Supreme Court Asked To Review ERISA Plan Administrator’s Right To Seek Compensatory Money Damages

An ERISA plan beneficiary has asked the U.S. Supreme Court to review whether a plan administrator has the right to seek compensatory money damages from the beneficiary for benefits already paid. The beneficiary also requests review of two additional questions involving conflict-of-interest review and choice of law. The case is Truitt v. Unum (Dkt. No. 13-861).

Background. Terri Truitt, a partner at a law firm in Houston, was awarded long-term disability benefits from her benefits plan administrator, UNUM Life Insurance Company of America, for lower-back, leg, and foot pain. She claimed that the pain prevented her from working as a trial attorney, which required, among other things, international travel and lifting boxes of files. However, the plan administrator concluded that she was able to perform her duties and denied the claims. The insurer based its determination on physician evaluations, surveillance video, and information provided by the insured’s former companion.

Although the federal district court found, and the parties did not dispute, that there was substantial evidence to support the claims denial, the court concluded that the insurer’s failure to investigate the emails sent by the former companion was procedurally unreasonable and, thus, was arbitrary and capricious.

Opinion below. The Fifth Circuit reversed the district court’s ruling and held there is no case law imposing a duty on a plan administrator to investigate in deciding whether to pay a claim. In addition, there is no case law imposing an affirmative duty on the administrator to consider the source of the evidence it relies upon in deciding a claim. The “probing process” of the administrative process itself will produce a record that will (or will not) support the plan administrator’s decision, according to the court.

In this case, the administrator’s rejection of the beneficiary’s evidence and its reliance on the emails was not an abuse of discretion. The beneficiary did not introduce evidence that the emails were forged or hacked. In addition, the emails appeared to be authentic and were consistent with the time line of her claim file and, thus, met a certain indicia of reliability. Because the administrator relied upon concrete evidence from the surveillance videos and medical records, which were supported by the emails, its determination was reasonable.

The Fifth Circuit also ruled that the district court gave improper weight to the administrator’s structural conflict of interest where the administrator gave careful consideration of the insured’s claim and where it had adopted new claims-handling practices that helped cure its history of biased claims administration.

Lastly, regarding the administrator’s counterclaim seeking reimbursement from the beneficiary of the benefits it already paid, the Fifth Circuit ruled that federal common law—not Texas law—applies since ERISA does not provide for how a plan administrator may recover benefits that it alleges were fraudulently obtained.

Reasons to grant the petition. The beneficiary argues that allowing the administrator to recover money damages in a counterclaim is not supported by the Supreme Court’s precedent, the will of Congress, or the clear language of ERISA. Although ERISA provides beneficiaries and administrators with equitable remedies, the Court’s decisions make clear that Congress never intended to give plan fiduciaries the right to seek compensatory money damages.

The beneficiary also contends that the Fifth Circuit incorrectly applied the conflict-of-interest-review framework set forth in the Supreme Court’s decision in Metropolitan Life Ins. Co. v. Glenn. Federal courts reviewing a benefits denial by a plan fiduciary operating under a conflict of interest use the combination-of-factors method of review. Under that method, a plan administrator’s conflict of interest could become a “tiebreaking” factor favoring the beneficiary where circumstances suggest that it affected the benefits decision.

Finally, the beneficiary argues that the courts below were bound by Illinois law to employ a de novo standard of review in assessing the administrator’s denial of the beneficiary’s claim for disability benefits. The parties agree that Illinois law governs their rights under the insurance contract at issue. Illinois law prohibits the use of discretionary clauses in disability policies and requires courts to apply a de novo review in ERISA cases where the denial of benefits is challenged. The beneficiary claims that the Fifth Circuit’s decision is in direct conflict with Sixth and Ninth Circuit decisions that upheld similar state laws and, thus, the Supreme Court should resolve this conflict.

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