Another ERISA Breach of Fiduciary Duty Claim Based on a Material Misrepresentation Survives a Motion to Dismiss

Following up on my recent blog post about an interesting breach of fiduciary case in Louisiana, on December 29, 2016, the U.S. District Court for the District of Maryland partially denied a motion to dismiss seeking the…

By Adam Garner

Following up on my recent blog post about an interesting breach of fiduciary case in Louisiana, on December 29, 2016, the U.S. District Court for the District of Maryland partially denied a motion to dismiss seeking the dismissal of an ERISA breach of fiduciary duty claim brought by a plan participant as result of a material misrepresentation.  See Damiano v. Inst. for in Vitro Scis., No. PX 16-0920, 2016 U.S. Dist. LEXIS 179595 (D. Md. December 29, 2016).  A copy of the court’s decision is available here.

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Damiano was employed by the Institute for in Vitro Sciences (“IIVS”) as an Accounting Assistant/HR Coordinator. IIVS sponsored multiple ERISA-regulated employee welfare benefit plans that included a group health plan with dental benefits (“the Dental Plan”) and group long-term (“LTD”) and short-term disability insurance plans (“STD,” and together “Disability Plans”) for its employees. The Complaint alleges that Paychex Insurance Agency, Inc. is a service provider and, as agent for Paychex, Inc., administered the insurance benefits of the IIVS health plan and Disability Plans.

On September 9, 2015, IIVS terminated Damiano’s employment and presented her with a letter containing a severance package (the “Termination Letter”). The Termination Letter states that the severance package includes “continuation of current health and disability insurance benefits paid in full by IIVS, through October 31, 2015.”   IIVS consulted with Paychex and received written confirmation that coverage could be continued as described in Damiano’s Termination Letter under the terms of the Disability Plans in existence at the time the promise was made to her.

On September 16, 2015 and September 28, 2015, Damiano scheduled and received dental treatment. Damiano was initially approved for coverage associated with her September 16, 2015 dental work, but it was subsequently rescinded. She was then denied coverage outright for her September 28, 2015 dental work. As a result, she was liable for dental expenses for both procedures. Moreover, on October 3, 2015, Damiano had to be hospitalized and undergo emergency brain surgery.

On October 8, 2015, Paychex sent Damiano a COBRA notice notifying her that her coverage under IIVS’ group health plan would end on October 31, 2015, as set forth in the Termination Letter.  Then, however, Paychex sent a second COBRA notice, dated October 23, 2015 that stated that her group health plan coverage ended on September 9, 2015, the day she was terminated.

After her surgery but prior to October 31, 2015, Damiano contacted IIVS seeking benefits under the Disability Plans. IIVS then informed her that she was not eligible for disability benefits under the Disability Plans because, contrary to the terms of the Termination Letter and the October 8, 2015 COBRA notice, she was no longer a participant in the Disability plans due to her termination.

On March 28, 2016, Damiano filed suit seeking, among other things, equitable relief under ERISA § 502(a)(3), 29 U.S.C. 1132(a)(3).  The defendants sought to dismiss the case in its entirety.  The court granted a portion of the motion that dealt with certain state law claims as being subject to ERISA preemption.  See29 U.S.C. § 1144.  The court denied, however, that portion of the motion seeking dismissal of the equitable relief claim.

The equitable relief claim asserted that IIVS and Paychex breached their fiduciary duty to Plaintiff by representing in the Termination Letter and October 8th COBRA notice that she would receive coverage under the Disability Plans and Dental Plan after her termination.  The Court held that Damiano adequately pled the elements of a breach of fiduciary duty claim under ERISA § 502(a)(3), 29 U.S.C.§1132(a)(3). Specifically, Damiano alleged that both IIVS and Paychex were plan fiduciaries with IIVS alleged to be the plan administrator Paychex Insurance Agency, Inc.  a service provider who administered and adjudicated claims under the plans. She adequately alleged that the defendants conveyed material misrepresentations that her health insurance coverage would continue to through October 31, 2015. She also alleged that she relied on the misrepresentation that her employment benefits, including dental insurance, would continue until October 31, 2015 and thus refrained from arranging for alternative coverage and underwent emergency brain surgery after suffering a stroke and sought coverage under the Disability Plans for benefits she believed she was eligible to receive.

The court recognized that the complaint seeks redress for Damiano’s damages arising out of the defendants’ material misrepresentations as to when her coverage under the plan would terminate. It noted that “[n]o provision of ERISA allows a fiduciary to abrogate its ‘unyielding duty of loyalty’ – and the consequential duty not to make material misstatements or omissions – based on such a general right.” (Citations omitted).  The defendants’ alleged misinformation resulted in Damiano being without insurance benefits and not by choice. Damiano did not know that she did not have dental insurance, short-term disability coverage, and long term disability coverage because she relied on the alleged misrepresentations in the Termination Letter. Thus, she did not pursue alternate coverage to her detriment. The claim therefore survived the motion to dismiss.

Damiano’s claim, and the plaintiff’s claim in Lauga v. Applied-Cleveland Holdings, Case No. 16-14022 SECTION: “H”(3), 2016 U.S. Dist. LEXIS 173464 (E.D. La. December 15, 2016), which was referenced in my December 16 post, would have been difficult to pursue prior to the Supreme Court’s decision in CIGNA Corp. v. Amara, 563 U.S. 421, 440 (2011).  Now, however, some ERISA plan participants potentially have better options for seeking redress because of plan fiduciaries’ bad behavior.  Like Lauga, it will be interesting to see how Damiano progresses through the courts.

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