The Employee Retirement Income Security Act of 1974 (“ERISA”) seeks to protect participants in employer-sponsored plans, but lack of adequate communication and transparency is an often an unfortunate byproduct of the insurance industry.  The California district court shed light on this issue in Echague v. Metro. Life Ins. Co., 2014 U.S. Dist. LEXIS 68642 (N.D. Cal. May 19, 2014) by holding an insurer breaches its fiduciary duty when providing insufficient responses and the insured may be entitled to equitable surcharge.  Echague is highly beneficial to insureds and beneficiaries, as it warns plan fiduciaries (such as insurers and plan administrators/employers) to think twice before ignoring requests for information, giving incorrect information, or neglecting to provide updates regarding the policies they administer, as their inactions or providing of incorrect information about the plan may open them up to equitable remedies such as equitable surcharge which would allow plan participants to recover the full value of the plan benefits in dispute. 

In Echague, Carol Echague (“Mrs. Echague”) opted for a basic life insurance policy and a supplemental life insurance policy worth a total of $440,000 through her employer, Pacific Coast Bankers’ Bank (“PCBB”).  The policies were issued as part of a cafeteria-type plan by TriNet Group, Inc. (“TriNet”), the plan administrator and Metropolitan Life Insurance Company (“MetLife”), the claims administrator.  In January 2011, Mrs. Echague was diagnosed with breast cancer and took medical leave.  Mrs. Echague sent TriNet an inquiry stating she did not want her policies to lapse, inquired which policies she needed to pay on her own, and where to send the premium payments.  TriNet resent two confusing form letters which did not address that the policies were in danger of lapsing.  Following Carol Echague’s death, TriNet notified her husband (“Mr. Echague”), that it submitted a life insurance claim on his behalf to MetLife.  This was the first time TriNet informed the Echagues that MetLife was the claims administrator.  However, the life insurance policies lapsed due to nonpayment of premiums, and MetLife denied the claim.  MetLife also denied Mr. Echague’s appeal, which argued neither he nor his wife ever received notice that the policies were at risk of terminating, or that PCBB ceased premium payments.  Subsequently, Mr. Echague sued MetLife, TriNet and PCBB, for benefits under 29 USC section 1132(a)(1)(B) and equitable relief for breach of fiduciary duty under 29 USC section 1132(a)(3).

The court granted summary judgment for TriNet, PCBB and MetLife as to Mr. Echague’s first claim for reinstatement of the life insurance benefits under section 1132(a)(1)(B), holding the denial was proper.  Here, MetLife did not act with a conflict of interest in denying Mr. Echague’s claim.  The only information MetLife needed to issue a decision on the claim was whether premium payments were made to continue the policy, and proof of Mrs. Echague’s death.  Here, MetLife already had this information and accordingly, did not need to conduct an investigation or state with specificity what additional information it needed.  Finally, TriNet and PCBB were not proper defendants, as MetLife had sole authority to issue denials on the life insurance claims.

However, the court held Mr. Echague presented a different theory under section 1132(a)(3) for breach of fiduciary duty and thus the claim survived.  The court explained Mr. Echague’s (a)(1)(B) claim was directed at MetLife for its failure to pay benefits, while his section 1132(a)(3) claim was primarily directed at TriNet for its failure to provide adequate notice and act in a fiduciary manner.  TriNet cannot escape liability by claiming MetLife had discretion for claims determination, because TriNet retained responsibility for interpreting the Plan, applying the terms and administering the Plan.  As such, TriNet had a duty to deal fairly and honestly with fiduciaries under ERISA by providing complete, thorough and accurate information.  Prior to Ms. Echague’s death, the Echagues sent several inquiries to TriNet requesting information on her disability and supplemental policies.  TriNet responded by sending form letters that did not provide information relating to Ms. Echague’s life insurance policies.  The letters pointed her to an overarching cafeteria plan, a Summary Plan Description which did not provide answers to her questions, and a non-existent employee handbook.  TriNet failed to refer the Echagues to the Certificate of Insurance, the only document which describes how to convert or continue life insurance coverage, and explain when the premiums for the policies would end.  Therefore, TriNet breached its fiduciary duties because its response failed to provide complete and accurate information to the claimant’s specific questions.  Accordingly, the court granted Mr. Echague the face value of the policies under the doctrine of equitable surcharge.

Echague is a clear win for insureds in several ways.  First, Echague clarifies that even if an insurer denies a claim on a reasonable basis, insureds may assert breach of fiduciary duty claims.  Secondly, the district decision expanded a plan fiduciary’s duty to provide insureds with complete and accurate policy/plan information.  The court indicates that insurers must provide specific answers when asked specific questions, and implies a general response referring an insured to a number of documents may be insufficient.  In addition, the insurer must provide specific answers even when an insured asks a general question—such as providing Ms. Echague with information pertaining to her life policies when her questions inquired as to all insurance policies.  Finally, this court allowed insureds to sue simultaneously for benefits and for breach of fiduciary duty where these claims request alternate relief, distinguishing cases that held to the contrary.