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Supreme Court May Hear Case on Obtaining Monetary Damages as Equitable Relief for a Fiduciary Breach under ERISA

    Client Alerts
  • May 30, 2008

Late last week, the United States Solicitor General recommended that the U.S. Supreme Court grant certiorari in the case of Amschwand v. Spherion Corp.  This case would decide whether Section 502(a)(3) of ERISA authorizes a suit against a plan fiduciary for monetary relief as “appropriate equitable relief” for a breach of fiduciary duty, an issue presented but not reached by the Court in the recent case of LaRue v. DeWolff, Boberg & Associates, Inc. (link to recent EmployNews article).

Thomas Amschwand was employed by Spherion and participated in its ERISA-covered group life insurance plan.  Mr. Amschwand was diagnosed with cancer in August 1999 and went on medical leave.  During his leave, Spherion changed life insurance carriers.  Mr. Amschwand made repeated inquiries seeking confirmation of coverage, and Spherion repeatedly confirmed that he was enrolled under the new policy.  Mr. Amschwand paid Spherion the cost of his life insurance coverage.  However, the new policy included a provision requiring employees who were away from work to work at least one full day for coverage to be effective.  The new insurer agreed to waive this “Active Work Rule” for employees identified by Spherion as being on leave on the policy effective date due to a condition that predated the change in carriers, but Spherion did not provide Amschwand’s name to the new insurer, inform Amschwand about the Active Work Rule, or provide Amschwand with a summary that described the rule.  Mr. Amschwand died in February 2001, and Aetna denied his wife’s claims for the life insurance benefits, though Spherion did refund the premiums paid.  The District Court and Fifth Circuit Court of Appeals held that the relief requested was for money damages and not equitable relief, and that Supreme Court precedent does not allow for this type of recovery.

In its brief to the Supreme Court, the Solicitor General (with assistance from the Solicitor of Labor and other DOL personnel) argues that monetary recovery was historically available “in equity” based on a claim of breach of trust and should be available as “appropriate equitable relief” against fiduciaries who breach their ERISA duties.  The availability of this type of relief is crucial to protecting participants and beneficiaries by enforcing stringent fiduciary duties and by providing a meaningful remedy when those duties have not been met.

If the Supreme Court decides to accept this case, its decision could have widespread implications for benefit plans.  In the meantime, the facts of the case serve as a reminder that sponsors of ERISA welfare plans need to take great care in transitioning coverage to a new carrier and ensuring that the implications of any Active Work Rule are understood and properly addressed.