate type of ERISA claim) and that, ultimately, any oral misrepresen­tations by BHS’s representative were irrelevant.  The Court disagreed and denied the Motion.

The Court explained that a plan participant, such as our client, may bring a claim for breach of fiduciary duty when an administrator provides misinformation to the plan participant.  The Court relied heavily on a Sixth Circuit case, Gregg v. Transportation Workers of America International, 343 F.3d 833, 847 (6th Cir. 2003).  The Court explained:

[An administrator] also has a duty to honestly respond to all the beneficiary’s inquiries. See Gregg v. Transp. of Am. Int’l, 343 F.3d 833, 847 (6th Cir. 2003). “[O]nce an ERISA beneficiary has requested information from an ERISA fiduciary who is aware of the beneficiary’s status and situation, the fiduciary has an obligation to convey complete and accurate information material to the beneficiary’s circumstance . . . .” Krohn, 173 F.3d at 547. In Gregg, a union administered a group life insurance policy for its members. 343 F.3d at 847. At a meeting where members asked questions about the union’s new life insurance plan before deciding whether to join it, the union’s leaders neglected to share material facts about the policy and gave members information that was contrary to the policy’s express terms (which one of the leaders did not read). Id. at 847–48. The court held that the union breached its fiduciary duties to provide its members with all material information and to truthfully answer their questions. Id. at 848.

Here, Baptist, as the plan administrator, had a duty to answer all of Mrs. Blackburn’s insurance questions truthfully. See Gregg, 343 F.3d at 847; [DN 20-3 at 24]. When she asked whether she could obtain supplemental life insurance on her husband’s life, Baptist was dutybound to tell her she could not, for it knew full well that Mr. and Mrs. Blackburn were both Baptist employees.

Blackburn, 2022 WL 17082673, at *4.  Contrary to BHS’s assertions, the oral misrepresentations were potentially a breach of its fiduciary duties to our client.  It does not matter that the misrepresentations were not made in writing.  It also does not matter what the applicable plan documents state.  What mattered is that BHS actively misrepresented information to our client.  See id. at **4-5.

As for BHS’s argument that the claim was duplicative and improper, the Court explained that some claims are of such a nature that a claimant cannot pursue a claim for improper denial of benefits in court because, pursuant to the applicable policy/plan terms, the insurer properly applied the plan terms.  Instead, the injury stems from improper conduct directed to a plan participant.  While Reliance Standard was correct that, under the plain language of the Plan documents, supplemental life insurance was not available to our client and her husband, that did not change the fact that BHS actively provided misinformation to and harmed our client.  The Court correctly noted that there must be a remedy for such conduct.  See id. at *3.

As the Court explained, whereas some courts state that a claimant cannot “repackage” a claim under both an improper-denial-of-benefits theory and a breach of fiduciary duty theory, those holdings relate to the damages sought, not to the nature of the claim.  Under ERISA, a plan participant cannot obtain double relief, a payment under both legal theories.  However, when the two claims arise from different conduct, then either claim is a viable avenue to relief, so long as the claimant only obtains relief once.  Given that our client did not have a viable claim for relief under an improper-denial-of-benefits theory, the breach of fiduciary duty claim could not be a “repackaging” of such a claim.  See id.

The Court accurately explained this area of the law.  It is well established throughout the country that neither plan administrators nor claims administrators may provide misinformation to plan participants.  To do so may be a breach of fiduciary duty.

When such conduct causes a plan participant harm, the plan participant may seek a variety of forms of equitable relief.  The U.S. Supreme Court has addressed these types of fiduciary issues extensively and explained in Cigna Corp. v. Amara, 563 U.S. 421, 439 (2011), that a variety of equitable remedies such as reformation, surcharge, and equitable estoppel are available to ERISA plan participants when they establish breach of fiduciary duty claims.  In short, they are entitled to the value of the benefits that they were promised.

Breach of fiduciary duty claims under ERISA are very complicated.  There are multiple ways in which an administrator may breach its fiduciary duty to a plan participant.  These issues are often intensely litigated.  However, courts throughout the country are clear that an administrator may not make material misrepresentations to plan participants who rely on them.  When a plan fiduciary such as Reliance Standard or BHS speaks, they must speak truthfully.