Tuesday, December 4, 2007

Another Example of the Grand Irony of ERISA

ErisaUpdate: More from Roy Harmon at Health Plan Law on this case.

Thanks to Steve Rosenberg at the Boston ERISA and Insurance Litigation Blog for bringing to my attention another recent example where ERISA falls horribly short in providing meaningful remedies to plan participants.

Steve explains the case of Mitchell v. Emeritus Management from the United States District Court for the District of Maine.  Here are the facts of the case from the court:

The plaintiff employee says that she purchased a life insurance policy on her husband through her employer's group coverage. When her husband was dying, she resigned her employment to care for him. She asked her employer for the proper forms to convert the group life insurance coverage to individual coverage, as she was entitled to do. Her employer refused or failed to provide the forms despite several in-person and telephone requests. In the meantime, the time for conversion (31 days) expired, her husband died, and now the life insurance company has denied her any benefits.

Steve describes the holding thusly:

[T]he fact pattern does not support a cause of action under any of ERISA’s remedial rights - for breach of fiduciary duty, for denied benefits and for equitable relief - available to a plan participant, a situation the court found “very troubling.” The court found that: (1) the participant could not recover the insurance benefits by means of an action for equitable relief because it was truly a claim for payment of the benefits at issue, rather than for equitable relief; and (2) the participant could not recover the proceeds on a claim seeking benefits because, under the facts at issue, there was no right to life insurance proceeds under the actual plan terms since there was no timely conversion, and therefore the administrator did not act arbitrarily and capriciously in denying the claim.

Unlike Steve, I don't think this right without remedy situation arises because of a compromise entered into between employers and participants involving limited remedial rights in return for the creation of a statute that would encourage the adoption of employee benefit plans. That is of course the line of strict constructions Justices, like Scalia, Thomas, and Kennedy, but I think they and Steve (I'm sure he is humbled by being included in such great company!) wrongly place secondary justifications for ERISA in front of its primary justification: to protect the benefit of employees.

If the remedialist approach, championed by Justice Steves, Breyer, Souter, and Ginsburg, were followed by following Congress' intent to incorporate most of the common law of trusts into ERISA, it would not be construed in such an employer-friendly matter, and general notions of equity would supply a remedy for the plaintiff in this case. 

So, in short, this is not about litigation tactics or what a proper interpretation of ERISA inevitably leads to, but what a cramped reading based on the absurd "time of the divided bench" approach leads to.

This is certainly a grand irony given ERISA's primary justification for being enacted in 1974.

PS

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Comments

Is there any evidence that the drafters of ERISA intended to limit remedial rights (as opposed to making them federal), even as a "secondary" goal? If so, it certainly isn't found in the Supreme Court's decisions, which are based entirely on an untenable reading of ERISA's text. See John Langbein, What ERISA Means by “Equitable”: The Supreme Court’s Trail of Error in Russell, Mertens, and Great-West, 103 Columbia L. Rev. 1317 (2003).

Posted by: AF | Dec 4, 2007 9:00:13 AM

Paul:
I am curious what more the potential beneficiary could have done to legally bind the insurer to comply with the terms of conversion?
Should she have dealt directly with the insurance compamny, as opposed to handling the conversion through the employer intermediary?
Don Levit

Posted by: Don L. | Dec 5, 2007 8:56:27 AM

We are talking about converting dependent group term life insurance on her husband without evidence of insurability, an option required by state law. How much could it be?

It helps to have all the facts. For example, what was the amount of the conversion charge imposed by the carrier on the employer/contractholder? Also, employee handbooks frequently give the individual considering conversion direction on the process.

Happy Holidays

Posted by: Juan Kelly | Dec 5, 2007 9:34:27 AM

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