Last year, the U.S. Supreme Court's decision in CIGNA Corp. v. Amara refused to allow employees to sue based on inconsistencies between the plan terms and language included in the Summary Plan Description. However, in additional dicta, the Court stated that such plaintiffs may be able to use certain equitable remedies to address ERISA violations. Earlier this month, the Fourth Circuit Court of Appeals (which includes North Carolina and South Carolina) applied Amara to reverse its earlier pre-Amara decision on the same case, and held an insurance carrier possibly liable for benefits after it accepted premiums for a dependent who was ineligible under the plan.
In McCravy v. Metropolitan Life Insurance Co., the plaintiff purchased life insurance coverage for her dependent children through her employer's plan. She continued paying premiums for her daughter who died at the age of 25. The carrier refused to pay benefits on the basis that the daughter was no longer an eligible dependent under the plan at the time of her death (the plan covered dependents under age 19, or age 24 for students). While the carrier offered to refund premium payments, the plaintiff sought the full death benefit.
The Fourth Circuit agreed with the plaintiff, remanding the case for further proceedings. The Court noted that Amara suggested that ERISA allows employees to sue based on equitable claims such as estoppel, reformation and surcharge. In this case, the plaintiff may have relied on the carrier's acceptance of premiums to assume that her daughter was still insured in lieu of obtaining alternative coverage. By limiting the remedy to premium refund, carriers and employers could accept premiums for ineligible participants without significant penalty.
The Fourth Circuit made no factual determination on the carrier's actual liability and remanded the case to the district court. However, the Fourth Circuit's acceptance of the Amara dicta means that plan fiduciaries, including employers, can be held liable for full benefits if they mistakenly allow participation by ineligible employees or beneficiaries. This decision points out the critical need for employers to regularly conduct eligibility audits (especially for dependents), and to work with payroll providers and insurance carriers to assure that plans are administered according to their terms and that premiums are not paid for ineligible persons.