Seyfarth Synopsis: In an opinion that may result in increasingly complex ERISA benefits litigation, the Eighth Circuit has allowed a breach of fiduciary duty claim premised on alleged faulty claims handling practices to proceed in conjunction with a claim for benefits.
In a case that should catch the attention of ERISA plan administrators, the Eighth Circuit in Jones v. Aetna Life Insurance Company, et al held that a breach of fiduciary duty claim premised on improper claims handling could survive a motion to dismiss, even where the plaintiff also brought a claim for benefits seeking the same unpaid benefits.
In Jones, Plaintiff brought two claims against insurer Aetna: 1) a claim for benefits premised on Aetna's termination of Plaintiff's disability benefit; and 2) a breach of fiduciary duty claim premised on Aetna's claims handling practices. The district court dismissed the breach of fiduciary duty claim as duplicative of the claim for benefits, citing the Supreme Court's decision in Varity Corp. v Howe, 516 U.S. 489 (1996), which instructed that section 502(a)(3) breach of fiduciary duty claims function as a "safety net, offering appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere adequately remedy." On summary judgment, the court held that Aetna did not abuse its discretion in denying the claim for benefits.
On appeal, the Eighth Circuit affirmed the denial of benefits. But, the Eighth Circuit reversed the dismissal of the breach of fiduciary duty claim. The court found it was consistent with Varity Corp to allow a fiduciary breach claim to proceed in tandem with a claim for benefits so long as both claims set forth a different theory of relief. The court found that Plaintiff had made this showing, as "[e]ven if an administrator made a decision with procedural irregularities that seriously breach its duties to its beneficiary, it is not necessarily liable under (a)(1)(B); instead, the serious breach prompts a more searching review of the denial of benefits claim." The Eighth Circuit remanded the breach of fiduciary duty claim for further proceedings.
This decision stands in sharp contrast to the Sixth Circuit's en banc decision in Rochow v. Life Insurance Company of North America, 780 F.3d 364 (6th Cir. 2015), and with Varity Corp. and its progeny. In Rochow, the Sixth Circuit held that because the plaintiff could be made whole by the remedies available under section 502(a)(1)(B) and section 502(g) through payment of benefits, interest, and attorney's fees, the plaintiff could not recover under section 502(a)(3). Given how out of step Jones is with longstanding practice, it is likely that Aetna will seek en banc review, or even file a petition of certiorari with the Supreme Court. Nevertheless, while this case continues to work its way through the courts, it is likely that plaintiffs will rely on Jones in justifying pairing routine claims for benefits with claims for equitable relief.
An upsurge in such litigation, while in the short-run potentially advantageous to participants who will be able to obtain extra-contractual equitable remedies (such as sur-charge and disgorgement), risks in the long run causing insurers to greatly raise premiums to address high litigation costs. This in turn risks chilling the willingness of employers to offer ERISA disability benefits to their employees. Stay tuned for how this case plays out, either on further appeal or in future cases.
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