A federal judge awarded the beneficiaries of a deceased life insurance participant $120,000 in equitable surcharge after finding that the plan administrator breached its duties by misrepresenting coverage. See Weaver Bros. Ins. Assocs., Inc. v. Braunstein, 2014 BL 160149, E.D. Pa., No. 2:11-cv-05407-JHS, 6/10/14). According to the United States District Court for the Eastern District of Pennsylvania, U.S. Supreme Court's ruling in CIGNA Corp. v. Amara, 131 S.Ct. 1866 (2011), empowers courts to award monetary relief under the Employee Retirement Income Security Act's equitable remedies provision. The opinion was issued June 10 by Judge Joel H. Slomsky.
By way of background, following Deborah Braunstein was an employee of Weaver Bros. After her death in January 2011, Weaver Bros. and its claims administrator, Fortis Benefits Insurance Co., denied life insurance benefits to Deborah's beneficiaries under her life insurance policy with Weaver Bros. on the grounds that her policy lapsed in October 2010, one year after her cancer diagnosis caused her to take disability leave. Weaver Bros. sought a judicial declaration that it wasn't obligated to inform Braunstein of the policy lapse or the need to convert to individual coverage. Braunstein's beneficiaries counterclaimed for fiduciary breach and sought equitable surcharge to cover the loss of life insurance benefits. In March 2013, the court determined that Weaver Bros. was an ERISA fiduciary and that it breached its duties by failing to provide Braunstein with an adequate summary plan description. One year later, the court held a non-jury trial on the remaining claims.
In addition to providing an inadequate SPD, the court said that Weaver Bros. made material misrepresentations to Braunstein about the status of her benefits during her period of disability.
Specifically, the court said that the human resources manager for Weaver Bros., Sandra Colangelo, told Braunstein that she would be treated as an active employee even though Colangelo hadn't read the plan's certificate of insurance or SPD. Colangelo also failed to inform Braunstein of the conversion requirement when she sent her beneficiary designation forms to update, the court said.
Further, the court said that evidence in the record demonstrated that Braunstein relied on these misrepresentations to her detriment, because she would have converted her policy to individual coverage had she known about the lapse. The court also rejected the argument of Weaver Bros. that it had no affirmative duty to inform Braunstein about the need to convert her policy. “Because Colangelo knew that Braunstein had cancer and that she sought Colangelo's assurance that her paperwork was sufficient, Colangelo had an affirmative duty to at least read the SPD and Certificate of Insurance and give Braunstein proper advice on which she could rely,” the court concluded. Weaver Bros.' argument that it didn't intentionally deceive Braunstein also failed to sway the court, which found that evidence of intentional deception wasn't required to establish a fiduciary breach based on a plan administrator's material misrepresentations.
Weaver Bros. also argued that it couldn't be liable for Colangelo's oral misrepresentations, because they contradicted the written terms of the plan. The company pointed to decisions of Second and Seventh circuit holding that participants bringing misrepresentation claims must point to written statements containing the alleged misrepresentations. Noting that the Third Circuit hadn't “specifically addressed this precise question,” the court nevertheless declined to follow the reasoning of the Second and Seventh circuits. According to the court, Third Circuit precedent makes clear that ERISA forbids fiduciaries from materially misleading participants, and such precedent “does not exclude oral misrepresentations from ERISA's reach.”Further, the court said that even if it followed the Second and Seventh circuits' reasoning, Weaver Bros. still wouldn't prevail, because Colangelo “confirmed her misrepresentations” in a letter to Fortis.
Finally, the court found that the beneficiaries' claim for surcharge to cover the lost life insurance benefits qualified as appropriate equitable relief under ERISA Section 502(a)(3). The court said that the Supreme Court's Amara ruling empowered it to “award monetary compensation analogous to the historical relief of ‘surcharge' to the Braunstein Beneficiaries for Weaver Bros.' breach of fiduciary duty.” Given this, the court awarded the beneficiaries surcharge totaling $120,000, along with prejudgment interest.
The beneficiaries were represented by James C. Bailey, Michael A. Tilghman II and Jason H. Ehrenberg of Bailey & Ehrenberg PLLC, Washington.
