How to Appeal a Life Insurance Claim Denial with Equitable Relief
ERISA allows very limited remedies to life insurance claim denial. One is a breach of contract-type remedy – a claim for benefits. Another is one for equitable relief, which courts have cast as a "catchall." It is only available when there is no claim for benefits. ERISA designates certain persons as fiduciaries, one of which is the plan administrator. If an ERISA fiduciary breaches its duties, a claim for equitable relief can be asserted. This was illustrated in a recent case.
Facts of the Case:
Dr. Polga worked for NCHMD, Inc. The company was owned by NCH Healthcare System, Inc.
Physician employees received $150,000 in life insurance.
Dr. Polga desired to increase that amount to $500,000, which was allowed under the ERISA policy. NCHMD's Human Resources Department provided all the necessary forms and assisted Dr. Polga in completing the forms. It then began deducting premiums from Dr. Polga's check.
Upon Dr. Polga’s death, the insurance company refused to pay more than $150,000 in benefits. His beneficiary sued for the remaining benefits under ERISA.
Dr. Polga’s beneficiary filed a complaint asserting a claim for benefits. A motion to dismiss was filed right away, contending that the plan document itself required evidence of insurability form. The district court agreed and dismissed the case.
The beneficiary attempted to amend the complaint to assert a claim for equitable relief since a claim for legal relief – breach of contract under the plan document – was not available.
The defendants argued such an amendment would be futile because equitable relief did not permit money damages under 11th Circuit law.
Also, the plan administrator was NCH Healthcare System, Inc., and it did not do anything to cause a loss. NCHMD was not a fiduciary, and thus, it could not be liable.
Lastly, since a benefit claim had already been asserted, a claim for equitable relief in the alternative could not be asserted. The district court agreed and refused to permit the amended complaint.
The beneficiary filed an appeal.
The 11th Circuit’s opinion (Gimeno v. NCHMD, Inc., et al. (11th Cir. June 28, 2022)) answers three questions:
Does 29 U.S.C. §1132(a)(3) create a cause of action allowing an ERISA beneficiary to recover monetary benefits due to a fiduciary’s breach of fiduciary duty in the plan enrollment process?
Can an entity other than the plan administrator be liable for breach of fiduciary duties?
Can a plaintiff bring alternate forms of relief - a claim for benefits and a claim for equitable relief?
The 11th Circuit answered all three questions in the affirmative.
Does 29 U.S.C. §1132(a)(3) create a cause of action allowing an ERISA beneficiary to recover monetary benefits due to a fiduciary’s breach of fiduciary duty in the plan enrollment process? A claim for equitable relief can result in money damages. While the insurance company might not have to pay the benefit, the fiduciary causing the loss may have to pay the amount of the loss. This was called an equitable surcharge, which is a trust law type remedy when the trustee causes losses to the trust fund beneficiary.
Can an entity other than plan administrator be liable for breach of fiduciary duties? While NCHMD was not the named plan administrator, it nonetheless performed plan administrative functions in assisting with forms and providing advice and direction on the completion and submission of the forms. Thus, it was performing fiduciary duties and could be held liable for that relief.
Can a plaintiff bring alternate forms of relief - a claim for benefits and a claim for equitable relief? It was argued that since a benefit claim had already been asserted, the claimant was not permitted to also assert a claim for equitable relief. This is a typical defense argument based on a misinterpretation of the law. The 11th Circuit held, “Plaintiff can plead as many alternative claims as he wants, ‘regardless of consistency.' Fed. R. Civ. P. 8(d)(3). But, as with any equitable claim, a plaintiff cannot succeed on a Section 1132(a)(3) claim if he ‘has an adequate remedy' at law, such as a remedy under Section 1132(a)(1)(B).”