Discovery Disputes in ERISA Breach of Fiduciary Duty Cases: Do the Usual Limitations Apply?

The Employee Retirement Income Security Act of 1974 (“ERISA”) manages many of the benefits people receive from their employers.  These benefits include short-term and long-term disability insurance, health insurance, life insurance, accidental death and dismemberment insurance and pension plans.  When a claim under an ERISA plan is denied, the beneficiary usually must file an administrative appeal with the Claims Administrator for the benefits.  If, after filing an administrative appeal, the Claims Administrator still denies the claim, the beneficiary may sue the Claims Administrator to obtain the benefits in question.  ERISA claims differ from more traditional law suits.  A judge, not a jury, determines whether the beneficiary is entitled to damages and/or equitable relief.  The parties generally cannot pursue written discovery or depose people with relevant information.  The court typically decides the claim based on a review of the documents contained in the Administrative Record that had previously been submitted to the Claims Administrator during the administrative process.

Whereas the administrative process may be an effective method of channeling evidence and streamlining court proceedings, for certain types of claims, the process simply does not work well.  All Claims Administrators have basic obligations to the beneficiaries under their plans.  The Claims Administrator cannot put its own interests above those of the plan’s beneficiaries.  When a Claims Administrator breaches that obligation, a beneficiary may bring a claim for a Breach of Fiduciary Duty under ERISA Section 502(a)(3).  For example, a Claims Administrator may have misled a beneficiary into thinking they had $300,000 in life insurance benefits when, in fact, they only had $50,000 in benefits.  This situation could arise for a variety of different reasons such as eligibility under applicable plan documents because of a beneficiary’s salary.  The Claim Administrator’s misstatements may even be unintentional.  The beneficiary has still been misled.  In such a scenario, the beneficiary may bring a claim for a Breach of Fiduciary Duty.  Depending on the nature of the deception, however, the beneficiary may not be able to obtain all needed evidence during the administrative review of the denial.  The powerful tools of the discovery process may be required.

Thankfully for beneficiaries, courts reasonably acknowledge that such a limitation should not apply in the context of breach of fiduciary duty claims.  For example, in Friemon v. Nat’l Carriers’ Conference Comm., 2018 WL 6171439 (E.D. Mo. 2018), Matheson Friemon sought discovery in a dispute with his former employer Union Pacific Railroad Company (“UPRR”).  The underlying dispute arose out of whether Mr. Friemon was eligible for Supplemental Sickness Benefits (“SSB”) under UPRR’s employee benefit plans.  Mr. Friemon alleged that UPRR maintained complete control over the application process for SSB, failed to inform him of the deadline to apply for those benefits and failed to provide him with the relevant paperwork for the application.

UPRR disputed its status as a fiduciary under the plan.  Mr. Friemon sought discovery on the issue of UPRR’s status as a fiduciary.  UPRR challenged Friemon’s right to obtain the discovery.  The court ruled that Friemon could propound the discovery in question.  The court reasoned that the restrictions to discovery in matters arising under ERISA do not apply to claims of an equitable nature.  Claims that are equitable in nature “do not benefit from the administrative process.”  Id. at *2 (internal quotations omitted).  The court permitted Friemon to conduct his discovery.

Other courts have come to similar conclusions.  One such example is Jensen v. Solvay Chemicals, Inc., 520 F. Supp. 2d 1349 (D. Wyo. 2007).  In Jensen, plaintiffs worked for Solvay Chemicals, Inc.  They accrued benefits under Solvay Chemical’s pension plan.  Solvay Chemicals restructured its pension plan.  Plaintiffs alleged that the restructuring of the pension plan froze their retirement benefits and lowered the rate of benefit accrual for older employees and employees who had worked for Solvay Chemicals for longer periods of time.

After bringing suit, Plaintiffs sought to propound discovery.  Plaintiff filed a motion for permission to seek discovery as an exception to the general rule that ERISA plaintiffs can seek only very limited discovery.  The motion went before a magistrate judge, who denied it.  The plaintiffs appealed the decision to the district court judge, who overturned the magistrate’s decision.  The magistrate had reasoned that “judicial review is limited to the administrative record and any outside discovery is not allowed, except in unusual circumstances.”  Id. at 1352.  The district court held that plaintiffs could propound their discovery because one of plaintiffs’ claims was for a breach of fiduciary duty.  As the district court explained:

Case law does not constrain discovery under ERISA § 502(a)(3) actions. Id. The limited discovery ordered by [the magistrate] and proscribed by [the Tenth Circuit] is limited to claims arising under ERISA § 502(a)(1)(B). This is logical as these actions do not benefit from the administrative process. Courts are not required to give deference to plan committees or fiduciaries in § 502(a3) actions and therefore limitations to the administrative record are not required.  Section 502(a)(3) actions are to enforce rights not arising under ERISA plans, but rather arising from ERISA itself. Therefore, a finding that claims arise from ERISA § 502(a)(3) reverts discovery into the traditional realm and is governed under traditional federal, circuit, and local procedure. 

Id. at 1355-56; see also Kostecki v. Prudential Ins. Co. of Am., 2014 WL 5094004 (E.D. Mo. 2014) (granting a motion for leave to conduct discovery due to Plaintiff’s claims seeking equitable relief).

Making certain that the administrative record contains all relevant documents and information is very important to litigation of ERISA claims.  However, sometimes, a beneficiary simply cannot obtain all needed evidence through the traditional administrative process.  During these circumstances, a beneficiary can potentially seek discovery, depending on the nature of the claims brought before the court and the wrongs inflicted upon the beneficiary.  Many claims are simply for the wrongful termination of benefits.  Under those circumstances, a beneficiary may only be able to obtain limited discovery.  See Jensen, 520 F.Supp.2d at 1352.  However, a beneficiary can sometimes circumvent the traditional ERISA process in order to obtain the information needed and convince the judge that they are entitled to benefits.  This is especially true in breach of fiduciary duty cases.

If your ERISA claim has been denied, knowing when to sue for breach of fiduciary duty in ERISA cases may be integral to the success of your claim.  It is important to have experienced and highly qualified disability, health and life insurance attorneys, like those at the McKennon Law Group PC.  Fill out our free consultation form today to set a time to discuss your claim with one of our attorneys, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and Non-ERISA insurance claims.