A recent decision from a federal district court in the Tenth Circuit provides an example of the potential erosion of the distinction between claims for wrongful denial of benefits and breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA), following the Sixth Circuit’s 2013 decision in Rochow v. LINA, 737 F.3d 415 (6th Cir. 2013) (Rochow II), in which a three-member panel of that court affirmed the district court’s order requiring disgorgement of profits flowing from the wrongful denial of benefits.
In Faltermeier v. Aetna Life Ins. Co., No. 15-CV-2255-JAR-TJJ (D. Kan. May 28, 2015), the district court allowed a plan participant to amend his complaint to include a breach of fiduciary duty based on the insurer’s alleged failure to consider an expert report that was submitted just one day before the final decision denying benefits was issued.
Although the Sixth Circuit sitting en banc ultimately vacated the Rochow II decision in Rochow v. Life Ins. Co. of North America, 780 F.3d 364 (6th Cir. Mar. 5, 2015) (Rochow III), thus maintaining the distinction between denial of benefits and breach of fiduciary duty, the rationale of Rochow II may have nevertheless inspired some creative advocacy on behalf of plan participants/beneficiaries to which counsel for insurers and claims fiduciaries should be prepared to respond, as illustrated by the Faltermeier decision.
ERISA Background
ERISA provides for six remedial provisions, including review and recovery of wrongfully denied benefits pursuant to §502(a)(1), and the “catch-all” breach of fiduciary duty provision pursuant to §502(a)(3).
Federal district courts are permitted to review the denial of benefits under an arbitrary and capricious standard based on the administrative record before the claims administrator. The applicable standard for the equitable claims brought pursuant to §502(a)(3) is that of a prudent person exercising the care, skill, prudence and diligence under the prevailing circumstance. 29 U.S.C. §1104(a)(1)(B). ERISA and its implementing regulations generally permit deference to plan administrators and claims fiduciaries. Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989).
Where the claim fiduciary makes not only the benefit determination but also the plan funding decision, there is a conflict of interest. That conflict is a factor to be considered in determining whether the decision-making was arbitrary and capricious but may “prove less important (perhaps to the vanishing point) where the administrator has taken active steps to reduce potential bias and to promote accuracy.” Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 128 S.Ct. 2343, 171 L.Ed.2d 299 (2008).
Use of an independent medical review to support the claim fiduciary’s initial decision renders the conflict of interest factor of limited weight. Fite v. Bayer Corp., 554 Fed. Appx. 712 (10th Cir. 2014) (benefits claim denial affirmed). Further, a claim fiduciary may not assert a different basis to support the denial on judicial review of the decision, but he/she may change the basis for denial from that listed in the initial denial to the...
