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Employer Which Prevented Timely Conversion of Life Policy Properly Sued as Fiduciary under § 1132(a)(3) for Surcharge

Employer Which Prevented Timely Conversion of Life Policy Properly Sued as Fiduciary under § 1132(a)(3) for Surcharge

Biller v. Prudential Ins. Co. of Am., 2014 WL 4230119 (N.D. Ga. Aug. 26, 2014)

ERISA and Life Insurance News
(January 16, 2015)

Biller was a participant in an ERISA-governed plan and was covered under a group life insurance policy issued by Prudential.  Upon termination of her employment, Biller sought to convert her group life insurance to an individual policy.  She had a limited time within which to apply for conversion.  

The complaint alleged that Biller's employer was responsible both for providing proper advice regarding her conversion rights and for providing the necessary application form in a timely manner.  It was further alleged that Biller's employer did neither.  When Biller finally received the application from her employer, she was told by Prudential that it would not be accepted because it was untimely.  Biller died unexpectedly two months later. Biller's beneficiaries under the plan filed a claim for life insurance benefits with Prudential.  Prudential denied the claim.

The beneficiaries then sued Prudential and the employer under 29 U.S.C. § 1132(a)(3), alleging breaches of fiduciary duties and seeking equitable relief "to make [them] whole under, but not limited to, theories of surcharge, restitution or equitable estoppel."  The beneficiaries did not assert a claim for benefits under 29 U.S.C. § 1132(a)(1)(B).  In fact, they conceded they were not entitled to benefits because Biller did not timely submit the conversion application.

The employer moved for dismissal of the complaint.  The motion was denied. The district court rejected the employer's argument that all fiduciary duties under the policy had been delegated to Prudential.  Although the employer had delegated its discretionary authority to determine eligibility for benefits under the policy, the plan also stated that the employer was a "named fiduciar[y] of the Plan" and that the employer had "the authority to control and manage the operation and administration of the plan."   Furthermore, the employer's IRS Form 5500 identified the employer as the plan administrator.

Because the activity that was the subject of the breach of fiduciary duty claim was the conversion application process – not a claim for benefits – the court held that the beneficiaries plausibly alleged that Biller's employer owed her a fiduciary duty pertaining to the conversion process.   

The district court also rejected the employer's argument that the beneficiaries could not maintain an action under 29 U.S.C. § 1132(c) because they had a remedy available under 29 U.S.C. § 1132(a)(1)(B).  "Plaintiffs could not have brought a claim under § 1132(a)(1)(B) for benefits due under the policy precisely because they concede they are not entitled to any as a result of Defendants' breach."  

Finally, the district court rejected the employer's argument that the beneficiaries did not seek appropriate equitable relief "because they essentially [sought] money damages."  Citing CIGNA Corp. v.  Amara, 131 S.Ct. 1866 (2011), the district court noted that surcharge is an appropriate form of equitable relief where harm results from a fiduciary's breach, even if the fiduciary is not unjustly enriched as a result of the breach.  Finding the surcharge claim to be appropriate, and based on the procedural posture of the case, the court left open the question whether the beneficiaries would be entitled to other forms of equitable relief.

Click here to view the full January 2015 Edition of the ERISA and Life Insurance News.

H. Sanders Carter
T (404) 962-1015
F (404) 962-1220
Andrea K. Cataland
T (404) 962-1045
F (404) 962-1255
Kenton J. Coppage
T (404) 962-1065
F (404) 962-1256

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