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Federal Circuit Court of Appeals Holds that a Return of Life Insurance Premiums Paid After the Death of an Insured is Insufficient When an Insured Continued to Pay Premiums with the Understanding there was Continued Life Insurance Coverage

In the recent case of McCravy v. Metropolitan Life Insurance Company, 690 F.3d 176 (4th Cir. 2012), the Fourth Circuit Court of Appeals determined that a return of life insurance premiums to Mrs. McCravy after her daughter's death was insufficient where Mrs. McCravy continued to pay premiums through the date of her daughter's death with the understanding that there was continued life insurance coverage for her daughter. The Court ruled that under these circumstances, Mrs. McCravy was entitled to pursue her claims for the full life insurance benefit promised to her under the life insurance policies that she paid continued premiums for until her daughter's death.

The McCravy Court explained the following in its written opinion ruling in favor of Mrs. McCravy:

"As a full-time employee for Bank of America, McCravy participated in the company's life insurance and accidental death and dismemberment ("AD&D") plan issued and administered by MetLife. Under the plan, an insured could purchase coverage for "eligible dependent children." McCravy elected to buy coverage for her daughter, Leslie McCravy, and paid premiums, which MetLife accepted, from before Leslie's nineteenth birthday until she was murdered in 2007 at the age of 25.

Following Leslie's death, McCravy, the beneficiary of the policy insuring her daughter, filed a claim for benefits. MetLife denied McCravy's claim, contending that Leslie did not qualify for coverage under the plan's "eligible dependent children" provision. Per the summary plan description, "eligible dependent children" are children of the insured who are unmarried, dependent upon the insured for financial support, and either under the age of 19 or under the age of 24 if enrolled full-time in school. According to MetLife, because Leslie was 25 at the time of her death, she no longer qualified as an "eligible dependent child[]." MetLife therefore denied McCravy's claim and attempted to refund the multiple years' worth of premiums MetLife had accepted to provide coverage for Leslie.

McCravy, however, refused to accept the refund check. Instead, she filed suit in federal court in May 2008. In her complaint, McCravy alleged, among other things, that "[It was represented to Plaintiff by Defendant that Leslie had dependent life and [AD & D] insurance coverage up to the time of her tragic death.... In fact, premiums were actually paid to Defendant and Defendant accepted such premiums for coverage for Leslie up until her death and it was represented to the Plaintiff that Leslie remained a participant in the plan."

Nevertheless, per the complaint, "[u]nbeknownst to [McCravy], Leslie was not eligible to actively participate in the plan because Leslie was over the age of 19. [But because [McCravy] and Leslie believed Leslie had life insurance and [AD&D] coverage and believed Leslie was participating in the plan, Leslie did not purchase different ... insurance...." Id. McCravy asserted that MetLife's actions constituted a breach of fiduciary duty under 29 U.S.C. § 1104. She sought recovery under 29 U.S.C. § 1132(a)(2) or (a)(3), pleading entitlement to recovery under waiver, estoppel, "make whole," and other equitable theories. McCravy also pled various claims under state law, including promissory estoppel and breach of contract . . . .

[T]he district court ruled that McCravy could recover, but that her recovery was limited, as a matter of law, to the life insurance premiums wrongfully withheld by MetLife for coverage that McCravy never actually had on the life of her daughter. The district court therefore denied MetLife's motion to dismiss McCravy's Section 1132(a)(3) claim. In so ruling, the district court recognized the extreme inequities that such a restrictive reading of Section 1132(a)(3) created but indicated that precedent left the court with little choice:

[While this Court is compelled to such a holding by the law of ERISA as interpreted by higher courts, it cannot ignore the dangerous practical implications of this application. The law in this area is now ripe for abuse by plan providers, which are almost uniformly more sophisticated than the people to whom they provide coverage. With their damages limited to a refund of wrongfully withheld premiums, there seems to be little, if any, legal disincentive for plan providers not to misrepresent the extent of plan coverage to employees or to wrongfully accept and retain premiums for coverage which is, in actuality, not available to the employee in question under the written terms of the plan.

