One of the most vexing issues in employee benefits law relates to the apparent absence of remedies when harm results from misrepresentations made to employees since Employee Retirement Income Security Act (ERISA) only permits “appropriate equitable relief” (29 U.S.C. § 1132(a)(3)) and bars claims seeking legal remedies such as monetary damages. A leading example of such a gap in available remedies is the case of Amschwand v. Spherion Corp., 505 F.3d 342 (5th Cir. 2007), where a life insurance beneficiary was denied benefits due to misrepresentations regarding existing coverage made to her late husband. Despite urging by the U.S. solicitor general, the Supreme Court refused to hear the case. A recent ruling from the 4th U.S. Circuit Court of Appeals, however, relying on more recent Supreme Court authority, has come to a different conclusion. In McCravy v. Metropolitan Life Ins.Co., 2012 U.S.App.LEXIS 13683 (4th Cir. July 5, 2012), the court relied on CIGNA Corp. v. Amara, 131 S. Ct. 1866, 179 L. Ed. 2d 843 (2011) and reversed an earlier ruling issued in this case on the same day the Supreme Court issued Amara. On rehearing, the court sided with the plaintiff.

The claim involved Debbie McCravy’s purchase, as an employee of Bank of America, of group dependent life and accidental death and dismemberment insurance on the life of her daughter, Leslie. McCravy paid premiums, which MetLife accepted, from before Leslie’s 19th birthday until she was murdered in 2007 at age 25. When her mother submitted a claim for benefits, MetLife denied the claim. The insurer asserted Leslie was not eligible for coverage on the date of her death since coverage could extend no later than to age 24 for an unmarried dependent who was enrolled full-time in school. MetLife attempted to refund McCravy’s premiums, but she refused to accept the payment and filed suit, alleging that MetLife accepted the premiums and thus represented that Leslie was covered as of the date of her death. The court found MetLife’s acceptance of premiums could be the basis for a claim that the insurer breached the fiduciary duty it owed to Debbie McCravy. And the court held, in accordance with Amara, that Debbie McCravy could obtain monetary relief as an equitable remedy.

The court explained:

“As the Supreme Court pronounced inAmara, “surcharge,” i.e., “make-whole relief,” constitutes “appropriate equitable relief” under Section 1132(a)(3). 131 S. Ct. at 1880. Indeed, “[e]quity courts possessed the power to provide relief in the form of monetary ‘compensation’ for a loss resulting from a trustee’s breach of duty, or to prevent the trustee’s unjust enrichment. … [P]rior to the merger of law and equity this kind of monetary remedy against a trustee, sometimes called a ‘surcharge,’ was ‘exclusively equitable.'” Id. (citations omitted).

Thus, the court ruled McCravy’s remedies were not limited to a premium refund as the district court held. The court also pointed out in a footnote that while MetLife challenged the portion of Amara dealing with remedies as “dictum,” even if that were the case, it would still be binding. The court explained: “[W]e cannot simply override a legal pronouncement endorsed just last year by a majority of the Supreme Court. See United States v. Fareed, 296 F.3d 243, 246 (4th Cir. 2002) (following “dictum endorsed by six justices” of the Supreme Court and citing Gaylor v. United States, 74 F.3d 214, 217 (10th Cir. 1996) (stating that federal court of appeals “is bound by Supreme Court dicta almost as firmly as by the court’s outright holdings, particularly when the dicta is recent and not enfeebled by later statements”)).” *13 at n.2.

In addition to permitting recovery via the remedy of surcharge, the court also found the remedy of equitable estoppel was available to the plaintiff. McCravy argued that MetLife’s acceptance of her premium payments prevented her from converting her daughter’s group dependent coverage to individual coverage, which would be the normal course for a covered dependent whose coverage would cease when dependency ended. The court cited Amara for the principle that “[e]quitable estoppel operates to place the person entitled to its benefit in the same position he would have been in had the representations been true.” 131 S. Ct. at 1880 (quotation marks omitted). Thus, the court found estoppel to be an additional remedy available to McCravy, along with the remedy of surcharge. However, the court ruled that while McCravy could pursue such remedies, her entitlement to relief was reserved to the district court to determine in the first instance on remand after the court had the opportunity to consider additional evidence.

In its concluding summary, the court added the policy justification behind its ruling. The court pointed out that from a common-sense perspective, if the law barred a remedy,

“[F]iduciaries would have every incentive to wrongfully accept premiums, even if they had no idea as to whether coverage existed – or even if they affirmatively knew that it did not. The biggest risk fiduciaries would face would be the return of their ill-gotten gains and even this risk would only materialize in the (likely small) subset of circumstances where plan participants actually needed the benefits for which they had paid. Meanwhile, fiduciaries would enjoy essentially risk-free windfall profits from employees who paid premiums on nonexistent benefits but who never filed a claim for those benefits. With Amara, the Supreme Court has put these perverse incentives to rest and paved the way for McCravy to seek a remedy beyond a mere premium refund.

McCravy comes too late to aid Melissa Amschwand and many others who were denied remedies as a result of actions either taken or opportunities foregone as a result of misrepresentations or even mistakes made by employers or their insurers. However, the financial harm resulting from an employer’s error that causes the denial of benefits is often devastating. Now it is also remediable.

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