Solis Files Brief in Support of 'Surcharge' for Fiduciary Breaches

Secretary of Labor Hilda L. Solis filed an amicus curiae brief with the 4th U.S. Circuit Court of Appeals supporting the remedy of awarding plan participants a “surcharge” to recover monetary damages for fiduciary breaches.

In asking the appellate court to overturn a lower court ruling, Solis said the U.S. District Court for the District of South Carolina’s “narrow reading of the scope of section 502(a)(3) cannot be reconciled with the central role assigned to fiduciaries and fiduciary duties in the ERISA regime, nor with the statute’s protective purposes.”

Solis continued that it is “hard to imagine that Congress would have left participants and beneficiaries without an effective remedy against fiduciaries who have committed serious violations of ERISA’s provisions and directly injured the people they were charged to protect. But that is what would occur in this and many other situations if this Court were to agree with the district court that section 502(a)(3) does not authorize suits against fiduciaries to recover losses and to account for profits resulting from fiduciary breaches.”

Solis filed the brief pertaining to the case of Debbie McCravy, who was employed with Bank of America, which offered a dependent life insurance and accidental death and dismemberment welfare benefit plan that was insured and administered by Metropolitan Life Insurance Company (MetLife). McCravy was the named beneficiary under a policy that covered her now deceased daughter, Leslie.

Although McCravy paid and MetLife accepted premiums for coverage for Leslie until the time of Leslie’s death in July 2007, Leslie was not eligible to participate in the plan because she was over the age of 19 at the time of her death, although she was younger than 19 when plaintiff first elected coverage.

According to the brief, after MetLife denied her claim for life insurance benefits, McCravy filed suit in district court alleging that MetLife breached its fiduciary duty in administering the plan, and seeking equitable relief pursuant to ERISA section 502(a)(3). She argued that under a provision of the policy, she was entitled to convert the coverage on her daughter from the group insurance which funded the ERISA plan to an individual policy, and that she would have done so if she had been told she needed to do so.

Because it was a breach for MetLife to have failed to inform McCravy of this, especially considering it accepted premium payments from her for years and allegedly led her to believe that this coverage was in place, she argued both that she was entitled to the proceeds under either a waiver/equitable estoppel theory or under a make-whole theory of equitable relief.

The district court held that McCravy was not entitled to the full amount of the life insurance benefits, but that her sole available remedy was a return of the premiums she had paid for coverage on the life of her daughter. The court rejected her estoppel claim, reasoning that it would conflict with 4th Circuit precedent holding that ERISA does not allow an oral modification to the clear written terms of a plan, as well as with 4th Circuit cases holding that principles of waiver and estoppel are not part of the common law of ERISA.

Similarly, the court rejected McCravy’s argument that it should surcharge MetLife for the amount of the life insurance benefits. The court reasoned that the gravamen of McCravy’s complaint was that MetLife wrongfully denied her life insurance benefits under the plan and that the fact that she could not bring a claim for benefits under ERISA section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), did not change the fact that she sought plan benefits.

Solis argued in her brief that ERISA Section 502(a)(3) permits the court to surcharge MetLife for the insurance proceeds that McCravy would have received but for the alleged breaches of fiduciary duty. She also said the relief sought is equitable because both the basis for the claim and the remedy sought are equitable.

Finally, Solis said no precedent of the Supreme Court or of the 4th Circuit precludes suits against fiduciaries for this type of monetary redress. “Such suits are necessary to achieve ERISA’s protective goals,” she wrote.