If the employee never discovers the discrepancy, the plan provider continues to receive windfall profits on the provision in question without bearing the financial risk of having to provide coverage. If the worst happens and the employee does file for the benefits for which he or she had been paying and seeks the coverage he or she believed was provided, the plan provider may then simply deny the employee's benefits claim, and have their legal liability limited to a refund of the premiums. The worst case scenario for fiduciary behavior which is either irresponsible or dishonest, then, in this context, is simply that the plan provider does not profit, but they would never be punished and would not be required to provide the coverage for which the employee was paying and for which, in cases like the present matter and Amschwand [v. Spherion Corp., 505 F.3d 342 (5th Cir.2007) ], the employee asserts he or she was assured by the provider existed.

Plaintiff's allegations in this case present a compelling case for the availability of some sort of remedy for the breach of fiduciary duty above and beyond the mere refund of wrongfully retained premiums."

Mrs. McCravy thereafter filed her appeal with the Fourth Circuit Court of Appeals, who agreed with the concerns of the district court in finding for Mrs. McCravy based upon the recent seminal decision by the United States Supreme Court in Cigna Corp. v. Amara, 563 U.S. 421 (2011), and explained:

"Central to the resolution of this case is the [United States] Supreme Court's decision in Amara. Before Amara, various lower courts, including this one, had (misconstrued Supreme Court precedent to limit severely the remedies available to plaintiffs suing fiduciaries under Section 1132(a)(3). See, e.g., LaRue v. De Wolff, Boberg & Assocs., Inc., 450 F.3d 570, 575 (4th Cir.2006) (holding that Mertens v. Hewitt Assoc., 508 U.S. 248, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993), "and its progeny compel the conclusion that" "monetary relief" for losses "sustained as a result of the alleged breach of fiduciary duties" "falls outside the scope of § 1132(a)(3)"), vacated on other grounds, 552 U.S. 248, 128 S.Ct. 1020, 169 L.Ed.2d 847 (2008).

But with Amara, "[a] striking development," the Supreme Court "expanded the relief and remedies available to plaintiffs asserting breach of fiduciary duty under [Section 1132(a)(3) ] and therefore seeking make-whole relief such as equitable relief in the form of 'surcharge.' " Lee T. Polk, Statutory Provisions-Civil Remedies, 1 ERISA Practice and Litigation § 5:4 (West 2012).

In this case, McCravy first argues that the district court committed legal error by limiting her damages to premiums wrongfully withheld by MetLife because the remedy of surcharge is available to her under Section 1132(a)(3). Specifically, McCravy contends that she, as "the beneficiary of a trust," is rightfully "seeking to 'surcharge' the trustee [MetLife] in the amount of life insurance proceeds lost because of that trustee's breach of fiduciary duty." Appellant's Br. at 20. In light of Amara, we must agree.

As the Supreme Court pronounced in Amara, "surcharge," i.e., "make-whole relief," constitutes "appropriate equitable relief" under Section 1132(a)(3). 131 S.Ct. at 1880. Indeed, "[equity 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.... [Prior 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).

The Supreme Court has made quite clear that surcharge is available to plaintiffs suing fiduciaries under Section 1132(a)(3). We therefore agree with McCravy that her potential recovery in this case is not limited, as a matter of law, to a premium refund. Accordingly, we reverse the district court's determination to the contrary. Whether McCravy's breach of fiduciary duty claim will ultimately succeed and whether surcharge is an appropriate remedy under Section 1132(a)(3) in the circumstances of this case are questions appropriately resolved in the first instance before the district court.

McCravy next argues that the remedy of equitable estoppel is also available under Section 1132(a)(3). Specifically, she contends that the court can "apply an equitable estoppel ... to prevent MetLife from ... denying her right to convert coverage [for her daughter, from dependent life coverage to an individual policy] because the conversion did not occur within 31-days of her dependent reaching age 19." Again, we must agree.

As the Supreme Court stated in Amara, "[equitable 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). In Amara, that meant holding the defendant fiduciary "to what it had promised, namely, that the new plan would not take from its employees benefits they had already accrued." Id. And the Supreme Court made plain that such estoppel is "a traditional equitable remedy"-i.e., a remedy available to plaintiffs suing a fiduciary under Section 1132(a)(3).

Thus, we agree with McCravy that her potential recovery in this case is not limited, as a matter of law, to a premium refund and that she may indeed seek equitable estoppel under Section 1132(a)(3). Accordingly, we reverse the district court's determination to the contrary . . . .

In sum, with Amara, the Supreme Court clarified that remedies beyond mere premium refunds-including the surcharge and equitable estoppel remedies at issue here-are indeed available to ERISA plaintiffs suing fiduciaries under Section 1132(a)(3). This makes sense-otherwise, the stifled state of the law interpreting Section 1132(a)(3) would encourage abuse by fiduciaries. Indeed, fiduciaries 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 non-existent 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 v. Metropolitan Life Insurance Company, 690 F.3d 176 (4th Cir. 2012).

The McCravy decision is in agreement with numerous other decisions entered across the nation. For example, in Rainey v. Sun Life Assur. Co. of Canada et al., No. 3:13-cv-0612, 2014 WL 4053389 (M.D. Tenn. Aug. 15, 2014), 2014 WL 479335 (M.D. Tenn. Oct. 6, 2014), 2014 WL 7156517 (M.D. Tenn. Dec. 15, 2014), the Court found that the Plaintiff's wife paid for and expected to receive the full amount of benefits of $934,000 under the life and AD&D policies at issue, and therefore directed that in order to make Mr. Rainey whole, he would be paid the full expected amount which included the full amount in benefits of $934,000 despite there being no coverage under the policy terms. In the case of Van Loo v. Cajun Operating Co. et al., 64 F.Supp. 3d 1007, 1024-1027 (E.D. Mich. 2014), the Court ruled that if the plaintiffs could establish that Defendant breached a fiduciary duty by misrepresenting to Ms. Van Loo that her supplemental coverage election became effective, they could recover compensatory damages from Defendant, which would include the full value of the insurance coverage they understood they had despite there not being coverage under the plan terms. See also, e.g., Silva v. Metro. Life Ins. Co., 762 F.3d 711, 716-728 (8th Cir. 2014) (finding that Silva was entitled to seek the full amount of the supplemental life insurance policy at issue as the beneficiary under his son's policy, where premiums were paid for the life insurance coverage but coverage was denied following the death of his son); Gearlds v. Entergy, 709 F.3d 448, 450-53 (5th Cir. 2013) (ordering that Gearlds was permitted to seek the full amount of insurance benefits that he lost as a result of Defendant's misrepresentations which involved the representation that Gearlds was eligible for plan benefits for the remainder of his life by opting for early retirement and Gearlds continued premium payments for his benefits and the lost opportunity for him to obtain alternate coverage through his wife's retirement plan as a result); Weaver v. Prudential Ins. Co. of Am. et al., No. 3:10-cv-438, 2011 WL 4833574 (M.D. Tenn. Oct. 12, 2011) (finding that the Plaintiff was entitled to recover the full value of the life insurance benefits that she would have been entitled to if Defendant had correctly informed her about her ability to convert the group policy to an individual policy); In re Unisys Corp. Retiree Medical Benefits Litigation, 579 F.3d 220, 237 (3d Cir. 2009) (finding that where plaintiffs were led to believe that they had lifetime benefits even though the plan itself did not provide for such vested benefits, Defendant would be prevented from denying the plaintiffs the benefits that its miscommunications misled them to believe they would continue to enjoy for life).

In conclusion, a refund of premiums paid in a case where an individual dutifully continued to pay premiums that his or her employer indicated would allow him or her to continue life insurance coverage while out on a leave of absence (or under other circumstances) through the date of their death is severely inadequate and unacceptable. Instead, wrongful denial of benefit claims and breaches of fiduciary duty claims under the Employee Retirement Income Security Act of 1974 (ERISA) should be evaluated and pursued where warranted against both the insurance company and/or employer involved, to allow the beneficiary(ies) under the life insurance policies to be provided with the full policy benefits that the deceased insured understood that he or she was leaving for loved ones upon their passing.

Our experienced life insurance attorneys have handled scenarios nearly identical to the sad situation addressed in the McCravy case and in other decisions by the courts, and have successfully obtained for our clients more than mere premium refunds. Our attorneys strongly assert that in these circumstances, the beneficiaries of the employee benefit plans/insurance policies are entitled to the full insurance policy benefit(s) at issue. If you are facing a situation similar to Mrs. McCravy, contact one of our experienced life insurance attorneys today for a free consultation about your options.

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